Labour costs outpace revenue growth in Thai tourism sector

Rising labour costs in the tourism sector are outpacing revenue growth, resulting in increased hotel expenses, as revealed by hospitality market analyst STR. Jesper Palmqvist, senior director for Asia-Pacific at STR, warned that the only risk for hotels this year is maintaining cost controls in light of the extraordinary growth of labour costs and room rates.

Over the past one to one and a half years, room rates have experienced a significant increase, allowing some Thai hotels to command room rates that were 20-25% higher than in 2019. However, Palmqvist revealed that the rate of this growth has already started to decelerate.

“For the market, we don’t see rates dropping much because as costs have gone up for hotels, the biggest cost continues to be labour costs.”

The driving force behind this trend is the persistent labour shortage in the tourism sector. To attract employees, operators have to offer highly competitive salaries, but interest in working in the industry has waned, stated Palmqvist.

This issue was prevalent last year when hotels in the country saw labour costs rise at a faster rate than their income. From January to November 2023, hotel labour costs per available room (LPAR) grew by 8.1% year-on-year, while revenue growth lagged.

Palmqvist noted that while the situation stabilised during the peak season late last year, with gross operating profit per available room growing by 23% year-on-year, compared with 13% LPAR, there is no assurance that this balance will be maintained throughout the year.

International tourism

“Every hotel needs to be very mindful of costs, particularly labour, as well as energy costs.”

Despite the challenges, Palmqvist expressed optimism about the Thai Tourism Industry, citing robust international tourism and diversified markets. Last year, hotels reported occupancy rates just five percentage points below the level recorded in 2019, even with a sluggish China market in 2023.

“If the Indian market continues to grow and the Chinese return, I think we’ll start making up that occupancy gap.”

He estimates that under this scenario, the hotel occupancy rate this year would remain three to four percentage points below the rate recorded in 2019, but with room rates 15-20% higher than in 2019.

In terms of specific locations, Bangkok is expected to have an occupancy rate four percentage points lower than in 2019, but room rates will be 18% higher. Phuket, on the other hand, is anticipated to outperform, fuelled by Russian, Indian and Chinese visitors, with a single-digit growth rate over 2023, which was 30% higher than in 2019.

Looking ahead to 2024, STR data suggests that approximately 41 new hotels, equating to over 10,000 rooms, are slated to open. The largest market share, at 32% of all rooms, will be in the upper-midscale category, reported Bangkok Post.