Bangkok hotels face long road back

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The high-end segment of the hotel market in Bangkok is dominated by four-star properties. The occupancy rate in this segment was already dropping in the second half of 2019.

Bangkok hotels face long road back

Market was already showing signs of a slowdown in late 2019 before Covid-19 hit, reports Edmund Tie & Company

The hotel market in Bangkok was already cooling down late last year, even before the Covid-19 pandemic left thousands of rooms empty, according to statistics compiled by the property services firm Edmund Tie & Company (Thailand).

Both occupancy and average daily room rates of four- and five-star properties in the capital declined year-on-year in the second half of 2019, even as international tourist arrivals headed for a record 39.8 million. Revenue per available room (RevPAR), the key gauge of hotel performance, fell by even more as operators stepped up discount campaigns to attract guests.

The high-end segment of the hotel market in Bangkok is dominated by four-star properties with 59% of all rooms. The number of four-star rooms last year rose by 4% from 2018, while five-star hotel rooms increased by 1.4%.

The largest concentration of hotel supply is in the Sukhumvit area with a 37.1% share of all room supply, followed by the central area at 26%. Total room supply in the Silom-Sathon area accounted for 15.8%, followed by the riverside area at 15%.

During the second half of 2019, hotel room demand was affected by various local and international factors. Given that the world economy was weakening and people were spending more cautiously, some travellers were switching their destinations from Thailand to other countries such as Macau, Vietnam and Laos.

The strength of the baht against the yuan was one deterrent to Chinese travel to the country. The Association of Thai Travel Agents (Atta) reported the number of Chinese visitors handled by its members through Suvarnabhumi and Don Mueang airports dipped by 2.1% year-on-year to 3.12 million.

The average occupancy rate of five-star hotels in Bangkok was 80.3% in the second half of 2019, down from 84.4% in the same period of 2018. The four-star occupancy rate dropped to 77.3% from 82.1%.

Amid weakening economic sentiment and the strong baht, hoteliers in Bangkok began offering more attractive packages, such as price discounts and special privileges. The average room rate was 8,978 baht a night for five-star hotels, down 3.7% from a year earlier, and 4,563 baht, down 5.4%, for four-star properties, an Edmund Tie survey found.

Average RevPAR for five-star hotels in the second half of 2019 decreased by 8.3% from the same period in 2018, while the decline in the four-star segment was 10.9%.

If hoteliers in the capital were hoping to see a pickup in 2020, their hopes have been crushed by the Covid-19 pandemic, which has brought international travel to a standstill. According to Atta, international tourist arrivals at Suvarnabhumi and Don Mueang airports had already fallen by 16.9% year-on-year on January, followed by plunges of 76.7% in February and 91.2% in March. A total ban on incoming flights in April, May and June has made the situation even more dire.

Hotels in some parts of the country have just begun to open their doors this week after a lengthy shutdown. But it is still not clear when international travel to Thailand will resume, and how willing people will be to travel. Without individual foreign visitors, tour groups and Mice customers, it is expected the average occupancy rate of Bangkok hotels will decrease by 30-40% this year compared to 2019.

The average room rate in the five-star segment is forecast to drop by 12-20% year-on-year, with four-star rates falling in the range of 15% to 25%. However, bookings are expected to gradually revive in the fourth quarter with the partial return of tourists from China and Japan.

To prevent a return of the coronavirus, countries including Thailand are expected to impost strict measures on foreign travellers once inbound flights resume. Many countries are looking at creating a “travel bubble” limited to nearby countries that have managed to contain Covid-19. Flights from higher-risk countries would continue to be banned.

Some new hotels that were scheduled to open in the first half of 2020 are postponing their openings to late in the third quarter, based on the expectation that some international tourists will resume their travel plans.

A more pessimistic view holds that if the Covid-19 crisis persists until the end of 2020, some new and independent hotels that lack strong financial backing will experience serious financial problems. More hotel takeovers could be seen in the medium term as a result.

Given Thailand’s favourable geographic location as well as the incentives promoted by the Board of Investment, some key hotel groups will partner with industrial estate providers to develop hotels and serviced apartments in industrial estate areas to attract expatriates from Japan, China and other countries that plan to relocate their manufacturing base to Thailand.

Demand in the Bangkok hotel market is expected to start recovering in the final quarter of 2020, but a full recovery may take until late 2021, assuming the pandemic is completely resolved in all countries that have been affected.