Thailand hoteliers lament overdevelopment, rate drops

THAILAND Dropping rates to fight Bangkok’s low hotel occupancies and airline load factors is a failed strategy, but Thailand seems doomed to repeat its history of pricing mistakes due to a myriad of issues, according to several local tourism leaders.

During a seminar last week hosted by Pacific Asia Travel Association, executives of Thailand-based tourism organizations lashed out at foreign competitors, criticizing them for dropping rates so dramatically in the face of Thailand’s political instability that the country’s tourism brand has been badly damaged abroad.

“As soon as crisis hits, some overseas tour operators behave like vultures trying to make money out of it,” said Luzi Matzig, group CEO of Bangkok-based tour operator Asian Trails. Matzig said it is common practice for some overseas operators to use strong-arm tactics to negotiate a 50% decrease in rates, pocketing 20% of the difference and only passing on a 30% discount to the paying customer. Jim Reed, CEO of Destination Asia, said that such operators do not deserve the name of so-called “friends of Thailand.”

Overdevelopment is a problem for the hotel industry across Thailand, says Dusit International CEO Chanin Donavanik. He said that too many business families in Thailand see hotel development as prestigious, building properties and then incurring huge losses as rampant room over supply cripples yield. “We have investors that don’t know what they’re doing,” he lamented.

Approximately 7,000 guestrooms are expected to be added to the Bangkok market in 2011, not including serviced apartments. “Lower rates are here to stay for a while. There are hotel owners who do not have a long-term life left,” said Chanin, the former president of the Thai Hotel Association.

Starwood Hotels & Resorts is planning to open six hotels in the next six months in Thailand, but overdevelopment has lowered Starwood’s profit expectations dramatically, says Wayne Buckingham, vice president and area managing director for Thailand. Buckingham advised investors to take a long-term view and increase rates more abruptly in the good times to have a cushion for low demand periods. He admitted that Thailand’s hotels were under a lot of pressure to comply with price cuts if they want brochure space.

The gathered travel experts said the situation is particularly dire in the northern resort area of Chiang Mai, where some hotels have occupancies of less than 10%. “There are hotels up there with a huge number of keys waiting for something to happen to the destination,” Buckingham said. “Five or so years ago Chiang Mai hotels made profit for three months a year.”

Reed claimed that too many hotels in Thailand in a crisis drop rates just because other hotels are doing it, suggesting it is an unthinking knee-jerk reaction and a mistake that costs millions of dollars. In response, Buckingham said: “One secret of negotiation is to find what the customer really wants. Often it’s not price. He just wants to be listened to.”