Hotel Developments
in full swing again

After a two-year slump post-9/11 and one of the worst three-month periods in the industry's history, hotel activity is in full swing again, heralding renewed confidence in the Thai travel and tourism industry.
There are renewed signs of life in Bangkok’s city centre, with many developments under way. Additionally, at the Chao Phraya River, a long abandoned property originally to have been developed as a Sofitel, has undergone a debt restructuring and is likely to be resuscitated.

Serviced apartments are attracting considerable interest. The Marriott recently opened one such property in Bangkok and other groups are looking more closely at opportunities.

These developments highlight one of the major trends of the past year, the growing internationalisation of Thai resorts. The move by the global hotel chains into Hua Hin, Phuket, Krabi and Pattaya is certain to be carefully watched to assess its impact on locally-owned hotels.

While these groups will give resorts more marketing exposure and raise professional standards, they will also affect the non-affiliated hotels, which could find themselves facing staff departures and higher costs, as they are forced to upgrade to match the quality of the big players.

It will also challenge the global hotel groups in terms of their relationship with local owners.

Average length of stay of international visitors in 1997-2002

Property developers are showing renewed interest in the Eastern Seaboard region, as it becomes a major centre of automotive assembly plants. The upcoming opening of the new Suvarnabhumi airport will also make the Eastern Seaboard and Pattaya region much more easily accessible, thanks to the Chon Buri motorway.

The inauguration of Bangkok Airways flights to Trad province, as a stepping stone to the island resort of Chang, has opened up opportunities for increased hotel development in that area, too.

All this heightened hotel activity is being reflected in the classified advertising sections of Thailand’s English-language newspapers, where situation-vacant ads by hotels are appearing daily.

It is also giving a much-needed shot in the arm to an industry which has suffered one of its worst second quarters in history, due to the war in Iraq and the SARS crisis. The slump was particularly bad because the April-May-June is in any case the beginning of the six-month low summer season, when arrivals from Europe decline.

According to preliminary figures released by the Thai Hotels Association, average occupancies of THA member hotels plunged from 80% in February to 43% in April, the first month of the second quarter. Northern hotels saw occupancy fall from 63% to 44% and Phuket hotels from 73% to 64%.

This forced many hoteliers to go into drastic cost-reduction mode, including slashing back on marketing expenditure and partial closure of properties. Staff lay-offs were kept to a minimum.

Least affected were Northeastern hotels, where the average occupancy anyway hovers around 30%, mainly due to low demand, though that may change in future as new bridges open up over the Mekong River and additional border checkpoints with Laos make that part of the world increasingly prominent on the cross-border Mekong tourism itineraries.

As this issue of the Thailand Tourism Review went to print, The Stock Exchange of Thailand was releasing the second quarter (2Q) earning results of some of the publicly-listed hotels. It did not make for pleasant reading:

Royal Garden Resorts reported a 2Q net profit of 24.5 million baht, down from 122 million baht in 1Q 2003 and from 43.7 million baht in 2Q 2002. This was in spite of a huge cost-cutting programme that saw expenses being slashed from 192 million baht in 1Q to 129 million baht in 2Q. April and May were worst hit, the hotel said, adding that initial results from July indicate that the 3Q 2003 should compare positively with the previous year.

The Oriental reported a 2Q loss of 45 million baht, down from a profit of 49 million baht in 1Q. Earnings per share fell from 12.39 baht in January-June 2002 to 5.06 baht in January-June 2003.

Rajdamri Hotels, owner of The Regent of Bangkok, said its net earnings in 2Q 2003 fell to 7.24 million baht, a 86.9% decline over the same period in 2002. In total, net earnings for the first half of 2003 were down 51.4% to 55 million baht.

The Royal Orchid Hotel, owner of the Royal Orchid Sheraton, reported a 2Q net loss of 15.6 million baht, down from a net profit of 25.3 million baht in the first quarter of 2002. Total net profit for the full first half fell from 104.1 million baht in 2002 to 34.3 million baht in 2003.

Even as the industry recovers, a major future problem will be the imbalance in hotel development nationwide.
According to Tourism Authority of Thailand (TAT) figures, the total number of rooms in Bangkok rose only slightly from 80,691 to 81,184 between 2000/2002.

One neglected area has been North Thailand, where the total room-count has actually shrunk significantly from 46,557 in 2000 to 40,940 in 2002. It is hoped that the renewed government emphasis on promoting Chiang Mai and Chiang Rai as northern economic and aviation hubs, with strong airline linkages to the neighbouring areas of the Greater Mekong Subregion, will revive investor interest in that part of the world.

However, South Thailand has seen spectacular growth with the room-count rising from 74,819 in 2000 to 95,871 in 2002. The Phuket room-count has risen from 19,574 to 26,367 in the same period, and in Samui, from 9,192 to 9,870.
Other southern destinations, like Hat Yai and border areas like Su-ngai Kolok, have seen no growth. Ditto the Northeast region.

Meanwhile, in a surprise development, the Peninsula Bangkok, which only opened in 1998, was this year voted by readers of the glossy travel publication, Conde Nast Traveler, as the Best Hotel in the World, dethroning the long-standing reigning champion, The Oriental, which fell to 10th place.

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