Thailand Tourism Report Q3 2008

No Q108 Figures Released Yet The Tourism Authority of Thailand (TAT) has not yet released any figures for Q108 tourist arrivals, although it usually releases new figures every month. We are therefore concerned that Thailand is beginning to suffer from a slowdown in tourist arrivals - a scenario that the new government of Prime Minister Samak Sundaravej (closely allied to ousted former leader Thaksin Shinawatra) would not be keen to advertise.

A slowing trend in tourism arrivals in 2008 would only be expected, after industry growth moderated in 2008 to 6.6% y-o-y, below historical trends. However, we are concerned that the positive sentiment raised by the holding of democratic elections in December 2007 and the subsequent handover of power from the military government to an elected civilian successor has not encouraged tourists to begin returning to the country. One main factor behind an ongoing slowdown in 2008 is external. With the global economy slowing, and the threat of recession in the US, tourists may choose to travel closer to home or to countries that have experienced less recent political volatility. In addition, rising inflation is reducing consumer spending power in Thailand itself, reducing the potential for domestic tourism, traditionally a strong industry driver. We will assess the potential impact of these factors once initial 2008 figures have been released, and in the absence of such data are maintaining our forecast for tourist arrivals of 15.7 mn in 2008. However, we would now caution that risks to this forecast are likely to be to the downside.

Southern Bombings Continue A further negative factor affecting the tourist industry is the insurgency in the southern provinces, which continues to carry out bomb attacks on civilian targets. In an attack in mid 2008, a car bomb was set off outside the CS Pattani Hotel in the southern province of Pattani, where local politicians as well as tourists are frequent visitors. This may indicate a response to the military government's strategy of cracking down on the insurgency in 2007, which has been maintained by the new civilian government. The shift towards attacking commercial premises, as well as the more usual clashes between insurgents and security forces, may act as a further deterrent to potential visitors, despite the south's relative unimportance to the tourist industry.

Cruise Industry Potential Although Thailand has long been on the route of regional cruise itineraries, there are indications that this area of the industry may be able to expand further. In March 2008 five major cruise companies - Holland American, Seabourn Cruise Line, Star Clipper, Oceania Cruises and Residen Sea - announced that they planned to add the resorts of Phuket and Laem Chabang to their itineraries from 2009. This will be highly positive for the Thai tourist industry, since cruise passengers are high-end spenders and will therefore boost revenues. The TAT estimates that the new cruise lines will add an extra 5,000 tourists from 2009.

This is in addition to the approximately 7,000 tourists who currently visit Thailand on a cruise a year.

Special Focus: Southern Insurgency Continues Despite speculation that the tenure of the military government might herald a shift in policy towards the disturbed southern region, little change was in fact initiated. Since early 2004 the three southern provinces of Yala, Pattani and Narathiwat have experienced bouts of significant unrest, which are often ascribed to Islamist secessionists seeking to win independence for the region. This conflict has claimed more than 3,000 lives since 2004 and is characterised by the use of co-ordinated bombings, as well as direct attacks on police and military bases.

Initial suggestions that the military government might attempt to open negotiations with the insurgent groups - who are primarily seeking autonomy or independence - were abandoned, as it became clear that neither side had any real incentive to begin talks. Instead, the military government followed the policy of the previous Thaksin government in launching security initiatives in the south as a means of shoring up domestic support. In June 2007 the military launched a programme of security sweeps on southern areas in the provinces of Yala, Pattani and Narathiwat, as part of Operation Defend the Southern Border. The security operation was intended to reduce violence in these areas ahead of the December elections.

However, although there have been some improvements, such as a decrease in bomb attacks on military patrols, levels of violence have not decreased significantly.

BMI has for some time warned of the possibility that militants could attempt to strike targets in Bangkok or in key tourist areas to pressure the government, and there were widespread concerns that the Bangkok bomb attacks of New Year's Eve marked an escalation of the insurgency. However, no group has yet claimed responsibility for the attacks, and there have been no further suggestions that the insurgency has spread. Indeed, to target areas such as Bangkok or major tourist sites would be counter-productive for the insurgents, since this would strengthen public opinion against the secessionist movement.

Instead, the insurgents are continuing to target only areas in the south, which are not major tourist destinations. This regional concentration of activity lends weight to belief that the southern insurgents were not responsible for the New Year's Eve bombings, and should reduce fears of an expansion of the southern bombing campaign across the country in the medium term.

However, the strength of the insurgency remains a low-level threat and will continue to act as a drag on the performance of Thailand's tourist sector. Although the south is relatively tourist-free, heavily publicised bomb attacks in the south would have negative implications for Thailand's tourism sector as a whole. In this regard, an attack in mid-2008 demonstrated that the insurgents retain a strong military capability. A car bomb was set off outside the CS Pattani Hotel in the southern province of Pattani, where local politicians as well as tourists are frequent visitors. This may indicate a response to the military government's strategy of cracking down on the insurgency in 2007, which has been maintained by the new civilian government. The shift towards attacking commercial premises, as well as the more usual clashes between insurgents and security forces, may act as a further deterrent to potential visitors, despite the south's relative unimportance to the tourist industry.