HOTEL INDUSTRY THAILAND INDUSTRY OUTLOOK Overview. August 2018 Puttachard Lunkam

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1 THAILAND INDUSTRY OUTLOOK HOTEL INDUSTRY August 218 Puttachard Lunkam In line with broader trends in the tourism industry, the hotel sector is expected to see solid growth over the three years between 218 and 22. It is forecast that over this period, foreign tourist arrivals will increase by an average of 8-1% per year, while domestic tourism will rise by an annual average of 5-7%. This will help to keep the hotel occupancy rate in the range of 68-7%, compared to the average of 68.7% recorded for 217. Operators will tend to increase investment in hotels, and this will take place in: (i) the major tourist destinations, with investment largely unfolding according to the plans of large players in the sector, both Thai and foreign; and (ii) regional centers and other tourist destinations and secondary provinces that are benefiting from increasing connections within regional economies. For operators, the business competition would continue to be intense, which is being fed by an increasing number of rooms becoming available from alternative providers of temporary accommodation, such as apartment and condominium buildings that are offering daily rates. Overview The hotel business is directly affected by that of the wider tourism sector. As regards the latter, information from the World Travel & Tourism Council 218 indicates that tourism contributes 1.4% of global GDP, though in the case of Thailand, this rises to around 2% of national GDP, with the sector generating THB 2.76 trn for the domestic economy in 217. The tourism value chain is distributed across the various regions of Thailand and extends beyond hotels and accommodations to include a number of other businesses, including those in the food and beverage and transport sectors. Overall, it is estimated that 4-5 million people in Thailand depend on tourism for their livelihood (Source: Ministry of Tourism and Sports). Thailand is considered one of the world s foremost tourist destinations, and this is partly because of its wealth of tourism attractions. These are spread throughout the country but include most notably Bangkok, which consistently wins tourism awards, the seaside and beach destinations in the south and east, and the eco-tourism travel options offered in the north. In addition, the country benefits from the competitive pricing of its accommodation and low cost of living which, provides considerable value for money. Beyond this, the transportation network become more convenient along with constantly upgraded infrastructure, and these factors help to give Thailand an advantage over its competitors, especially those in the Asia-Pacific region. Indeed, the 217 Travel and Tourism Competitiveness Index, compiled by the World Economic Figure 1: Travel & Tourism Competitiveness Index (217) Overall score (13) Source : WEF Note: (Global Rank 217) (26) (34) (42) (67) (79) (94) (11) Table 1: Travel & Tourism Competitiveness Ranking Room rates and tourism s natural resources -- Strong points of Thai tourism compared to competitors Countries Hotel Price Hotel Rooms Natural Tourist Service Index (number/1 pop.) Resources Infrastruture * Thailand Malaysia Singapore Hong Kong Vietnam Source: WEF (The Travel & Tourism Competitiveness Report 217, survey from 136 countries) Note: Tourist Service Infrastructure consists of 1) hotel rooms 2) quality of tourism infrastructure 3) presence of major car rental companies 4) ATMs per adult population 1

2 Thailand Industry Outlook Hotel Industry Forum, places Thailand 34th out of the 136 countries surveyed and 3rd in South-East Asia, after only Singapore and Malaysia (Figure 1). Relative to other countries in the Asia-Pacific region, Thailand gains in particular from having the highest quality natural resources in the area (Table 1). Considered in terms of the demand side, foreign tourists comprise the most important group for operators in the Thailand s tourism sector. Indeed, around 65% of the receipts to the sector comes from overseas tourists, who spend more per head and stay for longer in tourist accommodation than do domestic tourists. Within total foreign tourists, those from East Asia (China, Japan, South Korea, Hong Kong and Taiwan) are the most important, providing 4% of total receipts from overseas arrivals (Figure 2) and accounting for 4% of the total visitors (Figure 3). East Asia is followed in importance by Europe, which supplies 26% and 18% of the income and total visitors, respectively. As regards visitors from individual countries, in 217 China was the most important, accounting for 27.7% of all overseas arrivals (Table 2). Since 27, the number of Chinese tourists arriving in Thailand has increased more than ten-fold to the current level of 9.8 million arrivals annually, with Chinese visitors traveling to all the main tourist regions of Thailand (Figure 4). This explosive increase in Chinese tourism is a result of: (i) the relaxation of restrictions that had previously been placed by the Chinese government on their citizens traveling abroad (Chinese citizens are now able to travel to more than 14 countries); (ii) improving travel connections with China due to the growing number of direct low-cost airlines and improved land links, especially the R3A Thailand-Laos-Southern China route; (iii) the expansion of the Chinese middle class, driven by the rapidly growing economy (a 215 McKinsey report revealed that the middle class comprised 76% of the urban population, up from 22% in 25) and this group has the spending power necessary to support foreign travel; (iv) the release of the film Lost in Thailand, which was first shown in December 212 and then went on to become the first Chinese film to generate profits in excess of CNY 1 bn. The film was shot in Chiang Mai and between 213 and 216, a large number of fans of the film traveled to the city as a result of its success; and (v) a decline in relations between China Japan and South Korea in the past 2-3 years, which has encouraged some Chinese travelers to find alternative destinations. In addition to China, Malaysia is another important Asian market that has seen significant growth over the past several years. This is because Malaysia shares a border with Thailand and also because Malaysians generally have high spending power, but 1% 3% Figure 2: Share of International Tourism Receipts (by region) % 4% 1% 3% 5% 23% 15% 9% 38% East Asia ASEAN Europe The Americas South Asia Oceania Middle East Africa Source : Department of Tourism UK 3.8% India 4.1% South Korea 4.3 % Japan 7.1% Chiang Mai France 5.3% UK 5.4% USA 6.7% Japan 7.1% Bangkok Others 46.4% China 34.3% China 31.% Others 51.1% 1% 3% 4% 4% 7% Germany 4.8% India 5.3% South Korea 7.5% Russia 1.1% 4% UK 3.9% Germany 5.5% Australia 6.1% 26% Figure 3: Share of International Tourist Arrivals (by region) % 7% 28% 24% 27% Source : Department of Tourism 1% 2% 3% 5% 4% Table 2: Share of International Tourist Arrivals (Top 1) Russia 9.2% Pattaya Others 41.% 15% Rank Country 27 % share* 217 % share* 1 China 97, ,85, Malaysia 1,54, ,354, South Korea 1,83, ,79, Laos 513, ,612, Japan 1,277, ,544, India 536, ,411, Russia 277, ,346, USA 681, ,56, Singapore 64, ,28, UK 859, , Source : Department of Tourism Note: * % share of Thailand s international tourist arrivals 41% 18% East Asia ASEAN Europe The Americas South Asia Oceania Middle East Africa Figure 4: Foreign Arrivals at Accommodations (216) China 31.3% Phuket China 28.8% 26% Others 46.5% (Persons) Source : Department of Tourism 2

3 Thailand Industry Outlook Hotel Industry despite this, the Malaysian market began to soften in 217 because: (i) the Malaysian economy weakened and with that, the Ringgit lost value, pushing up the cost of travel for Malaysian travelers; and (ii) Thai officials made changes to the law, which prohibited vehicles used for public transport (especially busses and minivans) that are registered outside Thailand from traveling across the border without permission. Unfortunately, most Malaysian tourists had previously arrived in Thailand by land and so these changes made travel over the border inconvenient. However, at the same time, the number of arrivals from India expanded at double-digit rates for the three years of 215, 216 and 217, tourism between the two countries being supported by a growing number of low-cost airlines linking Thailand and second-tier Indian cities such as Ahmedabad, Kochi and Dehradun. Figure 5: International Tourist Arrivals (main market) million persons 1 5 Within the European market, Russia is now the most important single country and the Russian tourists has the potential to continue to grow due to: (i) the improving state of the Russian economy; (ii) unrest in the MENA zone, which has caused a switch in preferences from favoring travel to Turkey and Egypt to Thailand; (iii) improving air links between Russia and Thailand, in particular the expansion of the charter flight market (around 6% of Russian arrivals travel via charter flights); and (iv) support from the Thai government to promote tourism including promotion roadshows of Tourism Authority of Thailand and the bilateral agreement between Russia and Thailand which since April 27 has allowed for visa-exempt tourism between the two countries for periods of up to 3 days. When considering visitor arrivals from different countries and fluctuations in visitor numbers over time, an analysis of data relating to Thai tourism shows that while the East Asian markets (China in particular) are sensitive to events such as terrorism, outbreaks of disease, and natural disasters, arrivals from Europe and North America are more sensitive to economic factors. This may be partly explained by the fact that travelers from long-haul countries have to make their travel plans further in advance and so it is more difficult to make a change in their traveling programs Source : MOTS China Malaysia Japan UK Russia India 215 = 7.9 mn. 216 = 8.8 mn. 217 = 9.8 mn. Domestic tourism has also grown over the past decade, and although the rate of expansion has been adversely affected by the state of the economy and by political conflict within the country, between 26 and 216, growth averaged 6% annually, underpinned by: (i) continuous efforts to support tourism, including the government s introduction of tax measures and the private sector s cutting of the price of accommodation; (ii) the expansion of low-cost airline services and the upgrade and development of provincial airports, which has helped to increase travel between provinces; and (iii) improvements in the road network, easier access to tourist sites for those traveling by car. Although, as a result of domestic tourists lower spending per head and their shorter period of stay, domestic tourism accounts for only around 35% of the receipts for the entire tourism sector, Thai tourists nevertheless remain important for hotel operators and the tourism sector in minor tourist destinations such as Rayong, Chiang Mai, and Kanchanaburi, and in regional centers such as Nakhon Ratchasima, Phitsanulok and Khon Kaen. rooms Figure 6: Number of Room by Region Southern Northeastern Eastern Western Northern Central Bangkok Sources : REIC & Department of Tourism Note: (% share) 29% 11% 15% 6% 14% 4% 21% 3

4 Thailand Industry Outlook Hotel Industry This growth in tourism in Thailand has supported the continuing expansion of the hotel sector. In the past, investment typically went into the development of operations in Bangkok, as this was both the central tourist destination and the national travel hub, and in Phuket and Pattaya (in Chonburi province), world famous seaside destination, but to meet growth in tourism trade, over the past 5 years there has been an official policy to push through the development of international airports in tourist areas and in regional centers. As a result of this, investment in hotels has increasingly been directed to these provinces, including areas such as Chiang Mai, Krabi and Koh Samui (in Suratthani province). This expansion is continuing and since the turn of the millennium, the supply of hotel rooms has more than doubled from around 5, rooms in 212 to over 6, in 216 (Figure 6) or increased by 5.4% per year. This includes both hotels operated by Thai investors and those which are part of international hotel chains (Figure 7). Figure 7: Chain of Some Selected Large Hotels in Thailand Thai Hotel Chain International Hotel Chain Source : Collected by Naturally, hotel operators turnover is dependent on the total number of tourists looking for accommodation, their length of stay, and average daily rate. Income from room charges accounts for around 65-7% of all hotel income, with around a further 25% coming from food and beverage, though the percentage varies with the type of hotel (four- and five-star hotels will typically derive a greater portion of their income from food and beverage than will smaller hotels). Income from other sources, such as providing washing and ironing services and collecting rents from shops operating on hotel premises, will usually contribute a further 5-1%. % SARs & Gulf War II Sources : BOT & Department of Tourism Figure 8: Occupancy Rate Tsunami Subprime & Domestic Political Crisis Coup & Martial Law 4

5 Thailand Industry Outlook Hotel Industry For many years, expansion in the supply of hotel rooms has run ahead of growth in the number of tourists seeking accommodation and although players in the Thai hotel sector have adapted well to this situation, the market is still oversupplied in some areas. Between 21 and 27, the international and domestic tourists grew respectively by 6.2% and 7.4% annually but at the same time, continuing investment in the sector and the resulting large supply of rooms kept the occupancy rate at an average of 58.8% 1/ (Figure 8). Following this, from 28 to 214, although the international and domestic tourists was greater than that in (+7.5% and +8.5%, respectively) the number of factors conspired to hold back the market. These included the global financial crisis, the repeated outbreaks of political conflict within Thailand, and the growing supply of alternatives to regular hotel accommodation, including the entry to the hotel market of condominiums and apartments that have begun offering daily rentals. Together, these depressed the occupancy rate, which in this period averaged 56.8% per year. Table 3: Occupancy Rate by Location Occupancy Rate (%) Area/Location Bangkok Chonburi Phuket Petchaburi (Cha-Am) Chiang Mai Suratthani (Koh Samui) Rayong Prachuap Kiri Khan (Hua Hin) Krabi Trad Nakhon Ratchasima Tak Nong Khai Sa Kaew Nationwide Sources: BOT, Department of Tourism & REIC Following the passing of a number of different crises, conditions strengthened for Thai tourism and this has led to a rising national occupancy rate, although this remains under 7%. Between 215 and 217, the average occupancy rate was in fact 66.9%, though this varies according to the area and is highest in the major tourist destinations of Bangkok, Chonburi and Phuket, where it is over 75%, followed by secondary destinations such as Phetchaburi, Chiang Mai and Suratthani (Table 3). Situation In 217, the number of Thai and international tourists gradually expanded, supported by: (i) the potential of Thai tourist attractions and Thai tourism s unique characteristics; (ii) growth in the number of direct and charter flights, and of expansion in the number of low-cost airlines flying to Thailand, especially of Chinese carriers such as Xiamen Airlines, China Eastern Airlines, Juneyao Airlines and Spring Airlines; (iii) the improving Thai and international economies, and with regards to the latter especially of the American and European economies, which has strengthened the ability of consumers in these countries to spend on travel; and (iv) the rescinding of the red flag issued by the ICAO to Thailand and announced on its website 2/, which helped to rebuild confidence in the safety of Thai carriers. Domestic tourists rose in line with economic recovery. Therefore, this could buoy up the occupancy rate. 1/ For operators, a satisfactory occupancy rate is around 65-7% (according to interviews with hotel owners and an analysis of data from the Bank of Thailand). 2/ Thailand was issued with a red flag by the ICAO and this was then announced on its website. The red flag was in effect between June 215 and October

6 Thailand Industry Outlook Hotel Industry The situation and business indicators for the tourism sector in 217 are as follows. For 217, 35.4 million international arrivals were recorded, an expansion of 8.8% YoY, up from the 8.7% YoY growth seen in 216. The most important segment was East Asian tourists (i.e. those from China, Japan, South Korea, Hong Kong and Taiwan) and here, growth was higher at 11.6% YoY (Table 4). As stated above, with 9.8 million arrivals, Chinese tourists were the most numerous and comprised 26.9% of all international arrivals to Thailand (up 12.% YoY, the rate of growth itself up from 1.3% YoY in 216). China was followed in importance by Malaysia, South Korea, Laos PDR, and Japan. As for European tourism, the arrivals from Europe rose 5.4% YoY following the recovery of the Russian tourists, which saw very strong growth of 23.5% YoY on an improving Russian economy and an increasing number of direct flights between Russia and Thailand (Table 4). Total receipts from foreign arrivals came to THB 1.82 trn, an increase of 11.7% YoY. East Asian tourists contributed the largest single share of this, making up 4% of all sectoral receipts from the international segment and rising at the fairly sharp rate of 15.1% YoY. As elsewhere, Chinese tourists were the most important and receipts from them totaled THB 524 bn (+15.8% YoY). Receipts from European tourists increased at the slower rate of 8.6% YoY and here the most important country was again Russia, contributing receipts of THB 11 bn, up 28.7% YoY (Table 5). A total of 152 million trips by Thai tourists were recorded within the country in 217 (there thus being more than 1 trip per head of population). This represented growth of 4.4% YoY, down slightly from the 5.% YoY growth seen the year earlier, though the sector continued to benefit from the recovery of the Thai economy. Tourism in secondary destinations also gained from the expansion in the areas served by a number of different airlines, and this is reflected in the statistics collected by the Airports of Thailand Public Company, which show that the number of trips taken within the country (the domestic aircraft movement rate) grew by 9.1% YoY, while the number of Thai travelers flying on domestic routes rose by 9.2% YoY. Other factors have also played a role in developing the market, including ongoing government measures to stimulate domestic tourism, such as the 12 Cities Hidden Gem and 12 Cities Hidden Gem Plus campaigns, along with government-organized activities at important festivals. 217 receipts from domestic tourism came to THB 96 bn, up 1.4% YoY (Table 6). Bangkok and the southern region accounted for almost 6% of this total, although the eastern region is seeing a rapid increase in domestic tourism and operators would be advised to watch these developments closely. This change may be partly explained by progress on the development of the Eastern Economic Corridor (EEC), which is likely to be supporting growth in business travel in the provinces of Chonburi, Rayong and Chachoengsao. Table 4: International Tourist Arrivals by Region Region 215 % YoY 216 % YoY 217 % YoY ASEAN 7,92, ,585, ,119, Malaysia 3,418, ,494, ,354,8-4. CLMV 2,769, ,234, ,767, East Asia 11,988, ,8, ,522, China 7,936, ,757, ,85, Japan 1,381, ,439, ,544, Korea 1,373, ,464, ,79, Europe 5,631, ,174, ,511, France 681, , ,853.1 Germany 761, , , Russia 884, ,9, ,346, UK 947, ,4, , The Americas 1,235, ,47, ,541, USA 867, , ,56, South Asia 1,44, ,523, ,77, India 1,69, ,194, ,411, Oceania 922, , , Australia 87, , , Middle East 658, , , Africa 161, , , Total 29,923, ,529, ,381, Source : Department of Tourism Table 5 : International Tourism Receipts (mn.baht) Region 215 % YoY 216 % YoY 217 % YoY ASEAN 225, , , Malaysia 86, , , CLMV 8, , , East Asia 546, , , China 38, , , Japan 57, , , South Korea 57, , , Europe 46, , , France 46, , , Germany 48, , , Russia 69, , , UK 7, , , The Americas 86, , , USA 58, , , South Asia 61, , , India 47, , , Oceania 72, , , Australia 65, , , Middle East 47, , , Africa 1, , , Total 1,457, ,633, ,824, Source : Department of Tourism Table 6: Receipts from Thai Tourists (mn. baht) Number 215 % YoY 216 % YoY 217 % YoY Bangkok 297, , , Central 38, , , North 19, , , Northeast 63, , , East 77, , , West 61, , , South 155, , , Total 83, , , Source: Ministry of Tourism & Sports 6

7 Thailand Industry Outlook Hotel Industry In terms of the total supply of hotel rooms, the most recent data available, which covers the first half of 217, show that 743, rooms were available, a rise of 8.8% from the end of 216 (Figure 9). With 21, rooms, the southern region is home to 28% of Thai hotel rooms and thus has the greatest share of all the regions. The average occupancy rate in nationwide for 217 rose to 68.7%, an increase on the 216 level of 67.% (Table 3). Occupancy rates in the main tourist areas, which are largely dependent on foreign tourists, thus saw substantial increases, with the rate in Bangkok hitting 79.3% (compared to 74.3% in 216), 82.4% in Chonburi (up from 78.8% the year earlier) and 75.6% in Phuket (up from 71.7%). The occupancy rate in regional centers and in secondary provinces also improved. In terms of the average length of stay for foreign visitors, this rose slightly from 9.47 days in 215 to 9.56 days in 216 (the latest data available) (Figure 1). European visitors had the longest average stay, a result of the fact that they travel from such distant countries and that they tend to be traveling to Thailand to escape the cold in their home countries. The average daily rate across the country increased in 217 by 1.9% YoY, buoyed by the greater number of Thai and international tourists traveling in the country. As such, the cost per room per night for 217 was THB 1,632, up from THB 1,471 in 216 (Figure 11). This increased the revenue per available room (RevPAR) to THB 1,121 per room per night (+13.7% YoY). Perhaps unsurprisingly, Bangkok recorded the highest RevPAR, followed by Koh Samui and Krabi (Figure 12). rooms Rooms Growth (RHS) % YoY days Figure 9: Number of Rooms H217 Source: Department of Tourism 5 2, Total Source: Department of Tourism Figure 1: Length of Stay ASEAN+East Asia Europe Others Figure 11: Average Daily Rate, Occupancy Rate & RevPAR THB/room/night (%) 7 Returns for major players in the hotel sector continued to grow through 217 (Figure 13) on increasing occupancy rates, though it remains possible for operators to continue to expand their income by investing in operations in Thailand and abroad, as well as by managing hotels overseas. 2, 1,5 1, ADR RevPAR (LHS) OCC (RHS) Source: BOT Note: RevPAR = OCC x ADR 7

8 Thailand Industry Outlook Hotel Industry F 218F 219F 219F 22F 22F 217 Figure 12: Revenue per Available Room (RevPAR) Bangkok Phuket Chonburi (Pattaya) Major Tourist Destinations 2,458 2,82 1,739 (%) 2 Figure 13: Performance of Selected Hotels Listed on the Stock Exchange of Thailand Net Profit Margin MINOR CENTEL ERAWAN LRH DTC Suratthani (Koh Samui) Krabi Prachuap Kiri Khan (Hua Hin) Trat Chiang Mai Phang Nga Song Khla Kanchanaburi Rayong Petchaburi (Cha Am) Chiang Rai Nakhon Ratchasima (Pak Chong) Other Tourist Destinations ,29 1,115 1,88 2,438 2,313 2,32 2,161 1,732 1,571 1, ,4 2,1 2,8 THB/room/night MINOR = Minor International Pcl. CENTEL = Central Plaza Hotel Pcl. ERAWAN = The Erawan Group Pcl. LRH = Laguna Resorts & Hotels Pcl. DTC = Dusit Thani Pcl. Source: Compiled by Source: MOTS, REIC and calculated by Note: RevPAR = OCC x ADR ADR of Bangkok from CBRE as of Q3 217 ADR of Phuket, Krabi, Prachuap Kirikhan, Chonburi (Pattaya), Chiang Mai, Rayong from Hotels.com in 215 ADR of Others from BOT by region Outlook Over the next three years (218-22), hotel businesses are expected to see growth on the continuing expansion of the tourism sector, the forecast being for an average annual increase in foreign and domestic tourism in Thailand of 8-1% and 5-7%, respectively (figures 14 and 15) and this positive outlook underlies an expectation that hotel occupancy rates will rise to 68-7%, up from 68.7% in 217. Improving economic conditions domestically and internationally will help to support this, as will expansion in the services offered by low-cost airlines and improvements in national infrastructure, such as upgrades and expansions of airports and the investment in transportation systems (e.g. rail and motorway networks). In addition to this, government policy to help the tourism sector and Thailand s competitive advantages when compared to other countries in the region will also help. According to the World Travel & Tourism Council (WTTC) report, over the decade from 216, the Thai tourism sector should grow by an average of 6.7% per year, somewhat ahead of the 6.2% forecast for the ASEAN zone as a whole, as the former enjoys advantages in terms of potential demand growth and transportation networks that are comprehensive and easy to use. The situation for individual market segments is given below. Figure 14: International Tourist Arrivals mn. persons 6 Number (LH) %YoY (RH) Source: Department of Tourism (forecast by ) Figure 15: Thai Tourists mn. trips 25 Trips (LH) Growth (%) (RH) % YoY % YoY Source: Department of Tourism (forecast by ) 8

9 Thailand Industry Outlook Hotel Industry In terms of both total numbers and receipts, foreign arrivals will remain the main engine driving the Thai tourism sector, and this will be doubly so for Chinese tourists. McKinsey estimates that by 225, 9% of urban Chinese will be members of the middle class (up from 76% in 215) and this group tends to spend relatively heavily on travel so in light of this, outbound Chinese tourists are expected to increase to 15 million trips annually by 22 from its level of 128 million trips in 216. The Ministry of Tourism and Sports has therefore set a target of Thailand seeing an annual total of 15 million Chinese arrivals by 22, with this considerable total being shared between those cities and areas (including those in the secondary cities) which have the potential to cater to visitors. Examples of these include Chiang Rai, Phitsanulok, Khon Kaen, Ubon Ratchathani, Udon Thani and Nakhon Sri Thammarat and this will then increase business opportunities for hotel operators in these areas. Arrivals from Europe will also tend to increase in the near future as the European economies gradually strengthen, although Russian tourists are expected to make a significant impact on the hotel sector, most notably in Phuket and Pattaya, which remain strong favorites among Russians. The number of arrivals from the ASEAN zone is likewise expected to see solid growth thanks to upbeat forecasts for regional economies and continuing improvements in communications networks that will make travel between countries in the region steadily more convenient. sq.m. 2,5 2, 1,5 1, 5 Figure 17: Hotel Building Construction Permits Figure 16: Top 1 Cities in Asia-Pacific for Meetings & Events 1. Singapore 6. Bangkok and Phuket 2. Hong Kong / Macau 7. Tokyo 3. Shanghai 8. Seoul 4. Sydney 9. Ho Chi Minh and Hanoi 5. Bali 1. New Delhi Source: TCEB, MICE Review 215 Source : REIC BKK & vicinity North Central East Northeast West The MICE 3/ (meetings, incentives travel, conventions, and exhibitions) market is also rapidly becoming more important to the sector as a whole and Thailand is now one of the premier MICE destinations in Asia (Figure 16). Hotels serving this market are able to improve their earnings from room rates, hiring of conference facilities and sales of food and beverages since travelers in this group are traveling on business and usually have high spending power and require better quality goods and services. Thus, in the 217 financial year (October 216 to September 217), the MICE segment contributed THB 177 bn to the sector s earnings (source: Directions in strategy for the Thai MICE sector, 218 financial year by the Thailand Convention and Exhibition Bureau). This was a 14.8% YoY increase and was split between international MICE travelers (THB 86 bn, up 6.2% YoY) and domestic MICE travelers (THB 91 bn, up 24.3%). At a ratio of 49:51, international and domestic MICE travelers were of almost exactly equal importance. Thai tourists are likewise forecast to continue growing thanks to: (i) an improving domestic economy, which would boost spending on tourism; (ii) government measures to stimulate the market by allowing the offsetting of the cost of tourism and travel against tax; and (iii) the increase in the number of flights offered and expansion in areas served by low-cost airlines. In addition, the government has been steadily improving airports in provinces that have secondary tourist attractions in the mid-southern region, the northeast, and the lower North, such as Udon Thani, Sukhothai and Phetchabun, and this too will help spread the expected increase in tourism to these areas. The supply of hotel rooms is continuing to grow and in 217, hotel construction permits 4/ (an leading indicator for anticipating supply 1-2 years in the future) were granted for new hotels with a total area of 1.9 million sq.m., up 17.% YoY (Figure 17). With a 27.% share by total area of all hotel building permits issued in the country, the Bangkok Metropolitan Region is the most important area for ongoing hotel development, a fact that reflects the area s high potential as a tourist destination. Following Bangkok in importance is the South, with 23.5% of the total and here, Phuket is by far the most important site for new developments, comprising 6.8% of permits for the southern region. The eastern region contributes another 2.1% to the total and within it, with 81.8% of permit applications, Chonburi dominates. This is because Chonburi is home to Pattaya, a world-class tourist destination and as such it obviously attracts a considerable volume of new hotel construction. 3/ Around 3% of all international arrivals are MICE-travelers but this group contributes around 7% of all earning from foreign tourists. 4/ Unfortunately, the raw information on the footprint of new hotel construction permits does not reveal the proposed number of rooms in the structure so the exact future supply of rooms cannot be predicted with 1% certainty. 9

10 Thailand Industry Outlook Hotel Industry In terms of the types of new hotels being built, most investment is going into the expansion of the supply of 3- and 4-star hotels and budget hotels operated by large-size players, and this construction is taking place in regional centers, tourist areas, and border regions that are benefiting from greater regional economic interdependence. Examples of the new breed of hotels include Hop Inn (part of the Erawan Group), Fortune D (a C.P. Land brand) and Cosi (a brand from the Central Plaza Group). 5-star hotels, both Thai and international, are also continuing to invest in the major tourist areas (Table 7). Competition is also expected to strengthen in the sector for a number of reasons. (i) Competition will come from direct competitors (i.e. other hotels), as players continue to invest in the expansion of operations in the major tourist areas and in regional centers. This will take the form of operators both investing themselves and managing hotels on behalf of their final owners (most of this will be by large players that are part of larger commercial groups or which operate chains) (ii) The supply of alternative services, such as apartments, serviced apartments and condominiums, will also grow steadily and increasingly compete with hotels (Figure 18). Thai officials have attempted to solve or at least to reduce the problem with unlicensed operators (both alternative services and unlicensed hotels) by relaxing the statutory requirements to induce those unlicensed operators to legalize. However in practice, Thailand continues to have a considerable number of hotels operating without the necessary permissions, and this will tend to put pressure on operators, especially SMEs, which will have to use pricing strategies to attract customers. (iii) The growth in the sharing economy (e.g. Airbnb) also poses a threat to more traditional hotels as these combine prices that are typically lower than those charged by hotels with the offering of a wide range of different types of accommodation, from rooms in houses being let out individually to condominiums. At present, the volume of business conducted through these channels is not large and it is estimated that this accounts for only around 1% of total rooms in hotels and resorts in the five most important tourist destinations of Bangkok, Pattaya, Phuket, Samui and Chiang Mai (source: Department of Tourism, Colliers International and Airdna, September 216). This is thus not yet having a significant impact on hotels but in the future, and this will have consequences for the profitability of hotels that are targeting the same market. Table 7: Thailand s Luxury Hotels and Resorts During Name Location Room Year ibis Bangkok IMPACT Bangkok 587 April, 217 Ananda Hua Hin Resort and Spa Hua Hin 196 April, 217 Park Hyatt Bangkok Bangkok 259 April, 217 Mercure Bangkok Makkasan Bangkok 18 Q1 217 The Bangkok Edition Bangkok 15 June, 217 Rosewood Phuket Phuket The Ritz-Carlton, Koh Samui Koh Samui Hyatt Regency Bangkok N.A. 217 Baba Beach Club Phang Nga N.A. 217 Park Hyatt Phuket Phuket N.A. 218 Ramada Chaofa Phuket N.A. 218 Kempinski Hotel Phuket N.A. 218 Sheraton Phuket Kalim Beach Resort Phuket N.A. Jan, 218 Best Western Premier Bayphere Pattaya N.A. 219 Sheraton Phuket Grand Bay Resort Phuket N.A. Jan,219 InterContinental Phuket Resort Phuket Park Regis Pranburi Pranburi N.A. 219 Four Points by Sheraton Phuket Phuket N.A. Jan,22 Source: newthaihotels.com Figure 18: Residential Construction Permits for Apartment sq.m Figure 19: Airbnb Total Cumulative Rental Location Total Cumulative Rentals Growth (%) Bangkok 15,459 24, Phuket 14,44 2, Pattaya 4,659 8, Chiang Mai 3,944 7, Koh Samui 4,772 7, Total 42,878 67, Source : airdna.com Chiang Mai Lampang Khon Kaen Petchaburi Source : REIC Note: Showing only the provinces which data is available 7 Rayong 113 Phuket 4/ Around 5% of all international arrivals are MICE-travelers but this group contributes around 1% of all earning from foreign tourists. 1

11 Thailand Industry Outlook Hotel Industry view: The outlook for hotels that are located in major tourist destinations is strongly positive. This is supported by the expectation that there will be increasing numbers of travelers using these services as a consequence of the strengthening world economy. At the same time, however, SMEs in the sector will likely face stiffening competition. Hotels in major tourist destinations such as Bangkok, Pattaya and Phuket: It is expected that profits will remain healthy for these operators thanks to occupancy rates that will likely stay in the range of 75-8%, and large operators and chains, Thai and international, will therefore continue to invest in hotels at all levels of the market in order to meet steady demand. However, competition will also strengthen due to this on-going expansion in the supply of accommodation, continuing competition for market share from apartments and condominiums offering daily rates, and growth in online marketplaces such as Airbnb. Hotels in regional centers and other tourist destinations such as Chiang Mai, Chiang Rai, Phitsanulok, Kanchanaburi, Chonburi, Rayong, Chachoengsao, Nakhon Ratchasima, Khon Kaen, Udon Thani, Ubon Ratchathani, Petchaburi, Prachuap Kiri Khan, Songkhla, Krabi, Phang Nga, and Suratthani (Koh Samui): Profitability of these players will be close to that in the past several years. Supporting factors include: (i) the increasing economic connections between these regions; (ii) the development of new areas to support the Eastern Economic Corridor (EEC), which will help expand business travel; and (iii) spending by the government on infrastructure (e.g. inter-city motorways, and the expansion of provincial airports) that will help to make travel between the regions more convenient and, because they are much more dependent on domestic tourism. These factors will make more attractions spreading towards secondary provinces. On the other hand, the expansion of Thai and international chains into these areas and the continuing supply of apartments, condominiums and other alternatives means that competition may be strong and occupancy rates are unlikely to rise to very high levels. Hotels in other areas: For these players, growth in turnover is likely to slow and it may take some time for this to recover because operators in this group are likely to continue to be affected by an oversupply of accommodation, most of which is from SMEs. A large portion of customers in this group are business travelers or are traveling on their way to other provinces for business or tourism and so the typical length of stay is short and expenditure on hotel services is low. Moreover, competition on price is usually high due to the large number of apartments offering daily rates and this helps to keep occupancy rates relatively low compared to the situation in major tourist destinations and regional centers/other tourist destinations. 11

12 Thailand Industry Outlook Hotel Industry KRUNGSRI RESEARCH Somprawin Manprasert, Ph.D. Phornphan Phoksuphat Head of Research Division and Chief Economist Head of Macroeconomic and Industry Research Macroeconomic Team Sarun Sunansathaporn Head of Strategic Economics Sujit Chaivichayachat Head of Forecasting and Macroprudential Economics Churailuk Pholsri Senior Economist Soison Lohsuwannakul Senior Economist (Regional Economics) Lookhin Varachotisate Economist Tanaporn Sriklay Economist Industry Team Chetchuda Chuasuwan Head of Agricultural and Manufacturing Sectors Taned Mahattanalai Head of Service and Real Estate Sectors Poonsuk Ninkitsaranont Senior Analyst (Healthcare, Modern Trade, ICT) Piyanuch Sathapongpakdee Senior Analyst (Transportation & Logistics, Industry Risk Ratings) Narin Tunpaiboon Senior Analyst (Power Generation, Biofuel, Chemical & Plastic Products) Puttachard Lunkam Analyst (Tourism Sectors, Real Estate in Upcountry) Niratsai Toomwongsa Analyst (Construction Contractor, Construction Materials) Wanna Yongpisanphob Analyst (Automobile, Electronics & Electrical Appliances, Beverages) Patchara Klinchuanchun Analyst (Real Estate in BMR) Intelligence Team Talublugkhana Thanadhidhasuwanna Senior Analyst (Financial Sectors) Rachot Liengchan Analyst (Oil & Gas, Petrochemicals, Industry Scenario Analysis) Arpakorn Nopparattayaporn Analyst MIS and Reporting Team Suratchanee Somprasong Administrator Thamon Sernsuksakul Administrator Chirdsak Srichaiton MIS Officer Wongsagon Keawuttung MIS Officer For research subscription, contact Disclaimer This document is based on public information believed to be reliable. Nevertheless, would not affirm the accuracy and completeness of this information. The opinions expressed in this document are our own, which are not necessarily the opinions of Bank of Ayudhya. We reserve the right to change opinions or forecast without prior notice. 12