Industry report and experts forecast increased competition and market compression ahead for Thai resort island
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.
While airport arrivals grew 8% year-on-year, the gains posted were at their lowest level since 2015 according to consulting group 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 Chinese boat accident which decelerated momentum and by the end of the year annualized hotel demand had declined by 4%.
Commenting on the rise and fall of 2018 C9’s Managing Director Bill Barnett commented “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.”
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.”
Further reflecting on the prevailing trade winds at the end of 2018 “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.”
Analyzing the current state of Phuket’s tourism sector and prospects in 2019, Bill Barnett of C9 Hotelworks points out 5 key trends that are expected to shape the island’s tourism road ahead –
- 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.
- 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.
- 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.
- 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.
- 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. 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.