|Bangkok hotels under pressure; 'Lowering rates not a solution'.|
Friday, 24th January 2014
Source : HVS
HVS Bangkok Director Christian Pucher recently shared updates and counsel for the hotels in his locale: The protests that began in November 2013 have been taking their toll on hotels' performance amidst what would regularly be the high season.
Occupancies are said to be down by 20-40 % on average as travelers cancel or postpone their trips to the City. As the protests are localized to specific areas of the city, some hotels near the protest sites are feeling the impact considerably more than others.
“Past conflicts have shown that the market is resilient and that occupancies tend to recuperate to normal levels within three to four months of conflict resolution. As the situation prolongs over time, the immediate threat is that some hotels will be challenged to meet their financial obligations, which in turn would have a short-term negative impact on employment in the Bangkok hotel market,” explains Pucher.
“The long-term threat lies in the reduction of market- wide average hotel rates. As the situation normalizes, hotels will need to make efforts to help bring back business, through tactical promotional offers - targeted and limited to a period of time.. However, during and after previous crises, the market had reacted differently, in that rates were actually dropped across the board rather than launching temporary offers.”
“It is very hard to rebuild rates once they have been lowered, affecting returns over a longer period,” adds Pucher.
Over the past eight years, Bangkok hotel performance has suffered as a result of several political conflicts, flooding, as well as the slow recovery of the global economy. These conflicts have had a direct negative effect on hotel occupancies as visitors have deferred their travel plans to the city.
Additionally, hotel rates have been largely stagnant or even depressed over the last few years through a combination of all of the preceding factors - global economic slowdown, political unrest in the region, increasing appeal of other neighboring cities, and stiff competition induced by an augmentation in supply which is set to continue for the next few years.
Additionally,, with a surge in real estate prices, escalating construction costs, as well as higher operating costs-returns on hotel investments have become less attractive.
“While the overall economic and political scenario has had an impact on multiple industries and sectors across the spectrum, it is important to remember that the hospitality industry is cyclical in nature and is typically one of the first to rebound, post downturns and crises.,” explains Pucher. “Hence, despite the prevailing issues, Bangkok remains and will continue to grow as an attractive destination for tourism and particularly the Meetings, Incentives, Conferences, Exhibitions/Events (MICE) segment, which has driven occupancies and contributed to overall growth, since 2012.”
With the upcoming launch of the ASEAN Economic Community (AEC) in 2015, tourism will continue to grow as will investment from member countries into Thailand, which will drive corporate, transient and MICE business. Furthermore, Bangkok has the opportunity, through its overall offering, to emerge as one of the top global destinations for MICE.
An increase in MICE business would help the much needed growth in average rates, however becoming a global MICE destination will require a collaborative effort; hotels will need to work more closely with one another as well as with national organizations such as the Thailand Convention and Exhibition Bureau (TCEB).
HVS is the world’s leading consulting and services organization focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries. Established in 1980, the company performs 4500+ assignments each year for hotel and real estate owners, operators, and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a network of more than 30 offices and 450 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. Visit www.hvs.com.