The Beach is not enough to drive Phuket tourism
by Bill Barnett
The sustained downturn of hotel rates in Phuket should be a cause of concern for island hoteliers and developers alike. According to C9 Hotelworks new Phuket Mid-Year Hotel Market Update market wide average room rates shifted downward by 9% in the first half of the year compared to the same period in 2014. What is highlighted here is that the trend has existed for a sustained period of time and marks a departure from typical cycles as the island now moves towards an increasingly urban landscape. Market maturity is evident and while hotels have been able to hold occupancy, the direct hit has been in sharply declining RevPAR.
It would be a gross mistake for hotels to gloss over the facts by viewing growing airport arrivals as the lead indicator for tourism, while the reality is that a changing geographic base of core business is firmly in the driver’s seat. C9′s research pointed to statistic by China’s leading outbound tour operator Ctrip which shows the average length of stay for Mainland visitors to Phuket is 2.2 days. Comparing the ALOS to those of the legacy European segment, the math attached to the relevance of a volume driven tourism market is fairly straight forward and in this case more tourists are stacking up to less in the big scheme of things.
Another critical factor to hotel performance is the massive influx of unregistered tourism accommodation in Phuket such as condominium and apartment hotels. One only has to look at the large number of new developments offering guaranteed rental returns or investment yields despite the projects not securing hotel licenses. Clearly the government needs to understand the damage this sector is causing to legally operating hotels and ensure compliance is a priority.
While it’s quite easy to point to Thailand’s lengthy political events as a key influence, but the reality is that Phuket’s underlying infrastructure still lacks depth in terms of world class branded tourism attractions. The beach is no longer enough to drive hotel rates at a higher trajectory as currently there are 27 confirmed hotels in the island pipeline and another 4,400 rooms coming online between 2016-2018.