Thailand to maintain its competitive advantage in tourism

 

Tourism remains one of the primary drivers of economic growth in Thailand. While manufacturing and exports are sluggish and consumer demand weak, visitor numbers were up in 2016 and are expected to hit new records in 2017. After a slight dip in 2014, the upward trend seems to have been re-established. Looking ahead, tourism will remain an important part of the Thai economy and is expected to become an increasingly large component of GDP.

Thailand is an attractive destination drawing guests from a diverse range of countries. Chinese and Russian tourists continue to come in great numbers, but at the same time more visitors are coming from ASEAN member states. Flows from the US and Europe are holding steady. Thailand’s government remains highly supportive of the sector, making visits easier, investing in infrastructure and, importantly, choosing policies to encourage inflows.

The industry has been so successful in the country that much of the associated infrastructure has reached capacity (see analysis). Thailand’s airports are under increasing strain, and concern is building about the possible degradation of some natural spots. In order to counter these trends, Thailand is making investments to improve infrastructure and ease bottlenecks. The country is also starting to rethink its “more is better” attitude towards tourism and is looking to target high-end travellers seeking more value-added experiences.

Record Levels

By all conventional measures, the sector is as strong as ever, with tourist arrivals hitting record numbers. A total of 32.6m people visited the country in 2016, up nearly 9% from the year before, according to Bank of Thailand (BOT) data. This is also a notable increase from 15.9m visitors in 2010 and 9.5m visitors in 2000. The country is expected to receive 37m visitors in 2017, after recording 12m arrivals in the first four months of the year alone, according to Ministry of Tourism and Sports (MoTS) data. A total of BT1.65trn ($46.5bn) was spent by visitors in 2016, according to the Tourism Authority of Thailand (TAT).

The sector is a vital part of the economy. According to the World Travel and Tourism Council (WTTC), the segment directly accounts for 9.3% of GDP and 20.8% of GDP indirectly. It directly employs 6.3% of the workforce, and 15.4% indirectly. All of these figures are part of a positive trend, with the WTTC estimating direct GDP contribution will reach 14% by 2026, and 30.5% indirectly, as well as 9.9% of direct employment, and 23.2% of indirect employment.

Visitor Numbers

Other metrics indicate a healthy market. Occupancy rates at hotels hit 67% in 2016, up from 65.1% a year earlier and 55.6% in 2014 after a recent low of 49.2% in 2009, according to the BOT. The average room rate increased from BT1205 ($33.95) in 2015 to BT1471 ($41.44) in 2016.

Growth from certain countries has been particularly strong, indicating a diverse market with pockets of exceptional performance. According to Department of Tourism figures, tourist numbers from Cambodia were up 27.7% in 2016, with Myanmar seeing an increase of 31.6%, Laos 15.5% and Vietnam 10.6%. The number of European visitors grew by nearly 10%, with Russia rebounding with 23.3% and Spain 11.8%. US visitors were up 12.4%.

The trend seems to be continuing. In April 2017 Songkran, or Thai New Year, was estimated to have brought in revenue of BT45.43bn ($1.3bn), up more than 14% than in 2016. A total of 695,894 tourists came to the country during the same period, up 10.9% from the previous year’s holiday. Songkran is a benchmark holiday and is often seen as setting the tone for the year. Thailand continues as a tourism leader globally. In the World Economic Forum’s “The Travel & Tourism Competitiveness Report 2017”, it was ranked 34th out of 136 countries, up one place from the last survey in 2015. It is behind Hong Kong, Singapore, China, Malaysia and Taiwan, but ahead of India, Indonesia, Vietnam, the Philippines, Laos and Cambodia. The country has been held back in a number of areas and appears to be particularly affected by the political turmoil of the past decade.

Thailand’s strongest performance was in natural resources (7th), tourist services infrastructure (16th), price competitiveness (18th), air transport infrastructure (20th), prioritisation of travel and tourism (34th), cultural resources and business travel (37th), human resources and labour (40th) and business environment (45th). The country’s weakest points were ground and port infrastructure (72nd), health and hygiene (90th), safety and security (118th), and environmental stability (122nd).

Partnerships & Guides

Thailand is attractive in part because of its liberal visa policies. The country welcomes people from numerous countries with minimal formalities, currently allowing visa-free entry for passport holders of 57 countries and visa on arrival for 21 countries. In recent years, Thailand has been working to make the policies even easier. In late 2016 the price of visitor visas and visas on arrival were cut by 50% to BT1000 ($28.17).

Thailand is also working to improve on its basic model. In late 2016 the government announced that it would be issuing 10-year visas to people aged 50 or older. In order to qualify the individuals applying must have a monthly income of at least BT100,000 ($2820), or BT3m ($84,500) in a bank account. They must also provide proof of health insurance, with coverage of $1000 for outpatient care and $10,000 for inpatient care. Citizens of 14 countries can qualify, including those from the US, the UK, Australia, Japan and a number of EU member states.

Thailand has undertaken an extensive marketing campaigns to keep visitors coming. It has been especially active in the Gulf region. In June 2016 the TAT signed a promotion deal with Emirates. Then, in early 2017 Etihad Airways signed a $1m partnership with the TAT to promote travel to the country in the Gulf and Europe, and in April 2017 the TAT, in cooperation with Qatar Airways, held a roadshow in Doha to improve relations with travel and tour partners in Qatar. The country is also working to develop a stronger Mekong regional strategy. Thailand is cooperating with Laos on a joint marketing campaign, entitled “Two Countries, One Destination.” The expectation is that the programme will increase tourist traffic to the north-east of the country, which has traditionally received very few visitors from outside of the region.

At home, the TAT will be partnering with Michelin Travel Partners to produce a Michelin Guide for Bangkok, with plans to publish the first volume in late 2017. It will be printed in Thai and English, and available both online and in print. The TAT told local press that it expects that the guide will help increase food spending by tourists by 10%. Digital innovation will also play a large part in Thailand’s future tourism strategy as the country works to make technology more a part of the economy under Thailand 4.0, the government’s new economic plan. The authorities see e-payments, as well as services such as Uber, Airbnb and Grab taxi service, as being key. An estimated 29% of travel businesses in Thailand currently have no presence on mobile platforms.

A Matter Of Balance

Thailand has remained extraordinarily open in recent years despite the 2014 coup and efforts on the part of the administration to exercise more control domestically.

In working to achieve a balance between security and freedom, the authorities have tended to favour the latter. However, on a number of occasions the desire for social stability has run up against a degree of opposition from the tourism sector. In August 2016 the country’s telecoms regulator said it would support legislation allowing for the tracking of tourists via their mobile phones, and the country was planning to require visitors to have location-tracking SIM cards in their devices. The plan was eventually dropped after the telecoms regulator received push-back from the government, which was worried that the plan would upset the tourist sector. Malaysia already has tracking SIMs for tourists.

More recently, in April 2017 Bangkok banned food stalls from public roads. However, the TAT has insisted that the city will not lose its colour and vibrancy, only that some areas will be reorganised to facilitate a more efficient movement of people and vehicles. An estimated two-thirds of the city’s 30,000 street stalls have been affected; stalls in Chinatown and on Khaosan Road will be allowed to stay but will be better regulated. The authorities have also been working to clean up less reputable areas and districts, such as Pattaya, as the country seeks to cultivate a more family-friendly image. Local press reports indicate that while the official presence has increased in these areas, very little has changed. Some worry that heavy-handed attempts to clean up these places will lead to an excessive “Disneyfication” of tourist areas.

Insurance Requirement

In June 2017 international press reported that Thailand will probably be requiring all visitors to purchase travel insurance. While the possibility has been mentioned for a number of years, it now appears to be under serious consideration by the MoTS. The ministry will be meeting with travel industry professionals and submitting a recommendation to the Cabinet in 2017. It costs the country BT3bn ($84.5m) a year to cover the expenses of uninsured tourists seeking treatment at state hospitals. The burden is becoming a critical issue. If the plan is implemented, proof of travel insurance will be requested at the point of entry. The Office of Insurance Commission will be responsible for establishing basic policy design and distribution methods, including kiosks at border crossings and international airports.

The country has also been adjusting its visa rules, which is a constant process and usually does not change tourism flows dramatically over the long term. However, it does create uncertainty and brings into question Thailand’s reputation as an easy and carefree destination. In the latest move, immigration authorities stated in May 2017 that travellers from countries eligible for a visa waiver are limited to three visa-free land crossings per year. After that, they must apply for a visa at a Thai consulate. Citizens of neighbouring countries are not affected, while Singaporeans are. This could impact numbers from the country as people from Singapore frequently come to Thailand by bus for short visits.

Surcharge

In late 2016 the Civil Aviation Authority of Thailand added a BT15 ($0.42) surcharge per passenger per flight, with the funds raised to be used to improve the country’s aviation systems. The surcharge is expected to generate BT1.1bn ($31m) a year, and as the fee is being added by International Airport Transport Association (IATA) members, some of the funds will go to that association. However, the Association of Thai Travel Agents has objected to the move, arguing that the Thai government should foot the bill for the upgrades rather than passengers.

Zero-Dollar

The government has successfully started to crack down on so-called zero-dollar tours, whereby Chinese firms offer low-priced packages that allow visitors to pay for everything up front and costs are cut through a variety of questionable means. Zero-dollar tourism is a particular problem for Thailand as operators take guests through a closed system, with venue visits being controlled, and thus money flowing outward rather than locally.

In 2016 the government started to more seriously tackle the practice. There was concern that the new rules would have a significant impact on the sector, as the number of Chinese tourists increased three-fold between 2011 and 2016. Visitors from the country also make up one-third of all tourists in Thailand. However, Chinese tourism has picked up despite an initial drop after the crackdown. A total of 9m Chinese visitors are expected in 2017, up from 8.8m a year earlier. One of the main targets for Thailand is to attract more so-called “free independent travellers” (FIT), who tend to utilise technology to make bookings and travel arrangements, rather than depend upon a tour group. Thailand has seen more of this type of tourist from China, which could help counter the zero-dollar crowds.

Younger Chinese travellers are aware that tour operators often take advantage of clients, and are quite willing to go around the traditional system and arrange their own itineraries.

Persistent Problem

The TAT is now working with Thailand’s Online Tourism Club, an industry association with 44 members, to reduce the marketing of low-quality tour packages. Zero-dollar tourism is becoming increasingly sophisticated. Travel companies are even targeting independent Chinese travellers who normally book using mobile apps and credit cards, and are offering benefits to FIT visitors based on the restaurants or shops they visit.

Online operators are a particular issue as they are less interested in selling holidays, and more concerned with building databases and increasing hits to grow their value in the market. The Online Tourism Club hopes to combat these practices by employing several strategies. It will publish a blacklist of suppliers that have been found to engage in unethical behaviour, require that pricing be clear and certain minimums met, and require that products and services be of a certain established quality. The TAT will publicise these efforts and encourage suppliers to meet the established minimums.

Despite the initiative being undertaken, many zero-dollar operators are still in the market. It has been estimated that 100 such groups are still operating. The Association of Thai Travel Agents and the Professional Tourist Guide Association are working to make the authorities aware that the current agreement on zero-dollar tourism is not effective. They reported to local press that the tactics are much the same as before, with Chinese operators charging under BT1000 ($28.17) per day, but then using unscrupulous methods to get another BT9000-10,000 ($254-282) out of tourists during their stay. This can lead to an unpleasant experience for the traveller and ultimately harm Thailand’s reputation.

Limits Of Tourism

More broadly, a discussion has been initiated in the country about existing strategies, which have done so much for the economy in the past. The question is whether Thailand has too many tourists and what the sector’s goals should be in the future. It is starting to become apparent that the industry should change its focus and evolve with the times. The country is facing a number of problems related to the influx of visitors. Transport and infrastructure bottlenecks are more visible than ever, while the environment is being stressed to the point of near collapse in some areas. Rapid development, especially at beachfront locations, has taken its toll on delicate ecological systems. Recently the authorities have been closing some particularly vulnerable locations, such as diving sites, for fear that visitors are causing damage.

With tourist numbers expected to reach 60m by 2020, urgent investment in infrastructure is needed. The sense is that if major upgrades are not completed, one of the most important sectors of the Thai economy could face trouble. Growth will be impossible to maintain while the experience itself will be endangered by overcrowding, poor transport, the lack of skilled workers and environmental damage. “The numbers present a lot of issues, such as infrastructure and human resources. Thailand cannot train people fast enough,” Mario Hardy, CEO of the Pacific Asia Travel Association, told OBG.

Shifting Focus

A number of strategies are possible, short of simply laying more concrete and building more airports. Thailand is working on changing the experience so that people engage with the country in a different, and possibly more productive, way. This involves a shift in focus to culture and nature, connected by first-rate infrastructure, and a wide range of other attractions complementing the core offerings, such as restaurants and shopping. The authorities are also trying to shift visitors from being too Bangkok focused and encouraging them to go directly to the provinces. Creating more hubs would take the pressure off the capital and lead to more development in the countryside. “Dispersal of tourism is another strategy, such as trying to send them to different places,” Hardy told OBG. “In addition, diversifying the product is key. Thailand is not just beaches; it is mountains and good food.”

Diversifying the tourist base is another priority. Thailand is especially focused on attracting more visitors from its neighbours. The ASEAN market has long been taken for granted, but it has significant potential given economic development in the ASEAN Economic Community. Under a campaign titled “Unique Thai Local Experience”, the country hopes to draw a total of 9.2m people from neighbouring markets in 2017, up from 8.6m a year earlier. In mid-2017 Thailand discovered that its market, while diverse, is also vulnerable. It depends on a number of key catchment areas, some of which have proven to be inconsistent or unreliable.

Traffic from the Gulf region tends to be affected by the price of oil, while visitor numbers from the region may now fall, possibly dramatically, due to geopolitical developments. The recent political isolation of Qatar by other countries in the Gulf could result in a reduction of flights out of the country or an increase in costs. This is significant for Thailand, as Qatar Airways is one of the most active carriers serving the country. The airline flies five times a day to Bangkok, twice a day to Phuket and four times a week to Krabi. It is also planning four flights a week to Chiang Mai. The airline codeshares with Bangkok Airways. Thailand’s travel sector is bracing for a possible drop in arrivals during the October-March period as a result of the situation in Qatar.

Cruise Shops & Ecotourism

Different types of tourism are being actively developed. The cruise ship market is seen as especially attractive. Asia is the fastest-growing cruise market in the world, and far younger than the markets in the US and Europe. In support of the sector, Phuket’s port is being redeveloped with both a short-term refurbishment and a long-term expansion. Laem Chabang, located an hour-and-a-half outside of Bangkok, will also be upgraded. In terms of total calls made, Thailand is currently ranked by Asia Cruise Trends as seventh among Asia’s top 10 cruise destinations.

At present, Singapore, China and Hong Kong are the cruise leaders in the region, but Thailand is seen as having potential due to the quality of its ports and the ease of immigration procedures. The country already hosts ships from Costa Cruises, Princess Cruises, AIDA Cruises, Royal Caribbean Cruises, Celebrity Cruises, Viking and Cunard. The Costa Victoria, operated by Italy-based Costa Crociere, recently started to call at Laem Chabang, with the ship plying the waters between Thailand, Cambodia and Vietnam and making stops at selected ports.

Thailand is also emphasising adventure and ecot-ourism. It already has about 800,000 visitors a year in this category, a number expected to reach 1m in the next few years. An estimated BT300bn ($8.5bn) is brought in by the niche market every year, according to Thai Ecotourism and Adventure Travel Association (TEATA). In this segment, the country faces significant competition in the region from Vietnam, Myanmar and Laos, which have both impressive natural sites and strong government support.

Product development is another key factor for Thailand, as is the development of the right kind of human resources skills. The TEATA would like to see the subsector start to meet the highest level of international standards. It is working to attract both international and local tourists and expects the subsector to account for as much as 20% of the overall tourism market at some point.

MICE

Thailand is already a major regional centre in the meetings, incentives, conventions and exhibitions (MICE) market, and it is becoming more so over time. The Thailand MICE Venue Standard (TMVS) was adopted in 2013 and has been rolled out in five locations nationally, including Bangkok, Pattaya, Phuket, Chiang Mai and Khon Kaen. The country is now developing Chiang Rai as a MICE city, one mainly focused on the Chinese market. It will be promoted as a place for small meetings related to green tourism and investment in the Mekong region. Given the location of Chiang Rai, Yunnan Province, China, will be the first market to be targeted.

The Thailand Incentive and Convention Association is working to make the country a favoured destination for events. It told local press that the market is attractive for MICE activities because of the quality of its infrastructure and low costs, along with the country’s great natural beauty. Excellence in the subsector has been recognised regionally. In January 2017 at the ASEAN Tourism Forum all 10 ASEAN ministers voted to adopt the TMVS regionally. In early 2017 Thailand became the first ASEAN member state to host the WTTC Global Summit.

The Thailand Convention and Exhibition Bureau (TCEB) is also offering incentives for those who choose to use the country for their MICE activities. Under the “Spiced Up Thailand” campaign, the TCEB, along with Visa, the TAT, Thai Airways International and others, is offering discounts on hotels, car rentals and restaurants, cash coupons for shopping, and 50% discounts on green fees.

The campaign has been running for three years, with a total of 46 MICE events having taken advantage of the programme in 2016. In 2017 the goal is to have 60 participating events.

Medical

Another area the government hopes to capitalise on is medical tourism. For years Thailand had a virtual lock on the segment. It provides very high-quality service at reasonable prices, and few countries could offer the same level of care so efficiently. However, medical tourists now have many options and competition is growing (see analysis).

Hotels

Hotel development continues apace in Thailand. Best Western Hotels & Resorts has agreed to open four new properties, its largest multi-hotel deal ever. The new hotels will be the Best Western Plus AD Wongamart Pattaya, the Best Western Plus AD The Grand Jomtien Beach Pattaya, the Best Western Plus AD Bang Saray Lake and Resort, and the Best Western Plus AD Hua Hin Lake.

A number of other international groups are also active. Sheraton is opening the Sheraton Phuket Grand Bay Resort in 2019, offering a total of 250 rooms. Deutsche Hospitality is planning to open a hotel on the Chao Phraya River in 2019, which will be called the Steigenberger Hotel Riverside. The Park Hyatt Bangkok is set to open in 2017 and will be located on levels 9-36 at the Central Embassy Complex in the city’s business district. Meanwhile, Dusit International has signed an agreement to operate a hotel at Chatuchak Market. The property will be called Mixt Chatuchak, and will offer 250 rooms.

In addition, the Dusit Thani Hotel will be redeveloped into a mixed-use complex, with the new hotel opening in 2021. Work on the development is currently scheduled to be completed by 2023.

Outlook

Thai tourism will continue to develop, but the development will evolve over time. The emphasis will go from the raw numbers and hitting totals to providing a wider range of experiences to a wider variety of visitors. Tourism in Thailand is set to involve more places in the country, with new hubs arising as direct connections are established with secondary cities. New activities will be offered in order to reflect these changes in the market. At the same time, competition will increase as other destinations – such as Malaysia, Indonesia, Vietnam and China – start to improve and refine their offerings. Thailand will have to keep up with the market, and with new technology, as the tourism business becomes more demanding and more sophisticated.

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The Report: Thailand 2017

Tourism chapter from The Report: Thailand 2017

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