Hotel Supply To Become
More Balanced Nationwide

The tsunami devastated the many small bungalows and boutique resorts in the Andaman provinces and led to major losses for the major hotels there, but benefited hotels in Bangkok and other Thai destinations.

Despite the devastation, there appears to be no flagging of investor interest in Thai hotels. But a clear shift away from south Thailand towards other destinations is creating a more balanced distribution of hotel supply that will serve Thailand well in the long run.

The tsunami certainly changed the fortunes of the Andaman hotels, one of the fastest growing sectors of Thai tourism. The worst hit was Khao Lak in Phangnga province where, of the 6,369 rooms in around 100 resorts before the tsunami, only 1,067 rooms in 10 resorts were left standing.

The tragedy was all the more severe because south Thailand has been the fastest-growing region in terms of hotel capacity for the last five years.

Figures released by the Tourism Authority of Thailand show clearly that the room count in Phangnga had surged from 1,873 in 2000 to 6,369 in 2004, Krabi was up from 4,873 to 10,950 in the same period.

By comparison, other popular destinations like Chiang Mai actually fell from 14,344 rooms in 2000 to 14,103 in 2004, Pattaya rose from 23,608 to 26,503 rooms and Bangkok from 57,899 to 60,924 rooms in the same period.

As each new room would have created a number of direct and indirect jobs, these figures alone show the kind of impact that the tsunami had on economic livelihood.

In the immediate aftermath of the devastation, dozens of websites emerged giving latest updates of the damage. Although many of the unaffected hotels continued to plead that they were still open for business, the perception that the entire area had been destroyed affected everyone.

By February, the initial shock had been overcome and the word was getting out that rehabilitation was underway. Hotels called for a return of business on the grounds that the people of Thailand need to get back to work rather than rely on relief aid and handouts.

How badly the tsunami affected southern Thailand properties can be seen from the audited reports filed by property groups listed on the stock market.

For the second quarter ending 30 June 2005, Laguna Resorts & Hotels PCL, owner of the Phuket resort area with seven deluxe properties, achieved a net loss of 149 million baht, based on a total revenue decline of 188 million baht for that period.

Pacific Assets PCL, owner of Le Royal Meridien Phuket Yacht Club in Phuket, among other properties in Bangkok and Samui, reported a consolidated net loss of 92.2 million for the second quarter of 2005 against a net loss of 26.5 million baht for the same period of 2004.

"Total revenues from core businesses decreased by 24.7 million baht due to lower hotel income from the hotel in Phuket," the company reported. In August, Pacific Assets sold the Yacht Club plus two properties in Bangkok and one in Samui to a group of investors, including Lehmann Brothers, for 3,220 million baht.

Other groups were able to cushion themselves from the disaster by dint of having a more balanced portfolio of representation throughout Thailand

The Dusit Group, which has a property in the Laguna area, reported a sharp drop in the net profit of first half 2005. This was for a number of tax and administrative reasons, including increased sales and marketing expenses related to hosting the Miss Universe pageant in May 2005.

However, the group also reported that in 1Q 2005, the migration of tourists from Phuket, Krabi and Phangnga to the east coast of Thailand saw its Pattaya property report a revenue of 137.4 million baht, up by 23.1 million baht or 20.2%, over 1Q 2004.

Its Dusit Resort, Hua Hin, on the west coast of the Gulf of Thailand reported revenues of 121.8 million baht, up from 37.3 million baht or 44.1%, in the same period.

Indeed, the stock market figures showed that the hotel groups which did not have properties in Phuket came out relatively unscathed and in fact benefited substantially from the migration.

For example, the Shangri-La, Bangkok, reported that in 1Q 2005, total revenues from operations increased by 60.71 million baht (12.80%) as a result of increases in all areas including rooms and F&B.

Even Pacific Assets had partially offset its losses by a revenue increase of 133 million baht from the Banyan Tree Bangkok which it had acquired in March 2005 and which was not included in the list of sold properties.

The rush to alternative destinations was so great that the supply began to outstrip demand, leading tour operators to warn their clients that there was no chance of them getting any rooms, especially around the Chinese New Year in February 2005.

In March and April 2005, hotels in Hua Hin, Cha-am, Ko Samui and Pattaya reported higher than anticipated occupancies.

By March, some of the southern Thailand hotels which had suffered minimal damage were beginning to reopen. Others simply chose to convert a crisis into an opportunity and ride out the "off season", when bookings are low anyway, by carrying out overdue extensions and/or renovations.

This continued through June and July. By August, as the 2005/2006 high season neared, many hotels were back in business, excursions were running as normal and the after-effects of tourism cancellations were kept to a minimum.

But new unexpected problems began to emerge. Chiang Mai was hit by flash floods, affecting many of the properties along the Ping River.

Chedi Chiang Mai was closed until further notice and the D2 Chiang Mai Hotel, a new brand of the Dusit Group, announced that it had postponed its official opening from August to September. The Royal Princess Chiang Mai was also affected by both flooding and fire.

Even as the nationwide room supply begins to balance itself out, the sheer number of rooms in the Andaman provinces will ensure a continued struggle to fill them.
The government has set aside about 400 million baht for rebuilding Khao Lak and its infrastructure, and is also boosting charters via a subsidy programme (see separate story on airlines).

The Le Meridien Khao Lak Beach Spa Resort had projected a reopening on 15 October. Other luxury properties like the Sofitel Magic Lagoon Khao Lak Resort & Spa, which had only opened in May 2004, may take longer due to the scale of the devastation.

However, investors and hotel operators are beginning to realise the advantages of having a more balanced portfolio.

One growth area is Ko Chang, where the room count is expected to hit 7,000 by end-2005. Although the island is dotted mainly with lodges and guesthouses, it is also attracting upmarket investors like Dusit Hotels and Resorts (Khlong Prao Beach) as well as Shangri-La (Kai Bae Beach).

Pattaya is also expected to do well, especially after the opening of Suvarnabhumi Airport which will have a direct tollway/highway link to the resort and the eastern seaboard area. The resort, becoming increasingly popular with Russian visitors, recently saw another major hotel chain arrive with the opening of a Sheraton Pattaya.

Other upcoming developments that will keep the hotel industry buzzing for the foreseeable future include:
- Central Krabi Bay Resort is planning an October 2005 opening. The property of 191 rooms/villas on Pai Plong Bay will be the 12th Central Hotels & Resorts property in Thailand.
- Novotel King Power Hotel is scheduled to open end 2006. The 400-room hotel will be located close to Victory Monument and be part of a large duty-free centre.
- Central Wong Amat Beach Resort was closed in May 2005 and is being rebuilt anew as a five-star, 470-room resort planned to open by 2007.
- Aman Resort Bangkok plans a new high-end 33-room hotel set in an historical old building close to the Oriental on the Chao Phraya river. It is set to open by end 2007.
- CentralWorld Hotel is building a five-star property next to the CentralWorld Plaza in downtown Bangkok and plans to open by November 2007.
-l Shangri-La Hotel is building a new hotel in Chiang Mai due to open in October 2006. The 281-key hotel represents an investment of roughly US$50.51 million (approximately 1,970 million baht, excluding land).
-l Amari Orchid Resort is constructing a new "Ocean Tower" of 297 rooms/suites overlooking Pattaya Bay. It is planning an opening at the end of 2006.


This past year has been great for most of Bangkok’s hotels in the major catchment areas.We have seen encouraging rate and occupancy increases throughout 2005. Next year should be similar, and even with more guestroom inventory coming on line, the demand should be able to feed the additional capacity. The new airport will both stimulate interest and demand for travel within Thailand and the region, especially as we continue to position ourselves as the gateway to Indochina. Additionally, we are continuing to develop new markets.

The only possible clouds on the horizon would be increasing fuel prices and terrorism. However, we are confident of a bright 2006.

Jonathan Wigley
Group General Manager
Marriott Resort & Spa