COLLAPSING RATES AT BANGKOK HOTELS
Thailand Hotel Rate Debate Raises Awkward Issues
BANGKOK, 5 August 2010 – 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.
These were some of the insights revealed by travel industry leaders with long and bitter experience in Thailand's travel industry price wars. They were addressing a debate entitled, "Rates Versus Value: Are We Going Off the Deep End?" organized by the PATA Thailand Chapter, 28 July in Bangkok.
Luzi Matzig, Group CEO of Bangkok-based Asian Trails, told the debate audience of 70 travel industry professionals gathered in a special meeting zone of Siam Ocean World: "As soon as crisis hits, some overseas tour operators behave like vultures trying to make money out of it."
Matzig said it was common practice for some overseas operators to use strong arm tactics to negotiate a 50% decrease in rates. They then pocket 20% and only pass on a 30% reduction to the paying customer.
Jim Reed, CEO of Destination Asia told the audience such operators did not deserve the name of so-called "friends of Thailand".
Chanin Donavanik, CEO of Dusit International, complained that too many business families in Thailand see hotel development as prestigious. They build properties and then incur huge losses as rampant room over supply cripples yield. "We have investors that don't know what they're doing," he lamented.
Chanin, the former president of the Thai Hotel Association, told the audience that 7,000 hotel rooms would be added to Bangkok in 2011, not including serviced apartments. "Lower rates are here to stay for a while. There are hotel owners who do not have a longterm life left," he said.
Wayne Buckingham, VP and Area Managing Director (Thailand) for Starwood told Chapter members that his company would open six hotels in the next six months in Thailand. Forecasts of predicted returns have to be revised all the time, usually down the way. Business plans for hotels today are less lucrative than plans created 10 or 20 years ago when there was much less supply, he said.
Instead, Buckingham said that investors should 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 wanted brochure space. He said he didn't mind being flexible on rates. "But not without commitment from you [an overseas tour operator] to do something in return, such as help with allotment of rooms, for example, in Singapore."
The gathered travel experts said the situation was particularly dire in Chiang Mai, in Thailand's north, 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," said Buckingham. "Five or so years ago Chiang Mai hotels made profit for three months a year." He implied that even that was now under threat.
The speakers criticised the state of emergency decrees that still apply in Bangkok and parts of Thailand, following the political unrest in May.
"Lift the state of emergency," pleaded Matzig. "The Government doesn't realise how bad it hurts our industry....It would reduce the number of travel advisories out there."
Chaladol Ussaman, CEO of CBS Travel Asia, noted that some of Thailand's competitors had internal security acts in place. "It's the same as a state of emergency, but nobody knows about it," he said.
Reed claimed that too many hotels in Thailand in a crisis drop rates just because other hotels are doing it. He suggested it was 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."
Buckingham said there was often intense pressure from hotel owners to generate cash flow. But he concluded: "If your rate strategy is not delivering volume, drop the strategy."
PATA Thailand Chapter Chairman, Mr Bert van Walbeek, told the audience that the Chapter would organise other issues and insight events on tourism in Thailand in the coming months.
Comments
Most intelligent tourism and hospitality industry profesionals are well aware that unsustainable discounting is a failed strategy. As I have explained in recent tourism risk and recovery conferences in Malaysia and Australia, consumers love travel businesses to perform the financial striptease when hotels, airlines, tour operators and other businesses drop their prices and expose their bottom lines.
The big problem with this strategy is that once those businesses want to get dressed again and raise their prices to sustainable levels they encounter consumer price resistance. Over devades the tourism industry has encouraged an attitude among consumners that if they wait for the right time , prices will drop and in many ways we are responsible for consumers believeing that in tough times, consumers can always beat us down on price. The only possible circumstance in which a discount based strategy may be justified is if operates for a very short pre-announced period and may come with conditions such as pre payment and strict cancellation conditions.
The tourism industry really needs some urgent treatment to fight its addiction to discounting as a solution to all negative situations. This is as true for Thailand as it for any other destination which is trying to incentivise travellers to return after a period of difficulty.
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