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Executive Talks

Executive Talks: Thailand’ tourism’s waning confidence needs steady nerves

Andrew J. Wood  Jun 23, 2008

Thailand’s tourism industry faces a testing time. With Thai economic fundamentals taking a beating and a potentially weaker baht, what’s in store for the Thai tourism sector?

Negative news abounds with daily predictions on the price of oil; increasing food prices; natural disasters and political nervousness. Will this impact Thailand’s long-haul traffic and domestic travel, also negatively?

I believe the Thai tourism industry is at an important junction. How the Thai government handles the increasing dissatisfaction of higher prices and the public’s lack of confidence will be tested by how quickly they can demonstrate that people’s daily lives are set to improve.

It’s a difficult task and will need great leadership with a focus on the country before self. However many political observers believe that this is not possible with the current administration.

The most immediate effect of rising oil prices is that fewer people are traveling. A recent industry report suggested that global air traffic was down and fewer trips are being made compared to a similar period last year. The need to travel is being closely scrutinized. Add to that the economic woes of airlines facing as much as 50 percent of their costs just to pay for fuel and a shrinking customer base. THAI International (TG) recently canceled their direct flights to New York and reduced their Los Angeles to Bangkok schedule from daily to just five times per week. There will be much more of the same and even closures.

A respected industry source has indicated that airlines have huge outstanding airport, fuel and landing fee charges at Thailand’s Suvarnabhumi Airport. Airlines are struggling with cash flow. More airlines will face a cash critical situation within weeks. National papers have already been reporting the potential closure of Nok Air, due to massive losses. The low budget airline is a sibling of THAI.

The weak will fall by the wayside, but the strong will trim back. Fewer routes, fewer choices and most likely higher prices. Not a healthy situation for an industry that relies so heavily on aircraft to transport tourists, with 80 percent arriving by air.

Rising oil prices not only means rising costs but rising inflation. Vietnam and India have Asia’s highest inflation rate. Vietnam tops the list at 25 percent. Further pressure to float the dong could lead to a devaluation that will have an impact on Thailand and Southeast Asia.

The baht, Thailand's currecny, is losing its shine, a weak dollar has created a strong looking baht but look carefully at the baht/euro rate and the baht has weakened 8 percent in 3 months. Difficulty in obtaining quotes on forward baht buying has left a few to speculate that a significant correction is possible. Good news for Thai tourism and exports, but puts even greater inflationary pressure on the government as the price of imported goods rises.

Food prices are becoming a global worry. Food for fuel and shortage of rice are grabbing headlines. Hom Mali rice, the famous fragrant Thai rice, has risen last year from around Bt 900 ($28) per sack (50kgs) in late 2007 to Bt 1850 ($58). Chicken and pork have also risen. Pork by as much as 50 percent compared to last year. The net result, higher costs, not only for domestic consumers but also tourists.

Pay, energy and cost of raw materials, across the board are rising. The ingredients in the economic cooking pot are looking set to boil over. How the government cools things down is going to be important in the short term. OPEC need to take a lead, but are they willingly to increase output? Many think not. With $250 per barrel oil being forecast, producers of all rare commodities, can expect healthy profits, but at what cost? The people of the world’s poorer nations are becoming more vulnerable as food becomes scarce and prices rise.

And what of the government? This writer has never been more worried that the country is facing a deadlock of bi-polarised interest that will challenge the most skilled politicians. The People’s Alliance for Democracy (PAD) and the democratic opposite party have little in common with the ruling coalition lead by People Power Party leader and Prime Minister Samak Sundaravej. Thankfully much of the posturing is done without the knowledge of visiting tourists, however the country is facing an uneasy time and very few initiatives to solve current economic woes are forthcoming from a government who are so focused on re-writing the constitution, to allow former friends and politicians back into power.

But what are the bright spots? The Tourism Authority (TAT) is still upbeat that they can reach their target this year of 15.7 million visitors with China, India and medical tourism helping to boost numbers. And maybe we will, but as former Tourism Minister of D. Suvit Yodmani so rightly identified, quality not quantity maybe a more productive goal for our national tourism authority.

With an expected 20,000 new hotel rooms coming on line in Thailand by 2011, the pressure for more visitors to fill these new rooms will be high from hotel owners. The good news for agents and tourists… it should keep hotel prices competitive for years to come.

Andrew J. Wood is a member of eTN ambassador program. He is the general manager of Chaophya Park Hotel & Resorts and holds several designations at Skal International.

Executive Talks:  Thailand’ tourism’s waning confidence needs steady nerves
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