Phuket Hotels Lose US$300 Million In Rate Plunge

Industry-wide discounting by Phuket hotels cost the industry on the island US$300 million in room revenue in 2009, according to the Phuket Hotel Market Update report compiled by leading Thailand consultancy C9 Hotelworks.

Room rate cuts averaged 20% across the board last year, leading to the loss compared to 2008 room revenue. Despite tourism arrivals rebounding back to 2007 levels, a key blow to fundamental hotel metrics hit profit margins.

C9 Hotelworks Managing Director Bill Barnett, author of the report, said "the 2 P's - pricing and pool villas - represented dynamic drivers as average room rates and revenue available per room (RevPAR) declined.

"Bottom lines have been hit as hoteliers scrambled to induce demand and meet increasing consumer pressure for lower rates. Virtually every chain scale tier was affected with the exception of the budget and economy segment," Mr Barnett said.

The Phuket Hotel Market Update summarized that 2.9 million tourist arrivals visited Phuket in 2009 with a island-wide average occupancy of 64%. Average rates and revenue per occupied room slumped by 20% and 22% versus 2008.

Investment has been hit with the suspension of significant projects due to economic and political concerns shrinking 19% of the new hotel supply. The pipeline now has 31 properties set to open over the next three years representing 4,600 rooms and equates to a 12% rise over the existing market.

"Our research points to a positive upward trend in 2010, pairing a growing critical mass of hotels and demand drivers to capitalize on the global upswing. More Asian airlift and increased spending power from feeder markets maintains potential, while hotel oversupply could undermine long-term fundamentals if not addressed," Mr Barnett added.

"As Thailand continues to recover from the political driven events of late 2008 and early 2009, market confidence remains cautiously optimistic."

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Bill, great article! I enjoyed this highly insightful, well-written, and professionally laid-out research piece.

I tend to agree with John (who commented above) that Phuket may attract a wrong kind of tourists. Am hopeful that the local or even the central government will take this matter seriously and try to rectify it.

Based on my limited knowledge, I believe that change in taxes and landholding laws, combined with government's effort to promote Thailand as a safe / high-end travel destination, will help the image of Phuket tremendously. For example, we have an astronomical import tax for luxurious items; hence, HNWs would choose to live somewhere else where they can purchase their ferrari, yatches, cigars, wine at a substantially lower prices. Additionally, Thailand has a problem with landholding laws which prohibits foreigners from buying a freehold land (even I, as a Thai, believe that they should relax this laws to spur foreign investments in Thailand).

Singapore's sentosa sets a good example on how Phuket can be developed. Recently, Sentosa sees the completion of Universal Studio and a high-end casino. With these two attractions in full operation, I believe that Sentosa (and Singapore) will pose a strong competition to Phuket as another attractive tourist destination in SE Asia. Although targeted segments may be different for these two islands, but who knows?

Wit, 03 Feb 2010 | 2:49 pm

Sorry to trouble you again. Where can I download copy of the report listing all of the hotel projects? Can you please give the download link? Thanks.

Just a comment to John Davenport's response. Yes, the way Phuket develop is scary, not economical prosperity but social ills. Mass tourism will bring horrible damage to Phuket. The locals are poors so they would easily succumb to tourism money. I first came to Phuket 50 years ago when it was really a paradise on earth. Ask any guy who have been here for more than 30 years and they will tell you how sad they see Phuket now.
Bill Barnett responds:
www.c9hotelworks.com look under the research section there is a download available.

Sint, 03 Feb 2010 | 11:33 am

PHUKET BEWARE, I COULD SEE THIS COMING, YOU ONLY HAVE TO LOOK AT WHATS HAPPENED TO SPAIN AND ITS SMALLER ISLANDS SIMILAR TO PHUKET, IE. MAJORCA,IBIZIA, CANARY ISLANDS, TENERIFE ETC.

YOU ARE ALSO RIGHT IN YOUR GAZETTE ARTICLE ABOUT TOURISTS THAT ARE COMING HERE, BUT ALSO REMEMBER HIGH END TOURISM ONLY ACOUNTS FOR A SMALL PERCENTAGE OF INCOME. PHUKET IS GETING LIKE PATTAYA NOW AND IN THE NEAR FUTURE PATONG WILL BECOME A SLUM TOWN. MAYBE ITS TO LATE, I HOPE NOT. NO EASY ANSWER BUT WOULD BE GOOD TO TAKE A LOOK AT TENERIFE, THERE PATONG IS CALLED LAS AMERICAS, 30 YEARS ON THEY HAVE REBUILT IT. HOPEFULLY REALISING THEIR MISTAKES.I BLAME A LOT ALSO, ON A LOT OF WESTERN COMPANIES WHO COME TO THAILAND WITH THERE BIG IDEAS WITHOUT REALLY UNDERSTANDING THE COUNTRY OR THE POEPLE. ALSO THE SO CALLED EXPERTS THEY SEND WITH THEM,MAYBE THEY ALL NEED AN APRENTICESHIP BEFORE THEY ARE LET LOOSE. ANY IDEAS?

JOHN DEVENPORT, 26 Jan 2010 | 10:52 am

Bill, how can I obtain details of investors who want to build 31 properties/4,600 rooms over the next three years? Thanks/Sint

Bill Barnett responds:
There is a download copy of the report listing all of the hotel projects on the site names and locations, from there you'd need to research the developers contacts.

Sint, 26 Jan 2010 | 10:51 am