Thailand Tourism Report Q3 2009

Final 2008 Figures Illustrate Slowdown Final figures released by the Thai authorities indicated that international tourist arrivals fell by 1.5% y-o-y in 2008, to 14.2mn. This was well below government forecasts of up to 16mn, and reflected the impact of both the global economic downturn and Thailand's ongoing political crisis. This downturn worsened in the first quarter of 2009, with arrivals falling by 16% y-o-y. Full-year tourist revenue totalled THB532bn, representing a 2.8% fall y-o-y. This too is related to the political crisis. Although the appointment of a new prime minister in December 2008 temporarily assuaged tensions, these revived in March 2009, when opposition groups held a series of protests in Bangkok.

As a result of this unrest, Thailand is likely to suffer more than neighbouring countries from the downturn, as tourists choose to visit less volatile countries. As a result, the Tourist Authority of Thailand is expecting visitor arrivals of 14mn in 2009, representing a further drop from 2008's level. This will imply a corresponding fall in tourist revenues, and a rise in unemployment. However, we are concerned that this forecast is too optimistic, given the ongoing economic slowdown and the likelihood that political protests will continue to undermine Thailand's reputation as a tourist destination. As a result, we have downgraded our full-year 2009 tourist arrivals forecast to 12.9mn.

Government Proposes Rescue Package For Tourism Industry The government is seeking to provide support to the beleaguered tourism industry. In April it introduced a THB5bn support package, which will last for five years and is designed to supply loans to small tourism operators. Other government-backed measures include the decision to target transit passengers, by offering them the opportunity to enter the country via new immigration lanes. In addition, the government is considering waiving visa fees, particularly for regional tourism. This is intended to be implemented before Japan's Golden Week, in order to encourage visits to Thailand. The three main markets being targeted in this way are India, China and Japan.

Hotels Begin To Suffer Slowing tourism is beginning to impact negatively on the hotel industry. According to a Smith Travel Research report in April, prices in Thailand have fallen by an average of 30%y-o-y across the country, as a result of slowing demand for rooms. Occupancy rates also fell, to 43% in northern Chiang Mai; 52.7% in Bangkok; 57.4% in Hua Hin and 60.8% in Phuket. Revenue per available room (RevPAR) fell accordingly, with the highest being an average of US$91 in Phuket and one of the lowest being Bangkok, with US$53. Such a downturn will be highly negative for the hotel industry's 2009 profits. Indeed, Chanin Donavanik, CEO of major chain Dusit International, stated in early 2009 that it would be the worst year for the industry in 20 years.

Special focus: Thai Political Crisis Thailand has experienced extreme political instability since a military coup in late 2006 deposed Prime Minister Thaksin Shinawatra. This appeared to briefly resolve the conflict between Thaksin supporters and opponents, which had spilled over into frequent protests and outbreaks of violence, particularly in Bangkok. However, subsequent elections returned Thailand to its pre-coup situation, with Thaksin's supporters winning a majority under new leader Somchai Wongsawat, Thaksin's brother-in-law.

The conflict reignited in 2008, with opposition to the government coalescing behind an umbrella group known as the People's Alliance for Democracy, led by Sondhi Limthongul. The group has organised repeated anti-government protests, which worsened in H2 2008 and became more violent. While this did not physically impact on tourism, which is largely based away from Bangkok in the coastal damage, it further damaged Thailand's international reputation. Travel advisories issued by countries such as the US and the UK began to warn against travelling to Thailand, providing a significant disincentive for potential tourists.

These protests peaked with the occupation of Bangkok's main international airport, Suvarnabhumi, on 26 November, which left 3,000 passengers stranded. No tourists were hurt in the protest, which was largely peaceful. The PAD protesters were demanding the resignation of Prime Minister Somchai, prompting rumours of a fresh coup in the capital.

This will have a major negative effect on Thai tourism prospects. This was the first time that the tourist industry had been directly targeted, and the protesters' use of this tactic suggests that they consider attacking the lucrative industry as a highly effective way of putting both fiscal and political pressure on the government. Despite the eventually peaceful resolution of the occupation, the direct effort to disrupt the tourist industry sets a worrying precedent and will act as a disincentive for tourists considering a holiday in Thailand in 2009.

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.