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Top 5 things Phuket hotel developers should know

Bill Barnett

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by Bill Barnett from c9hotelworks.com

Taking a 2020 view of Phuket’s hotel development pipeline that has now surpassed 15,000 new keys it’s hard not to be apprehensive. From a macro standpoint, the destination’s airlift and location are key success factors.

But for the myriad cast of new and inexperienced hotel developers out there, perhaps a visit down Alice’s rabbit hole is necessary to see just how to measure success in a crowded playing field. Here is our Top 5:

Bed Factories

As beachfront land and ocean views disappear in an urbanising trend, hotel development is seeing an unprecedented push inland. Big, medium and small box properties are springing up in locations where owners only explanation for a hotel, is that they already owned the land. Typically, these hotels have limited views or curb appeal, are located away from key demand generators and are undisguisable in design and character. Hash tag them as vanilla.

These bed factories are totally geared on volume and tourism as a commodity. This set is the most influenced by market volatility and ultimately the only reaction to occupancy fluctuations is to drop rates, while relying on high-commission OTA’s (online travel agents) to dole out business. In a supply demand imbalance these hotels are most at risk. An industrial approach to tourism rarely works, as there are always other destinations who will undercut you on price. Avoid the factory syndrome if you can.

Having A Brand Is Not Enough

Common wisdom is that brands outperform independent hotels. In Phuket there are many striking examples of independents trading above their branded cohorts, but more telling is the bottom line. They call this the hotel business for a reason and only the bottom line goes to the bank. Certainly, bank lending requirements, and hotel residences are driving a strong amount of branding.

One key market impact is hotel consolidation of global chains, with ACCOR and Marriott properties being scattered across the island and again commoditization comes into play. When we analyse costs of chain management, reality bites when the total absolute cost including system fees, annual assessments, sales and marketing etc. often equate to 8-10% of revenue.

When hotels have scale, this works. When they do not, the bottom line suffers. Likewise, as we look at performance of the brands in Phuket, the reality is that well-managed hotels with key aspects and location win, while for others having the name game not an assurance of success given you are just one of many in playing field that is continually stretched. Brands in many cases are a good choice but it’s not always a given.

Top 5 things Phuket hotel developers should know | News by Thaiger

One Size Does Not Fit All

I’m a lifelong hotelier and one thing I can assure you is generally speaking hospitality lags many other industries in terms of innovation and change. Hotel developers are slow to understand the dynamic change the smartphone and technology have created in opening up a new world to hotel guests. We have ubiquitous coffee shops which are filled to the brim at breakfast, and the rest of the day mimics one of those movies where aliens have taken all of earths inhabitants to outer space. Dead, empty space.

In Phuket with the thousands of spas, hotels still develop large resort spaces that remain empty for most of the day as guests march out the door with a smartphone in hand.

While hotel chains shout out brand standards and must haves, hotel owners have not taken a similar approach to real estate developers and measure returns in space efficiency. My best example is look at a full-service restaurant in a mall where an operator is paying expensive rent and look at operating efficiency and footprint and compare that to a hotel outlet which typically would have a larger space by 50-100%.

Hotel design, spaces and facilities have to come full circle as a business decision that caters to current and forward demand, and not just reciting the way things used to be done. Less can be more.

Sheep Syndrome (aka copy/paste)

Developer motivation is always an interesting case for hotels. Often times, inexperienced developers want to own a hotel as their friends have one too. They find an architect, look at other hotels nearby, perhaps check an online OTA to see what rates are being charged and that pretty much sums up their entire business development process. They follow their friends or their perceived market competitors just like a flock of sheep being led off a cliff into the surging ocean of hoteldom. Some will sink and some will swim.

All too often the process is not unlike the endless procession of Phuket tourist restaurants with the infamous taglines proclaiming Thai food, western food, seafood and of course pizza. The rationale of the business is to follow the mass, copy and paste, unwilling to ask the hard questions, develop an understanding of the market and commit or be bold enough to walk alone with a product that cannot be classified as ‘same same’.

Top 5 things Phuket hotel developers should know | News by Thaiger

Don’t Be Afraid To Be Niche

As many destinations in the world have seen success with best in class innovative products, Phuket has seen its share of products that attract a wider international audience. Thanyapura with their wellness and sports offering and Twinpalms paired with Catch Beach Club are just two examples. Another emerging trend is complexed hotels with two brands and tiers with a single set of management and back of house.

In Bangkok the Erawan group has done two of these with more under development. Looking at the business model, operating profit is often 8-10% higher with economies of scale and development or investment cost 10-12% lower due to not replicating areas twice.

My final words on how to be a successful hospitality developer is doing exactly that. Take the lead, don’t expect your hotel operator, architect, muse or friend to magically direct you down Alice’s rabbit hole to success. Innovate, take risks and look to the future, not just the present and past. Teams need leadership as do successful businesses and after all that’s why we call it the hotel business.

Top 5 things Phuket hotel developers should know | News by Thaiger

 

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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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Thai Airways’ creditors to vote on rehab plan today

Maya Taylor

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PHOTO: Pixabay

Today is D-Day for Thai Airways, with 13,000 creditors voting on whether or not to accept the struggling airline’s rehabilitation plan. According to a Bangkok Post report, a source at the airline has warned that should creditors reject the plan, the carrier will be declared bankrupt and they would only receive 12.9% of what they’re owed.

In the event of a bankruptcy declaration, the airline’s assets will be appraised to decide how much of its debts can be repaid. The estimate of 12.9% is based on the value of assets currently held by the carrier.

The Bangkok Post reports that the rehabilitation plan which was submitted in March covers debts of around 410 billion baht. It’s understood major shareholders own around 180 billion baht of that debt between them. Should the rehab plan be accepted today, it’s likely Thai Airways will be given a certain timeframe in which to turn itself around.

The plan calls for the repayment period of debts arising from unsecured bonds worth 70 billion baht to be extended to 10 years, with a debt moratorium in the early stages of repayment. The airline is also introducing tough cost-cutting measures, including job reductions via early retirement for thousands of its 20,000 workers.

It’s understood the plan does not call for the Ministry of Finance to provide a loan but says anyone can obtain the loan and the ministry can help with cash injection negotiations. The State Enterprise Policy Office has already stated that the government will not re-capitalise the airline.

SOURCE: Bangkok Post

 

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Government will not re-capitalise struggling Thai Airways

Maya Taylor

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PHOTO: Wikimedia

The State Enterprise Policy Office says the government will not back a billion-baht cash injection for Thai Airways. The national airline is currently been dragged through bankruptcy proceedings.

Pantip Sripimol from the SEPO says the Thai Finance Ministry will not re-capitalise the carrier, although it remains its largest shareholder. The Bangkok Post reports that there are concerns Thai Airways could become a state enterprise once more if the ministry were to assume a majority stake once more.

Last September, the Finance Ministry reduced its stake in the national airline to less than 50%, in an effort to facilitate the debt-rehabilitation process. As a result, the carrier is no longer a state-owned enterprise and it’s understood a number of cabinet ministers are concerned that, should the airline regain its status as a state enterprise, the government would have to guarantee a billion-baht loan to ensure its survival.

The Bangkok Post reports that both the Finance Minister, Arkhom Termpittayapaisith, and Deputy PM, Supattanapong Punmeechaow, both support re-establishing the airline as a state enterprise. They argue that doing so would improve its financial situation and provide more leverage for negotiating with creditors. Such a move would mean the Finance Ministry becoming a majority shareholder once again.

As it is, the airline’s bankruptcy proceedings have been taken up with renegotiating with creditors – mostly aircraft lessees. The majority of Thai Airways’ fleet remains grounded and gathering dust, parked at Suvarnabhumi airport.

However, Pantip says the ministry will not re-capitalise the airline and is prepared to reduce its shareholding if other investors purchased additional shares. The ministry currently has a 49.9% stake in Thai Airways, with Pantip saying it would be difficult to justify a further cash injection to shareholders.

With the airline now operating as a private business, the government is no longer obliged to prop it up monetarily, nor is the Finance Ministry obliged to offer financial help to a private company, despite being its largest shareholder.

On Wednesday, creditors will meet to discuss the airline’s debt restructuring plan and decide if they are to accept it.

SOURCE: Bangkok Post

 

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Thailand jumps on the electric bandwagon, aims to become EV production hub

Maya Taylor

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PHOTO: Flickr / JCT 600

The Thai government has ambitious plans to turn the Kingdom into a Southeast Asian hub for the manufacture of electric vehicles. Nikkei Asia reports that big companies in Thailand are preparing to invest substantially in the greener mode of transport, after the National Electric Vehicle Policy Committee suggested a new manufacturing target could mean half of Thailand’s auto-production is made up of electric vehicles by 2030.

The message to car manufacturers and energy suppliers is to grab this opportunity to invest in the necessary infrastructure to support electric vehicles, as the number of drivers using such cars is expected to rise significantly. The Thailand Board of Investment says that between 2017 and 2019, investment in EV production and its infrastructure reached 79 billion baht. That figure is expected to rise at a much quicker rate over the next 3 years.

According to the Nikkei Asia report, Toyota was the first car manufacturer to make EVs in the Kingdom, with Chinese manufacturers becoming more competitive in recent years. The latest Chinese firm to join the EV revolution is Great Wall Motor, which plans to launch electric vehicles this year. The number of EV manufacturers in Thailand is also growing, but Surapong Phaisitpattanapong from the Federation of Thai Industries’ Automotive Industry Club says they still need to overcome serious supply chain challenges. He says manufacturers of the traditional internal combustion engine now find themselves trying to supply parts for electric vehicles, including batteries, motors and converters.

“It’s all about the economy of scale. If the number of EV users goes up substantially, it would be worth investing, and everyone, including auto parts makers, would be ready to switch to producing EV parts, and that would create supply chains that are ready for the development of EVs, but it will take time.”

Surapong points out that the government hasn’t provided enough subsidies to encourage the purchase of electric vehicles, saying there needs to be more of an incentive to deliver the sales boost needed.

“We think there should be a more direct subsidy for EV buyers to promote EVs, but we haven’t seen the government issue any kind of subsidies like that yet.”

SOURCE: Nikkei Asia

 

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