Operators of budget hotels on Koh Samui are facing hard times.
Although the island has been successful as a high-end destination for leisure, honeymoon, wedding and incentive markets, two- and three-star hotels are facing difficulties.
These hotels, run mostly by local operators, have struggled since the number of European tourists fell considerably.
Average occupancy of these hotels was 50-60% in the last high season compared with 70-80% in the past.
The Koh Samui Tourism Association predicts the average occupancy rate for two- and three-star hotels will bottom out in the coming high season.
The situation is worsening because foreigners owning houses and villas are offering attractive rental prices. Serviced apartments are also competing on price.
The average monthly rent of houses and villas is 10,000 to 30,000 baht. Serviced apartments are only 800 to 1,200 baht a night.
To deal with fierce competition, two- and three-star hotels must cut their room rates by 10-20% to between 500 and 2,500 baht a night, association president Senee Phuwasetthaworn said.
He said there were about 20,000 hotel rooms on Koh Samui, of which 6,000 to 7,000 were in unregistered hotels such as serviced apartments and weekend houses.
In the past, hoteliers depended mainly on European travellers, who accounted for almost half the foreign visitors to Koh Samui. But the Russian market dropped by 50% in the last high season.
"It's not possible to focus only on the high-end market, as there are still a lot of low-end hotel operators on the island," Mr Senee said.
He said although the number of Chinese tourists had increased, their average length of stay of five days could not offset the decrease in European travellers.
The association expects tourist arrivals to Koh Samui by air will increase by 10% to 1.2 million this year — 800,000 foreigners and 400,000 Thais.
It is teaming up with the Phuket Tourism Association and the Tourism Authority of Thailand to organise a roadshow about Koh Samui in Australia.