Phuket's Hotel Discounting Impacts Recovery
Phuket hotels have hit panic mode after a high season which saw average occupancies plunge by 20-30% and rates are now in freefall mode. Moving into the island's low season one of the most telling comments I've heard was the Director of Sales and Marketing of a branded 5 star resort saying "if they had to offer any lower rates, they'd be paying people to stay." Perhaps the strongest 'truism' of the present situation is that the hotels set rates and not consumers so most of the blame has to lay on the business practices in the industry.
In a talk by Jonas Ogden of Smith Travel Research who are the industry leader in worldwide data gather for hotel statistics the macro trend for the current market started to register dramatic decreases during 'black October" 2007. Since then every market in the world say downward performance with the exception of the Middle East who started to nose dive in 4th quarter of last year. Market retractions and negative growth are currently being with the exception of the later.
The beginning of the 4th quarter in 2008 hit not only Thailand hard but the entire Asia Pacific region. Looking at RevPar growth in 1st quarter 2009 for major markets only Indonesia with Bali and Jakarta were in positive growth mode. The hardest hit were Beijing, Shanghai, New Delhi, Mumbai, Bangkok and Phuket.
Jonas pointed out the downside of heavily discounting that can in turn result in taking the market years to recover average room rates. In a bull market everyone follows a leader in pricing, while during a downturn or panic the flock of sheep mentality is inherent. Annual budgets and shorter term forecasts become increasingly difficult to manage while 'discounting' often simply multiplies mounting losses from a slowdown. In the current market place the challenge is somehow to match buyer's expectations with those of sellers and arrive at a business strategy that accounts for not only today but a longer term horizon.