Thailand's battered hotel sector is showing increased signs of fatigue as the global pandemic enters its third year. Nowhere is this more apparent than in Phuket, where over 73% of new hotel developments either lie dormant or have been put in hold, according to the Phuket-based consultancy C9 Hotelworks.
Owners are now suffering from a "fear factor" in light of a volatile marketplace and unclear future outlook. Negative sentiment and stressed liquidity have affected development, with an incoming supply of 33 hotels with 8,616 rooms facing an unknown future, C9 Hotelworks says in its "Phuket Hotel Market Update 2022".
Looking at properties in the pipeline, C9 found that 55% of the hotel projects are mixed-use, or hotel residences with rental-based investment schemes that target individual investment buyers. Given the prevailing economic climate, some of these real estate-led hospitality projects are unlikely return to the pipeline.
While glossy tourism campaigns that focus on quality versus quantity are the new mantra across the country, reality bites hard on an island that went from hosting over 9 million passenger arrivals at Phuket airport in 2019 to just over 900,000 in 2021.
The sizeable 90% decline, coupled with the fact there are already 1,786 registered tourism establishments and 92,604 hotel rooms in Phuket, mean empty beds that need tourists.
"Over 40% of the island's international visitors two years ago were either from China or Eastern Europe including Russia," said C9 Hotelworks managing director Bill Barnett. "While I'm asked daily about when will Phuket recover, the truth of the matter is we are pushing out our estimates of a cyclical return to 2025.
"The elephant in the room for the moment is China. The conundrum is that while I fully expect Phuket's stabilised numbers to return given its favourable geographic location, tourism-oriented infrastructure and demonstrated airlift capacity, macro-political and economic issues are clouding the short-term horizon."
Phuket led all of Southeast Asia in carrying out widespread vaccinations and the pioneering Sandbox tourism re-entry programme. But a look at the current situation, which features a return to seasonal patterns and the departure of winter "snowbird" travellers, the island is now looking for replacement markets.
As other regional neighbours such as Vietnam, Indonesia and the Philippines roll out quarantine-free travel, Thailand remains in an uncompetitive situation given its beleaguered Test & Go process, according to C9 Hotelworks.
Hoteliers in Phuket have been quick to address damage control from the Russian invasion of Ukraine, but in any case most of the Russian market falls away in March historically. Three notable source markets that are ramping up flights to Phuket are Australia, India and the Middle East, and these remain bright spots, though none have demonstrated the traffic volumes to match the mass Chinese market.
While Phuket's tourism-dependent economy has survived the first two years of the pandemic largely intact, "the remainder of 2022 and beyond is already seeing a rapid escalation of hotels coming up for sale", said Mr Barnett.
"Most of these are not at highly distressed levels but what it indicates is that legacy investment sentiment in hospitality assets is experiencing a changing of the guard. The number of Thai hotel owners and also foreign investors that are retreating from the sector is expected to grow."
Mr Barnett said the slowdown in the pipeline and high activity in the transaction market "is not an entirely bad thing and will likely reframe supply and demand over the medium term in a return to a more solid, rational and less speculative marketplace".
Another change in attitude for island hotel owners has been a wave of conversions of independent properties to brands, given that many of the highest-performing properties during the Phuket Sandbox reopening and growth in domestic travellers was to branded hotels.
Another outcome has been the conversion of a number of internationally managed properties from management agreements to franchises. This reality of owners operating under global brands and a new influx of "white label" management has been a trend that was coming anyway and has only been accelerated by the pandemic, according to Mr Barnett.
Despite the bricks-and-mortar reality of Phuket's tourism journey back to the future, the back story has been a large-scale exodus of hospitality and service staff from the industry. Given the many stops and starts, openings and closings of hotels and businesses, the shine of tourism's "Amazing Thailand" tagline has been lost on a generation of workers.
While business levels have continued to grow at moderate levels, staff shortages continue to plague the industry and perhaps the greatest challenge that lies ahead for Phuket hotels is regaining its greatest asset -- hotel staff to serve tourists when they eventually return.
That said, this same comment currently applies across all of Southeast Asia and the world, implying that doing more with less staff will have to be the new tourism norm.