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Phuket tourism China focus pressures hotels to perform

PHUKET: Despite registering a record high 9 million passenger arrivals at the island’s gateway international airport in 2018, performance data is indicating that a slowdown in its double-digit growth rates over the past few years is on the horizon for Thailand’s resort destination of Phuket, reports Bill Barnett, Managing Director of tourism and hospitality consultancy C9 Hotelworks.

Saturday 9 March 2019, 04:49PM


While airport arrivals grew 8% year-on-year, the gains posted were at their lowest level since 2015, he said, citing C9 Hotelworks’ newly released Phuket Hotel Market Update.

As the first half of 2018 saw arrivals soar by 17% versus the same period in 2017, the second half of the year was marred by the Phoenix tour boat disaster, which decelerated momentum and by the end of the year annualised hotel demand had declined by 4%, Mr Barnett noted.

“The period of August through October eradicated the early gains in the year. At that juncture, despite negative industry sentiment of a continued drop, a soft landing ensued in the final two months of the year driven mostly on rates, and by year-end the new normal kicked in,” Mr Barnett said in a release issued yesterday (Mar 8).

Moving into 2019, and looking to put the benchmark in perspective for Phuket hotels, Jesper Palmqvist of hospitality intelligence group STR noted, “When looking at the long term historic trend, the pipeline of new supply but conversely also the increased competition in the region for Chinese demand, it is plausible that this recent pressure on Phuket performance will continue into the second half of the year, with an increased spread in performance among the hotels – basically a tightening of the market compared to the past couple of years.” (See report here.)

Further reflecting on the prevailing trade winds at the end of 2018, Mr Palmqvist added, “This trend continued throughout peak season into 2019 where January was similar to that of 2015, with overall demand shifting by -6% compared to the same month last year. Indications in daily data for the important month of February echoes the sentiment hitting numbers close to 2017, leading to peak season ending with a noticeable step back.

“In addition, it is likely that March may also see a year-over-year decline from last year, but as we approach low season again we do not expect negative growth to continue to the same extent.”

Analysing the current state of Phuket’s tourism sector and prospects in 2019, Mr Barnett pointed out five key trends that are expected to shape the island’s tourism road ahead:

1. Pressure On Demand – Good Hotels Perform, Others Left Out

Diving into the numbers the reality is that demonstrated hotel performance is not dependent on macro tourism metrics alone but brand, location, and management play a key role in the battle of the haves and the have nots.

2. Increased Regional Competition For Mainland Chinese

An onslaught of other Asian destinations are targeting Chinese travelers and putting up incentives like visa-free entry. Brand Thailand is not alone it is quest for numbers.

BRITISH INTERNATIONAL SCHOOL, PHUKET

3. Rising Rate Volatility As Hotels Fight For Market Share

Phuket over the past few years has successfully managed to cash in when the going was good, and drive higher rates during periods of high demand. With a China slowdown, appreciation of the Thai baht and growing competition, rates are likely to be under attack in the foreseeable future.

4. Accumulating Pipeline Set To Continue Unabated

With surging land prices in Bangkok and other key Asian CBD areas, developers are adjusting their return outlook and continue to either transact properties in Phuket or undertake greenfield developments. A second factor is property development groups looking to mitigate risk in a challenged real estate sector and look at recurring cash flow investment models.

5. Niche Products Emerging, Can Buck Macro Trends

No two hotels are created equal and changing travel preferences in terms of properties that offer unique design, best in class wellness offerings or other key demand generators are hitting numbers far ahead of their competitive set.

Closing out the outlook on Phuket, one of the key takeaways from C9 Hotelworks report is that India is seeing a rapid escalation of market prominence, the report noted.

In 2018 Indian inbound travelers recorded a 56% year-on-year increase as direct flights to the island were opened from Mumbai, New Delhi and Bengaluru.

With more airlift coming in 2019, eyes are now turned to the subcontinent as a supplement for the Mainland China mass travel machine, the report said.


To download C9 Hotelworks Phuket Hotel Market Update, click here.

 

 

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