Hotel price war?

Hotel room oversupply, especially in Bangkok, and the European economic crisis paint a dim outlook for occupancy rates and the hotel business perhaps all the way to 2013.

Photo above of a bell hop in a luxury hotel helping guests with their luggage.

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Hotel glut a massive challenge, BWI sees local price war as inevitable by Chadamas Chinmaneevong

The American hotel chain Best Western International (BWI) expects the hotel business in Thailand, especially in Bangkok, will continue to face the impact from the European economic crisis and a room oversupply until 2013.

Thailand still has room to grow in tourism because it offers value for money, service quality and a variety of products. However, room demand cannot overtake supply.

At the present, 11 international hotel chains in Bangkok have a total of 4,523 rooms with average occupancy of 57.8% and an average daily room rate of 2,973 baht, according to a survey compiled by leading chains.

Mid-scale hotel rooms of 19 international and local chains total 6,037 with average occupancy at 59.8% and a daily room rate of 2,235 baht. Total rooms at nine economy hotel chains in Bangkok are 1,700 with occupancy of 70.9% and a room rate of 848 baht.

Since the start of this year to date, the occupancy rate of Best Western Plus @20 Sukhumvit has been 36% and Best Western Bangkok Hiptique Sukhumvit 13 50%.

Glenn De Souza, vice-president for BWI's international operations in Asia and the Middle East, said nobody in the hotel business, particularly in Bangkok, can avoid the price war.

"Customers have more choices today. If your room rate is higher than your competitors', they will change to stay with the others. Your revenue will decline eventually and this will affect debt-payment ability. And you will finally have to enter debt restructuring," he said.

Sukhumvit has already oversupplied. Average occupancy in the area is estimated at 40-50%.

"If someone says their occupancy rates are higher than this figure, I think they are telling a lie," said Mr De Souza

If local politics becomes more stable and hoteliers can increase their room rates in the high season, the problem will be eased. If not, the situation will worsen for the whole of next year.

The difficulties mean that some newer hotels will need longer than the standard five to seven years to break even, he added.

He is also concerned about populist policy promises by the Pheu Thai Party such as the increase in the minimum wage to 300 baht a day, and its potential impact on labour in the hotel industry.

Although the new government promises to cut corporate tax from 30% to 23% in 2012 and to 20% in 2013, it cannot offset higher salary expenses. At the present, labour in the hotel business makes up about 30-40% of total costs.

Looking on the positive side, Mr De Souza said the lower average room rate for Thai hotels makes prices very competitive. It creates new markets for budget-conscious travellers from countries such as Russia, China, Taiwan, India, and South Korea.

"The mid-scale hotel segment has room to grow because its investment cost is lower than for four- and five-star hotels both in terms of software and hardware," he said.

Therefore, BWI has focused on mid-scale hotels through its two brands - Best Western and Best Western Plus+. It will operate 25 hotels in Thailand in the next two years, up from 14 now.

In 2011, average occupancy rate of BWI hotels is estimated at 68% nationwide, compared to 75% last year. Next year's occupancy rate will be around 65-70

(Source: Bangkok Polarity, Hotel glut a massive challenge, BWI sees local price war as inevitable, 22/07/2011, Chadamas Chinmaneevong, link) 

Hotel Industry Vocabulary

hoteliers - the owner or manager of a hotel

bellhop - a hotel porter, a hotel worker who helps guests with their luggage while checking in or out, "The job's name is derived from the fact that the hotel's front desk clerk rang a bell to summon an employee, who would "hop" (jump) to attention at the desk to receive instructions" (See Wikipedia)

luggage - the bags and suitcases that a person takes with them when the travel, go on a trip, also called "baggage" (See Wikipedia)

high season - the period of the year when there are a lot of tourists (and hotel occupancy and incomes are high)

glut - too much of something (more than enough, not all can be used, some will be wasted)
hotel glut - too many hotel rooms (not enough tourists or business people to fill the hotel rooms available)

price war - when companies compete by reducing prices when supply is a lot greater than demand
local price war - a price war inside the country

crisis - an urgent, difficult or dangerous situation วิกฤต วิกฤตการณ์ ช่วงวิกฤต

European economic crisis - since late 2009 fears of a sovereign debt crisis developed among investors concerned about rising government deficits and debt level in euro zone members Greece, Ireland and Portugal and also some EU countries outside the area, the situation becoming particularly tense in early 2010, "bail-out" loans were provided by the IMF for Greece, Ireland and Portugal in exchange for harsh austerity measures, also known as the "European Sovereign Debt Crisis" (See Wikipedia)

sovereign debt crisis - occurs when there is a fear by investors that a government may not be able to pay back the money it has borrowed (debt) to pay for government spending (deficit), this causes a sudden quick in the interest rate that the government has to pay for borrowing. "Governments may be especially vulnerable to a sovereign debt crisis when they rely on financing through short-term bonds, since this creates a situation of maturity mismatch between their short-term bond financing and the long-term asset value of their tax base. They may also be vulnerable to a sovereign debt crisis due to currency mismatch if they are unable to issue bonds in their own currency, as a decrease in the value of their own currency may then make it prohibitively expensive to pay back their foreign-denominated bonds." (See Wikipedia)

oversupply - to much on the market, prices drop, many go out of business การมีสินค้าล้นตลาด

has room to grow - has not yet reached its greatest possible "maximum" size 

chains - a group of businesses (restaurants, hotels, etc.) operated by the same company in many different places บริษัทต่างๆที่อยู่ในเครือเดียวกัน; ร้านค้าในเครือ (คนไทยเรียกทับศัพท์ว่า เชน เช่น 7-Eleven, ลูกชิ้นนายฮั่ง เป็นต้น)
hotel chains - a group of hotels operated by one company in different places

occupancy - the number of rooms in a hotel being used (with people staying in the room)
occupancy rate - the percentage of all rooms with someone staying in them

daily room rate - the price of a hotel room paid each day to stay in the room

survey - gathering information about what people think about different subjects (public opinion) by asking large numbers of people questions and counting their answers, and then using statistics, graphs, and tables to present results (See Wikipedia) การสำรวจความเห็น

leading chains - the most important chains (most profitable, biggest, highest revenue, most famous name, etc)
survey compiled by leading chains - the survey was done by the most important chains in the country

international - operating in or applying to many countries; between countries ระหว่างประเทศ
international chains - chains with many different branches (restaurants, hotels, stores, etc) in different countries
local chains - chains with branches only in this country
economy hotel chains - inexpensive hotel chains (cheap, low cost, budget)

revenue - income from taxes or business activities รายได้
figure - an amount จำนวน
stable - not changing frequently and not likely to suddenly become worse คงที่, มั่นคง firmly fixed, not likely to move or change a lot, not likely to fail คงที่ ไม่เปลี่ยนแปลง

debt - an amount of money that you owe หนี้
debt restructuring - when lenders and borrowers negotiate and work out a new way for an organization or government to pay back money they have borrowed and find difficult to pay back (See Wikipedia)

potential - possible ความเป็นไปได้
potential impact on Y - the possible effect on Y

corporate tax - the tax that large companies (corporations) must pay on the money they make

offset - reduce by moving in the opposite direction (See glossary)
salary - a fixed amount of money that you earn each month or year from your job เงินเดือน
offset higher salary expenses - if salaries increase, than other things decrease to make the total effect less

competitive - involving competition มีการแข่งขัน

budget - an amount of money able to be spent on something งบประมาณ
conscious - aware; noticing that something exists or is happening and realising that it is important ความสำนึก ความตระหนักถึง
budget-conscious travellers - travellers who want to save money (want to stay at cheaper hotels and eat at cheaper restaurants, etc)

segment - a separate part of something ตอน; ส่วนต่างๆของสังคม
market segment - a group of customers for a product that the same in some way (same age, income, habits, etc)

scale - size (relative size)
mid-scale - middle size (not large and not small)
mid-scale hotel segment - middle-sized hotels

General Vocabulary

on the positive side - hopeful and confident observations and things to note, or giving cause for hope and confidence ซึ่งมองในแง่ดี

massive - very large in size, amount or numberใหญ่โต
challenge - something that needs a lot of skill, energy, and determination to deal with or achieve สิ่งที่ท้าทาย, การท้าทาย

inevitable - certain to happen ที่เลี่ยงไม่ได้ unavoidable ซึ่งหลีกเลี่ยงไม่ได้ will happen in the future, for sure

impact - an effect or influence ผลกระทบ

variety - many different types of things or people ความหลากหลาย
demand - people or consumers wanting to buy goods and services ความต้องการ

eventually - at the end of a period of time or at the end of a process ในที่สุด
concerned - worried about something มีความกังวล

populist - a politician who claims to care about the interests and opinion of ordinary people
policy - a set of plans or action agreed on by a government, political party, business, or other group นโยบาย a plan of action to guide decisions and achieveoutcomes (See Wikipedia)

wage - an amount of money that you earn for working, usually according to how many hours or days you work each week or month ค่าจ้าง
minimum wage - the minimum daily wage that can be legally paid to a worker

investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
in terms of - as measured by
brands - products with well-established names that people remember, that create a certain image and expectations about the product
nationwide - throughout the whole country ทั่วทั้งประเทศ