By Tareq Bagaeen
Earlier this week I was talking to a regional commercial head of Asia for one of the world’s largest hotel chains and the view forward into 2024 is one of concern, to say the least.
At the moment, the hotel benchmarking data look goods; for many destinations within this region, 2023 was a record year both in terms of topline revenue as well as Gross Operating Profit (GOP). Expectations are significant for the coming year; thus, the higher than usual level of apprehension.
Let us start with the GOP king of Asia, and, all the world: Maldives. A destination that has a GOP figure of just under 300 USD per available room, well over double that of its nearest rival in Asia, which is Singapore, with a GOP of just 116 USD per available room.
It seems to be a magical ride that everyone wants to climb aboard, so much so that there are over 40 resorts set to open in the region before the end of 2025. This is an astounding number and the single biggest growth spurt that this island nation has ever witnessed.
If all these hotels were in the luxury segment, it wouldn’t be much of an issue; instead a significant portion of these openings are in the more affordable range, which places pressure on rate as well as inventory.
With such a high GOP figure, one might be forgiven to think that a slight pressure on the rate would not be the end of the world, but actually, it might very well be. Maldives has a huge cost of doing business and has run a GOP margin of 33% in 2023. In fact, from May to October during low season, many hotels struggle to turn a profit. The whole country ran a negative 20 USD GOP in September 2022. No other destination in all of Asia Pacific has this problem.
Traditionally speaking, and for the past 15 years especially, when a destination needed volume, they would go after China, and it would gladly comply as its middle and upper class was growing at explosive figures and expendable income was rising considerably.
This was the hope for many nations in Asia post-Covid, but it has not materialized yet. At the end of August 2023, Chinese outbound travel demand to Japan was very healthy until the Japanese government announced that it would be releasing one million tonnes of treated radioactive water from its stricken Fukushima nuclear plant. No other country had any concern for this except for China, and it immediately made it difficult for its citizens to travel there through regulations and flight suspensions.
Meanwhile, throughout 2023, Thailand was attracting more and more Chinese tourists, with flight capacity growing at an average of 5% per month until a fatal shooting incident occurred at the country’s largest mall in October. This was not a terrorist attack, and normally such an incident would not warrant any travel warnings as it was isolated and the first of its kind.
Yet since December, flight capacity between Thailand and China has been cut by close to 50%. Many analysts and industry professionals did not understand the motive behind such a drastic move. That was until the Ministry of Foreign Affairs of the Chinese government announced that citizens of numerous countries, including Germany, Italy, France, Spain, and Malaysia, amongst others, would be permitted to enter the country without a visa from 1 December 2023.
It seems that China is very much focused on keeping its travellers, wealth and people within its borders as much as possible and also on attracting others to visit rather than neighbouring nations. We can assume that the economy is the focus of such decisions and that politics are also involved. We hope that time will provide more clarity.
What now? If China will not be the magical answer that was expected, then a pivot is essential, and Thailand is working hard to fill in the gaps. On the 31st of October 2023, the Cabinet of Thailand approved a law that allows Indian passport holders to enter the country without a visa as of the 10th of November 2023. The hope is that this will compensate for some of the loss.
This was not the first move by Thailand, as early in 2022 the country normalized relations with Saudi Arabia for the first time in over 30 years, setting the stage for an influx of visitors. It has also bolstered its exposure and marketing within this region, and it has been a huge hit. Thailand grew its Middle East tourist arrivals by over 80% from 2022 to 2023.
That is a great step to compensate for the lacklustre Chinese source market. However, caution must be exercised. Even after this growth, these volumes represent just 8% of the number of Chinese travellers entering Thailand in 2019. India would definitely help, but there remains a mountain to climb and further diversification is a must.
Let us round up this article with the most stable, most profitable, and secure market in APAC, which is Singapore, where the authorities and the tourist board appear to have been taking all the right steps. Huge city-wide events such as Formula 1 keep getting bigger with more supporting acts. Conferences are being incentivized and moved from neighbouring countries and music events have been the icing on the cake with acts such as Coldplay and Taylor Swift.
It is by no means all doom and gloom. Demand is there, and business is good, but with the influx of inventory, restrictions by China, the growing cost of long-haul travel and turmoil in the Middle East, it feels like a large grey cloud hangs in the air. Let us hope it moves on without a deluge of rain in the coming 12 months.
Story contributed by Tareq Bagaeen, founder of aQedina.com and a senior consultant with HotStats.
Find out what it takes to increase profitability and outperform hotels in your region with HotStats’ hotel benchmarking reports.
