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Phuket hotels fighting for their lives as domestic tourism fails to support the island

Bill Barnett

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In the wake of last weekend’s ministerial talkfest and discussions with local industry players on the island, Bill Barnett paints a bleak picture of a tourist island in freefall. All the shops, restaurants and hotels can’t remain empty, or merely keep their doors open with a handful of domestic customers, forever.

Phuket’s hotel industry is reaching breaking point and drastic economic support from the government will be needed for it to survive the high season. The warning from a slew of industry leaders who fear the island has reached a crucial turning point.

In the wake of the controversial “Phuket Model” international travel reopening scheme, reality is biting back as hotels in Thailand’s leading resort island are unable to sustain operating viability based on domestic tourism.

According to the Airports of Thailand, passenger arrivals at the aviation gateway have plunged 65% year-on-year from January through July of this year.

Phuket hotels fighting for their lives as domestic tourism fails to support the island | News by Thaiger

What is clear is that the 86,000 rooms in Phuket’s registered accommodation establishments cannot realistically break-even or even be cash-flow positive with only domestic demand. This realistically could set the scene for 50,000 job losses in the hotel sector this year if there’s no support forth coming or international visitors are not allowed in.

One of the green shoots is the Alternative Local State Quarantine program, with over 60 island properties applying. While this program is meant to emulate the ASQ program in Bangkok, given there are no direct international flights to Phuket, the government needs wider support of a return of international travellers at a local level and implement inter-ministerial coordination before it could materialise. But this may take months.

Anthony Lark, President of the Phuket Hotels Association that represents 78 hotels in Phuket said: “The math simply doesn’t work with single-digit occupancies being reported. No amount of induced local demand can prevent the dramatic continued loss of jobs and rapidly eroding financial crisis for owners and operators. We strongly advocate a safe, pragmatic, and strategic reopening for foreign travellers.”

Phuket hotels fighting for their lives as domestic tourism fails to support the island | News by Thaiger

With tourism being the lead economic indicator in Phuket data newly released by hospitality consulting group C9 Hotelworks reveals the Covid-19 impact on the hotel development pipeline with 69% of hotels now being delayed or put on hold. Looking at the economic consequences, at the end of 2019, there were 1,758 licensed accommodation establishments on the island and today incoming projects stand at 58 hotels, representing a 19% rise in supply with 16,476 additional rooms planned.

C9 Hotelworks Managing Director Bill Barnett said: “Thailand’s failure to relaunch overseas tourism creates a dangerously perilous scenario for Phuket’s hospitality industry. The domino financial impact is not only on hotels and the expanded tourism sector, but it suffocates the development pipeline. This will negatively trigger the erosion of jobs in construction, real estate, retail and ultimately be manifested in consumer credit defaults. The situation is bad, and likely to get worse, as operating hotels remaining incur losses day in and day out.”

In terms of updating the Phuket hotel situation on the ground, there continues to be much controversy and a lack of national and local consensus over the proposed “Safe and Sealed’ sandbox long-stay program. While a stark warning was issued last week by the Bank of Thailand over the potential disruption to the heavily tourism-dependent country, the fate of Phuket’s coming high season remains very challenged.

Citing a way forward C9’s Bill Barnett commented: “Any reopening plan must not only be well planned but has to win the hearts and minds of the Thai people to see any chance of success. While the island may hold the keys to the Kingdom in leading a restoration of tourism, but the more critical issue is how hotels can fight for their lives in the current state of limbo.”

Phuket hotels fighting for their lives as domestic tourism fails to support the island | News by Thaiger

Speaking about Phuket’s current situation Anthony Lark added: “Firstly, greater proactive dialogue between the public and private sector has to be undertaken. We can’t simply say we are now in unknown territory forever. Steps must be taken and a single voice formed.

“Secondly, the Bank of Thailand has to look at interim measures to assist hotels with short-term operating bridge loans to weather the storm and retain jobs. Tourism is a human endeavor and without protecting and nurturing our Thai workforce there will be no recovery.”

 

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27 Comments

27 Comments

  1. Avatar

    Perceville Smithers

    Tuesday, September 8, 2020 at 7:29 am

    Who didn’t see this coming?

    • Avatar

      J West

      Tuesday, September 8, 2020 at 8:38 pm

      Thailand has priced itself above global alternatives, economic/supply/demand should prove a valuable roadmap towards a future for Phuket tourism. If the industry can only support itself by gouging foreigners it cannot survive….period. Time for a rethink. Time for a realistic consolidation. Thai industry must move to meet the market.

  2. Avatar

    Gary

    Tuesday, September 8, 2020 at 7:34 am

    Other countries are now being pushed into realising that you cannot just put your head in the sand and hide from this virus, it
    seriously effects only a very small part of the population and even then not fatally, it must be learnt to lived with, back to normal with sound guidelines for the vulnerable.

    • Avatar

      Don R

      Friday, September 11, 2020 at 1:09 pm

      Indeed. The virus isn’t going away. The heavy-handed response strategy we’re seeing is not supported by science, but an invention of the media. The longer this goes on, the more damage they do to young and poor people. Really sad stuff.

      • Avatar

        The Thaiger & The Nation

        Friday, September 11, 2020 at 2:55 pm

        The “heavy-handed response strategy” is because of “an invention of the media”? Don you give us far too much credit. That government’s work out their response to the threats of Covid-19 by combing through the news each day is a ludicrous and simplistic assertion, not backed up by any evidence. We are merely reporting the many faces of the pandemic as best we can, whilst avoiding the rhetoric and keyboard warriors who think the media are an easy target and responsible for all the evils of the world.

        • Avatar

          Rinky Stingpiece

          Saturday, September 12, 2020 at 1:10 am

          Oh but you know you are though… democratic governments all over the world (with a few notable exceptions) march to the media’s beat, but sure, we’ll give you the benefit… Thai politicians probably don’t refer to a regional English-language online thingy so much. 😀

        • Avatar

          Don R

          Wednesday, September 16, 2020 at 11:30 am

          The suggestion that the media hasn’t fueled a panic is ludicrous. Media as a whole has failed to provide objective coverage with historical context.

          If you want to serve your readers, I suggest you spend the next few decades covering the consequences of the panic:

          -shorter life expectancy for young poor people
          -small businesses and landlords going bankrupt, being bought up by commercial real estate firms
          -greatest rise of authoritarianism since the 1930s

  3. Avatar

    suchart

    Tuesday, September 8, 2020 at 8:29 am

    Instead of buying submarines, subsidize the tourist industry, until the pandemic is over.

  4. Avatar

    Mike

    Tuesday, September 8, 2020 at 10:07 am

    I want the best for Thailand, Im married to a Thai. I want to retire in Thailand and hopefully start a family. But didnt PM Prayut say Thailand can easily absorb any shutdown and its effects with a surplus budget from over the years? Just remembering a story from a top Thailand internet news outlet BP.

    • Avatar

      Perceville Smithers

      Wednesday, September 9, 2020 at 12:50 pm

      I left right on time (Aug 2019 – 10 Mar 2020)

    • Avatar

      Perceville Smithers

      Wednesday, September 9, 2020 at 12:55 pm

      Can’t open up for intl tourism too soon and save face.

  5. Avatar

    Toby Andrews

    Tuesday, September 8, 2020 at 10:20 am

    This is like having a large empty hotel with a vicious dog in reception.
    Nobody can book in because of the vicious dog.
    The management are too stupid to take the dog away.
    The dog is the Thai government.

  6. Avatar

    Preesy Chepuce

    Tuesday, September 8, 2020 at 11:27 am

    To be honest, it seems like a good thing to stop the development pipeline on an overdeveloped island, where environmental degradation has become a problem.
    The prices of hotel rooms and property prices have spiked way too high, and need to be forced back down to earth.
    Most beneficial of all is forcing the island to diversify its economy away from tourism, which is way too dominant at 90%, and to return to the Thailand 4.0 strategy of becoming a computing and IT hub – a sector that is doing just fine in the pandemic. It’s logical to switch from tourism to technology in this situation, and the retraining needed will require changes to visa bureaucracy and direct flights to and from Phuket to bring in skilled farang to train and invest and create new jobs and businesses to replace the tourism businesses that are no longer viable.
    Governments around the world should not be propping up nonviable businesses with taxpayer money, they should be investing in technology training and facilitation.

  7. Avatar

    Ray W.

    Tuesday, September 8, 2020 at 1:45 pm

    An easy fix would be to open the boarders, recognize that the early lock down has allowed the medical capacity to now handle likely outbreak surges that could come, get the economy moving again, stop pretending you can tax and subsides your way to stability, and manage risk – not hide from it! You know, like a grown up with big boy pants and everything.

  8. Avatar

    factsnotfiction

    Tuesday, September 8, 2020 at 5:33 pm

    50,000 job losses in the hotel sector this year, and counting. Not to mention all of the other job losses throughout numerous other businesses all over Thailand. This is heartbreaking. And for what! A virus that has a 0,003% fatality rate? Which 99% of the deceased have to do with 2 to 3 OTHER FACTORS, which we call “underlying suffering” / comorbidities. A virus that has a scientifically established survival rate of 997/1000, which is again a 0,003% fatality rate? This nonsense needs to stop now! Seriously!

  9. Avatar

    James

    Wednesday, September 9, 2020 at 1:12 am

    65% down. How about 99% down.

    I just returned to England from Phuket after being there for 7 months.

    It was empty for the last four months. Most hotels and shops are closed.

  10. Avatar

    Mel

    Wednesday, September 9, 2020 at 12:45 pm

    But they could not let people on tourist visas stay. No. Though we are willing to pay for visa extensions and spend a lot of money here.

  11. Avatar

    Issan John

    Wednesday, September 9, 2020 at 3:51 pm

    “This is like having a large empty hotel with a vicious dog in reception.
    Nobody can book in because of the vicious dog.
    The management are too stupid to take the dog away.
    The dog is the Thai government.”

    Alternatively, @Toby, it’s like having a country which is rabies-free and you want to allow tourists to bring in their “vicious dog” which has rabies and permit it to attack and kill people in and outside the hotel, and spread rabies just so the hotel can make a profit.

    Except, unlike rabies, there’s no vaccine for Covid-19 and it spreads invisibly and exponentially.

    Fortunately most Thais take a very different view.

    • Avatar

      Sami

      Thursday, September 10, 2020 at 1:08 am

      Such characters with s mentality like yours will definitely drive the economy further deep into the gutters…learn to face facts and view things from a broad-minded perspective and not the narrow mind you are goading about

      • Avatar

        The Thaiger & The Nation

        Friday, September 11, 2020 at 2:51 pm

        Speaking on behalf of the ‘media’, we’re just reporting the responses of governments and officials. The ‘media’ isn’t closing down shops and businesses, the ‘media’ isn’t making policy to close borders and lockdown economies, the ‘media’ isn’t just inventing the pandemic – world leaders and scientists are responding to it, and we’re reporting it. So cool it with your ‘shoot the messenger’ rhetoric and aim your displeasure at the people making the decisions.

  12. Avatar

    Issan John

    Wednesday, September 9, 2020 at 4:45 pm

    “A virus that has a scientifically established survival rate of 997/1000, which is again a 0,003% fatality rate? This nonsense needs to stop now!”

    Interesting maths.

    If the “survival rate” was 997/1000 that would be a fatality rate of 3/1000 or 0.3% (not 0.003%), so you’re out there by a factor of one hundred.

    But it’s not 3 in a thousand or 0.3%. In the USA, with 6,350,000 cases and 190,000 deaths, that’s 30 deaths per thousand cases; in Thailand it’s rather less at 17 per thousand (58 deaths).

    This nonsense really does need to stop now.

    Seriously.

    • Avatar

      Don R

      Friday, September 11, 2020 at 1:20 pm

      Yeah, the fatality rate is about 0.3% and probably less.

      As for the 6.5 million cases in the US, it’s estimated there could be 10 times more that only had mild symptoms or no symptoms.

      So the virus is not the catastrophe the media makes it out to be. The catastrophe is the heavy-handed response that will shorten billions of lives, mostly among younger people.

      Time to put on the big boy pants and accept the small risk.

      • Avatar

        rinky stingpiece

        Tuesday, September 15, 2020 at 1:23 am

        Surely it’s really all about the underfunding of health services? The justification used for most lockdowns and travel restrictions is the lack of ICU beds… so the solution is surely to just build more ICU facilities, and absorb that minority?!

        • Avatar

          Don R

          Wednesday, September 16, 2020 at 11:24 am

          ICU bed shortages are common in the US even during regular flu seasons. Again, it’s not the catastrophe the media makes it out to be. New ICU units can be setup if needed. Patients can be moved to different facilities. They never really run out.

  13. Avatar

    EdwardV

    Thursday, September 10, 2020 at 2:45 am

    An economic collapse isn’t linear, it’s a downward slope. It doesn’t appear too bad as people draw down their savings, sell off assets, keep their job at reduced wages and or hours. However as it continues it picks up speed and the economy starts to run out of credit and cash. The downward speed picks up as places that tried to stay open can’t and finally close. You can see the homelessness increasing, the desperation as people can barely afford food. As the crime starts to increase. There is an article in the Nikkei Asian Review today about how the real crisis at this point in time isn’t the virus or the demonstrators, it’s the Thai economy. How the Thai government has running out of time to save the economy. Creating a plan for a few thousand tourists isn’t going help much. I hope I’m wrong.

  14. Avatar

    Junk Man

    Friday, September 11, 2020 at 4:08 pm

    Let Phuket bleed and continue to bleed. Rip off scam capital of the world.

  15. Avatar

    Halim

    Sunday, September 13, 2020 at 4:12 pm

    Phuket always been seeing for foreigner only and the way they treated thai peoples and overpriced rates, I just can say, what goes around come around, Phuket deserve it

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Bill Barnett has over 30 years of experience in the Asian hospitality and property markets. He is considered to be a leading authority on real estate trends across Asia, and has sat at almost every seat around the hospitality and real estate table. Bill promotes industry insight through regular conference speaking engagements and is continually gathering market intelligence. Over the past few years he has released four books on Asian property topics.

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