The Impact of 9-11 on Thailand's Tourism Industry By Focusing on the First-Class Hotel Market In Bangkok

List of Abbreviations

TAT Tourism Authority of Thailand THA Thai Hotel Association

U.K. United Kingdom U.S.A. United States of America U.S. United States

WTO World Tourism Organization WTTC World Travel and Tourism Council

List of Tables

1. Introduction

“Sawasdee Khrap” - welcome to the kingdom of Thailand. A number of valid characterizations such as “The Land of Smiles”, “The Land of Temples and Pagodas” and “Tropical Vacation Paradise” describe Thailand at its best. In addition to these picturesque synonyms, the kingdom gained international recognition through its growing travel and hospitality industry. In 2001 Thailand once again booked the top spot as most preferred tourist destination in South East Asia as well as runner-up position in all of Asia, second only to China. When Muslim extremists hijacked four domestic U.S. flights and cowardly carried out the terrorist attack of 9-11 on the U.S.A., the global travel sector felt the direct impact of the terrorist attacks like no other industry. From one day to the other tourists decided to stay at or close to home and hotel rooms were left vacant. As major employer and source for foreign exchange earnings, Thailand’s tourism industry was no exception to the threat. As the brutality and human tragedy of this incident will always be remembered, the following report will focus solely on the implications for the tourism and hospitality industry. In specific, the text will take an in-depth look at the development of the first class hotel market in Bangkok following the September attacks. The report looks at 14 top hotels of Bangkok and their performance from January 2000 to March 2002. Special attention lies on the seven months following the U.S.A. attacks in September 2001, whereas a full year comparison of 2000 and 2001 will also provide valid information. The tourism and hospitality industry is a major economic driving factor not only for Thailand, but also for many other Asian nations. Therefore, the beginning of this report deals with the regional development after the terrorist attacks. This way the reader will get an understanding of the current situation in Asia and the general impact of 9-11. After a general overview of Thailand, the first class hotel market of Bangkok will be analyzed by its occupancy, ADR ¹ and RevPar ² development. These performance related information create the backbone of this report and support further assumptions and findings. For validity reasons, the results are then compared to two independent surveys. The fourth section is made up of the changes in travel patterns, tourism demand and strategies, followed by a comparison of the two best performing individual

hotels and their advantages over competitors. A short outlook for the first-class hotel market and the survey’s limitations and a conclusion complete this report. The key aspects of this paper are backed up by extensive research on the topic by the author and a number of interviews with various hotel professionals from first-class Bangkok hotels and professors of local universities. All performance related information is obtained from the “Bangkok Hotel Performance Variance” Report, a document that looks at the monthly performance of the upper 39 hotels in Bangkok. Each participating hotel provides the relevant information for the internally used report.

2. The International Tourism Industry and Thailand under the Impact of 9-11

Before looking in detail at the performance of Bangkok’s first-class hotels under the influence of the terrorist attacks it is useful to briefly describe the impact of 9-11 on the international as well as Asian tourism markets. International oriented future trends and scenarios may as well determine the future performance of Thailand’s tourism and hospitality industry.

2.1 The International Tourism Industry and Armed Conflicts

During extreme situations such as the attacks on 9-11, analysts tend to take past incidents as valid indicators for possible future scenarios. Looking at the period from 1950 to 2000, world travel witnessed only a single year with a decrease in international tourism arrivals. In 1982, the tourism environment was influenced by an adverse economic climate and imposed travel restrictions on Eastern European countries as a result of the state of siege in Poland. This negative environment lead to a 0.4 % decline in international tourism. Two of the major armed conflicts of the 1990’s, the Gulf War in 1991 and the Kosovo conflict in 1999 led to a slowdown in tourism growth but did not lead to a decrease in total arrivals. Notably the following year of each conflict was marked by major growth. During the year of the Gulf War the industry grew by 1.2 %, followed by a jump in arrivals of 8.3 %. While 1999 saw international tourism rise by 3.8 %, 2000 witnessed an increase by 7.4%. However, these conflicts can only partially be compared to the current situation but their impact on the industry can be used as a trend-setting landmark for eventual future scenarios.

2.2 The Impact of 9-11 on the International Tourism Industry

The travel year 2000 was a year of major travel growth, influenced by booming economies in a large number of countries, a stable situation in regards to armed conflicts with the exception of the Middle East conflict, the recovery of the Asian markets after the 1997 economic crisis and various millennium celebrations and special events, such as the World Exhibition at Hannover and the Summer Olympics in Sydney. In figures international tourist arrivals reached 699 million, representing an increase of 7.4 % or almost 50 million compared to 1999. Following this outstanding performance in 2000, 2001 was expected to add only a modest rate of growth to the previous number, mainly influenced by the steady deceleration of the international economy. But then 9-11 happened and predictions were lowered significantly. WTO Secretary General Francesco Frangialli said that the tragic events of 9-11 affected the tourism in every region of the world, but even before that we could see a cooling in growth of outbound travel from countries like Germany, Japan and the U.S.A. during the first eight months of the year. In November 2001 the WTO reported that the travel reservations worldwide stood at 12-15% below the levels of the previous year. WTO named the terrorist attacks, the war in Afghanistan and a weak global economy as the main reasons for the downturn in reservations. ³ At this point it became even more obvious that the hardest hit destinations were the ones dependent on long-haul air travel, destinations with a heavy reluctance on U.S. tourists and countries in the Muslim world. However, some destinations were more effected than others and therefore a valid and unique crisis management for everybody does not exist. The Egyptian Tourism Minister Mamdouh El Beltagui who also chairs the Crisis Committee of the WTO said that this global crisis must be managed on a local basis. He pointed out that specific action plans need to be tailored in order to respond to each challenge in each destination separately. Surpassing earlier mentioned expectations, the trend for 2001 did not look too bad. During the first eight months of 2001 the WTO estimates that worldwide arrivals grew by 3%, which is more than one point lower than the average annual gain of 4.3 % over the past ten years but higher than expected after the record year of 2000. ⁴ However, the last four months of 2001 were

disastrous to arrivals worldwide, the global travel industry saw a decline of 11%. The hardest hit regions include the Americas, the Middle East and South Asia. Overall during the crisis year of 2001, international tourist arrivals fell 1.3% to 688 million, which represents the only significant decrease since World War II and only the second decrease at all.

Table A (www.traveldailynews.com)

Besides these devastating figures, there seems to be hope for the near future. Mr. Francesco Frangialli said: ”We have indications that December was not as bad and that these statistics do not reflect the dramatic changes in travel habits in the fourth quarter of 2001, as many tourists substituted international travel for domestic trips”. ⁵ For example, in France passenger numbers on domestic flights dropped by 15% in November, whereas the numbers for rail passengers increased by 9% during the same period. These shifts in travel habits put a new light on domestic travel, seeing rural tourism accommodations, ski resorts, campground and bed & breakfast inns benefiting by this development.

2.2.1 The International Tourism Industry Six Months after 9-11

At the ITB tourism fair in Berlin in March 2002 participants continued to look for positive aspects of the crisis. Tourism professionals and WTO representatives agreed that the worst crisis in the international tourism history had reached a turning point. According to the latest WTO forecast at that point, the industry is expected to regain pre-crisis levels by the third or fourth quarter of this year. Secretary General Mr. Francesco Frangialli said in Berlin: “Our industry has weathered the most serious crisis in its history and already we see light at the end of the tunnel”. ⁶ Tour operators also shared the optimism, because of the earlier described phenomena of a mini travel boom following a crisis. Participants said that travelers usually postpone trips rather than cancel them altogether, which will eventually lead to increased travel. The first two months of 2002 proved to be much stronger than the months of November and December. Regions such as Europe, Africa, the Western Mediterranean and the Caribbean are expected to bounce back in the third quarter of 2002. East Asia and the Pacific Region are already feeling positive impulses. On the other side South Asia, the Middle East and the Americas still feel the impact of 9-11 and will continue to be negatively effected as long as regional conflicts do not get solved. Now that the crisis is older than six months, it shows that governments and national travel bureaus have responded to the crisis in a variety of ways, including subsidies, tax breaks, shifts in marketing and promotional strategies and increased advertising. But the deep impact on the job market is still unanswered. The World Travel & Tourism Council expects the industry to experience a loss of 10.5 million jobs by the end of 2002. ⁷ Similar to the travel agents in Berlin, the WTTC refers to the resilient nature of the industry and expects a positive development and results for the long term. For the following year of 2003, an increase in all tourism branches is expected to bring the level of employment back to pre-September numbers. The WTTC expects the creation of 6.8 million jobs, replacing most of the businesses and lost jobs in the extended wake of 9-11.

2.2.2 The Impact of 9-11 on the Asian Tourism Industry

With the Asian economic crisis in 1997/98, the accelerating and steadily growing tourism sector had reached a turning point. The industry managed to come back strong when the region went through a massive economic recovery in 1999. Growth in Asia almost doubled to 5.3% in 1999, influenced partially by the return of economic growth in all ASEAN countries. ⁸ A record GDP growth of 3.4% made up the decline of 6.2% in 1998. And with the rising economy, tourist arrivals picked up pace again. After two years of decreasing tourist arrivals in Asia Pacific, the tide turned and according to the World Tourism Organization (WTO) an estimated 96.6 million people visited the region in 1999, an increase of 10.5% to 1998. As tourism plays a major role in key markets across Asia, this was a very encouraging sign for the near future. The leading nations in international tourist arrivals in Asia for the year of 1999 were China, Hong Kong and Thailand. However, early 2000 showed slightly increasing numbers for the first three quarters, while the shadows of recession settled in during the last quarter of the year. Growth slowed down significantly, but managed to remain positive. And then the September attacks happened. The immediate impact of 9-11 on Asia was not as severe as on the North Atlantic Region or other regions. But as the war against terror in Afghanistan is still ongoing and tensions between India and Pakistan are still alive, South Asia is going to be the most affected region besides the Middle East. Nations in East Asia and the Pacific region are suffering to a much lesser extend than their neighbors in South Asia, which is mainly because of the unstable situation covering the area from Iraq to India. In East Asia, Indonesia and the Philippines may be the only exceptions to a fast recovery as both have large Islamic populations and suffer under Muslim extremist groups. And after the U.S.A. sent military consultants and supervisors to the region, the aftermath of 9-11 may be more severe than elsewhere in the area. But, it is too early to make clear assumptions on the development of these two nations and neighboring countries at this point.

As the long haul travel from the U.S. and Europe to Asia declined in the first months after the terror attacks, East Asian local governments had to focus on, follow up on and promote their security standards and safety measures in order to stay competitive within the Intra Asian travel market. This is important for countries in order to mitigate the loss in business and face the growing competition within the region. The real bad news for Asia is the situation on the job market. The Asia Pacific region is expected to experience a loss of 4.4 million jobs through 2002. Taking the WTO figures into account, this represents 41.9% of the global job loss share. Dramatic cost and labor cuts as well as a regulation of the market are the main reasons for this development. China was hardest hit, with the expanding tourism sector eliminating almost 1.8 million jobs, India was second with 886,000 jobs, while Thailand and the Philippines follow with 457,000 and 315,000. ⁹ Looking at the outbound market in Asia, Japan, as the number one outbound tourist destination deserves special attention. According to the Japanese Ministry of Land, Infrastructure and Transport the country’s eight largest travel agencies reported approximately 290.000 cancellations in international trips during September alone. These cancellations represent 1.4% of the agencies annual revenue. The JTB, Japan’s largest travel agency alone saw bookings fall by 10% to 15% during October and November compared to last year’s period. Most of the cancelled trips were to the U.S. mainland or resort hotels in Hawaii and Guam. But to blame solely the attacks on the World Trade Center and Pentagon on this development would be wrong. The Japanese outbound market is highly influenced by the struggling economy since the Asian crisis, which is shown later when looking at Japanese tourist arrivals to Thailand. On the other side there is hope for the Japanese inbound market. When the 2002 World Cup takes place in Japan and South Korea during the month of June hotels expect occupancy rates of 100%. The current development implies that not only Japanese but also many other travelers from Asia will be looking for alternative travel destinations, supporting Intra-Asian travel. The aviation industry quickly responded to the shift in demand. Japan Airlines for instance cancelled 17 weekly flights to the U.S.A. and 17 weekly flights to Hawaii. A possible rerouting to tourism destinations in Asia is possible as the demand in tourism and travel will not disappear but only shift to other regions. Speaking for the airline industry in East Asia in general terms, the situation looks much better than in the consolidating European and U.S. markets. Many Asian carriers are

in a better financial situation, following reforms and belt-tightening after the 1998 Asian financial crisis. Overall the terrorist attacks and the following military campaign in Afghanistan represent only a secondary factor to the Asian tourism industry. A more direct impact comes from economic and psychological issues. A Price-Waterhouse-Cooper survey found out that 84% in the lodging demand is related to the economy rather than concerns about travel. The PWC analysis is based on the idea that the change in demand elasticity to economic indicators explains the change in demand related to the economy. In the eyes of PWC, actual lodging demand decreased by 6.5% in the fourth quarter of 2001. According to the PWC analysis, 5.4% of the total decrease is directly attributed to the economy and only 1.1% to non-economic factors and concerns, such as travel safety and terrorism related fear of flying. Therefore the economy explains 83% of the decline in lodging demand. Bjorn Hansen, Ph.D., PWC Hospitality & Leisure Practice says: “the economic effects of September were incorporated into an overall slowdown in economic activity, and it is the economy that explains most of the decrease in demand, not fear or even the increased inconvenience of travel”. ¹⁰ But, this does not imply that concerns about travel safety are not of importance to the market. However, there seems to be hope for recovery on the horizon. WTTC President Mr. Baumgarten agrees with the earlier mentioned standpoint that the response of local governments and the long-term perspective for the industry in Asia remain positive again. He said that “[.] the industry has reacted positively and swiftly through cost cutting, creative advertising, innovative promotions and seeking new market opportunities”. ¹¹ Forecasts predict that five of the top ten performers in the Asian market will grow in travel and tourism demand, despite the impact of the terrorist attacks. China, Laos and Vietnam are expected to lead the way in the near future. The expected boom in Asian travel and tourism over the next years would see some of the fastest growth in industry related capital investment. The WTTC expects investment growth in Malaysia’s and China’s tourism sector at an annual rate of 8.4% through 2012, followed by India at 7.7%, Hong Kong at 6.9% and Thailand with 5.9%. ¹²

2.2.3 The Impact of 9-11 on the Hospitality Markets in Asia

International hotel chains dominate the Asian markets in terms of hotels and rooms. Leader of the pack is Bass Hotels & Resorts followed by Accor Asia Pacific, Starwood Hotels & Resorts, Marriott International and Hyatt International. Before as well as after the September incident, each of theses companies holds well structured expansion plans for the Asian region. The continued recovery of the Asian hotel market following the financial crisis was hampered in 2001 by overall global slowdown, particularly in the U.S.A. and Japan as well as by the aftermath of 9-11.When measured in US$, only 5 out of 28 Asian markets reported a positive RevPar, according to Andersen’s well-respected Hotel Industry Benchmark Survey. The survey saw Ho Chi Minh City outperforming the other markets with an increase of 15% to US$29 in 2001, followed by Shanghai, Osaka, Bangkok and Kuala Lumpur. This surprising result can be explained with a rather low staring RevPar level as well as the strong and aggressive marketing campaign by the Vietnam National Administration of Tourism. In addition, Vietnam experienced a notable increase in foreign direct investment as international hotel chains see Vietnam as a future market with high potential. Furthermore, Vietnamese authorities facilitated some visa requirements and re-opened a number of international flights, which helped to promote tourism in the country. Runner-up Shanghai had to absorb a number of newly added hotel rooms, while the city emerges as Asia’s leading financial center. Shanghai managed to increase RevPar by 14.2% as the average room rate was raised by 14.4%. China’s future for leisure travel and corporate business looks very promising especially after its entry into the WTO and continuous increase in FDI. Sydney and Manila were the two worst affected markets in the Andersen survey. Sydney experienced a drop in RevPar of 28%, what many analysts see as the post Olympic hangover mixed with the combined impacts of a slow economy and 9-11.The hotel market at the moment is very competitive, because the city has not yet absorbed all the newly added capacities from 2000. Manila with 24% less in RevPar continues to suffer from the perception of the Philippines as an unsafe destination.

Table B (The Andersen Hotel Industry Benchmark Survey - 2002, Annual Review Asia Pacific)

Bali, a previous top performer in the survey, recorded a drop in RevPar of 27.5% during the last four months of 2001, but was able keep the decrease for the complete year at 2.4%. This represents a major set back, as Bali raised RevPar by 11.9% in 2000 compared to 1999. The dramatic decline in RevPar is referred to a major drop in occupancy, which dropped from 80.2% to a low 56% in 2001.

2.3 Thailand

It is time now to look at Thailand and the performance of Bangkok’s first-class hotel market. Thailand is about the size of France and home to a population of 61.8 million people. The capital of the kingdom is Bangkok, where 1/6 of the total Thai population live. Almost 25% of the country’s inhabitants belong to ethnic minorities, including Chinese, Malay and tribe people. 95% of the Thais are Buddhist, while Moslems make up the 2 ^{nd largest religious group with 4%.}

The kingdom’s neighbors are Laos, Cambodia, Malaysia and Myanmar. Its climate is tropical hot with humidity ranging from 60% to 90%. The best and main travel season is from November to February, when the climate is warm and dry. Little cooler temperatures can be found in the subtropical northern area of the nation. In earlier times the agricultural sector dominated the nation’s GDP. In 1974 agricultural products were accountable for 55.7% of GDP, whereas the primary sector in 1999 contributed only 13% to the GDP. ¹³ Over the years the service sector became the most important factor for Thailand’s GDP, reaching 47% in 1999. Although the economy has diversified significantly, most Thais are still linked to the agricultural sector. But the slow growth within the sector means that there is now a wider economic gap between urban and rural people. This discrepancy caused major migration of the population from rural destinations to the towns and cities, especially to Bangkok.

2.3.1 Thailand and its Economic Performance

Thailand enjoyed the world’s highest growth rate in the period of 1985 to 1995, averaging almost 9% annually. Economists worldwide saw the kingdom as the next nation to join the exclusive club of the Newly Industrialized Countries (NIC). However, increased speculative pressure on Thailand’s currency led to a crisis - resulting in the Asian economic crisis - that uncovered financial sector weaknesses and forced the government to float the Baht in 1997. Long pegged at Baht 25 to the US$, the currency reached its lowest point of Baht 56 to the US$ in January of 1998. At the moment 1 US$ equals roughly Baht 41. Thailand was the first country to be affected by the financial crisis in Asia and it has been among the first to show strong signs of recovery. In 1999 the government implemented a budget that was aimed at stimulating general economic growth, boosting consumer confidence and encouraging investments. As a result, a loosening of monetary policies and steady stabilization of the national currency occurred. In particular the consumer, tourism and hotel sector contributed to the improved economic performance of Thailand. After two years of negative growth rate, Thailand marked a come back with 4.4% in 1999, being able to maintain the growth at 4.6% in 2000, led by the general economic upswing,

growing export and tourism markets. ¹⁴ General predictions for 2001 were positive until 9-11 rushed away the little remaining hope following the global economic downturn in late 2000. For the entire year exports declined when Thailand’s most important trading partners reduced their imports. The U.S.A. and Japan contributed to the economic slow down since the beginning of 2001. Part of this contraction in foreign demand could be offset by domestic stimulus from the government sector. But with substantial production capacity remaining unutilized, demand for new investments in machinery and equipment remained low, especially in the export-oriented industries. Household consumption continued to rise, but at a slower pace than during the previous year. Consumer confidence was shaken by the terrorist attacks, but improved steadily after hitting a year deep in September. Besides all these negative effects, Thailand’s economy was able to prevail under the struggling global environment with a growth rate of 1.8% in 2001. ¹⁵ One very positive factor for Thailand’s overall economic performance represents the tourism industry, which marked a record-breaking result in 2001.

2.3.2 Thailand’s Tourism Sector

Thailand lies at the geographical center of South East Asia and is made up of four major and diverse regions with complementing resources. The northern mountainous region includes many cultural ruins, temples and distinct ethnic hill tribes set around the ancient city of Chiang Mai. The semi-arid Korat Plateau is set in the North-East region of Thailand, which represents the least visited region of the kingdom. The central part on the Chao Praya River is the most fertile and populous area, as it is centered around Bangkok. The southern region, which occupies much of the Malay Peninsula, offers visitors the opportunity to experience outstanding coastal and beach resort destinations. For some time now, the Thai kingdom ranks among the top three tourism destinations in Asia just behind China, which is believed to own the top spot in the near future. Over the years Thailand has experienced significant growth in international tourist arrivals. This outstanding performance is due to several factors, including the economic and political stability compared to

neighboring countries, the increase of flights to Thailand, increased financial support from the government and greater cooperation from the private sector. ¹⁶ Only a brief look at the tourism arrival numbers is necessary in order to see the success story of Thailand’s tourism sector. Since the gulf war in 1991 arrivals have been rising, breaking one record after another. Even the economic crisis year of 1997 saw arrival numbers increasing slightly by 0.41%. In 1998 arrivals jumped 7.53%, mainly caused by the floating Baht and the resulting price/value relationship. Even the high-end hotel market paid tribute to the weak currency. Hotels sometimes lowered their rack rates weekly by up to US$ 20, up to rates that did not exceed US$ 80 per night. In 2000 the tourism industry comprised 200 billion Baht or 5% of Thailand’s GDP. The industry also helped to stimulate production and maximize the use of resources from other related sectors as well as it eased off the employment burden, helped to distribute income and gave rise to other related businesses. The real significance of the tourism industry for Thailand becomes clear when looking at the tourism income multiplier. For Thailand the multiplier is 1.08, while all other industry multipliers stayed below 1.0. A tourist income multiplier of 1.08 means each tourist dollar spent generates US$ 0.08 for the nation’s GDP - it works as follows. Every tourist dollar entering an economy brings in new money. The part of the dollar that remains in the economy is spend and respend and determines the tourism income multiplier. ¹⁷ Tourist or business traveler staying at a hotel will spend money in many ways. The hotel itself will spend a certain amount of that money at local markets, such as paying local employees, buying goods at local markets and stores, etc. The money spent in the local environment will stimulate the economy and cause further spending in the same way as described above. In comparison to other nations, this multiplier is still considered to be rather low, e.g. countries with less tourism oriented government such as Ireland and Canada show multipliers well above 2.0. However, in order to make a clear statement on the tourist income multiplier, special attention should be laid on the import propensity, which shows how much of the tourism dollar leaves the economy as it is used for imports. Tourism for Thailand is not only a generator for foreign exchange; it also supports development, employment and infrastructure for the economy as a whole (e.g. roads, railways, airports, harbors and power stations). Additionally it is an active contributor to decentralization

and a generator of supporting services and industries with backward linkages into other sectors such as agriculture. In the 21 ^st century, the kingdom’s tourism industry seems to be on the right track, despite a rather low economic outlook for 2001. Earlier in 2001, the tourism industry was expected to see arrivals cross 10 million for the first time in Thailand’s history. ¹⁸ Before the world was confronted with the 9-11 events, the Tourism Authority of Thailand estimated 10.3 million guests to visit the kingdom, which would have meant an increase of 7.53% to the prior year. The first eight months of 2001, saw continuous growth to a total of 6.764.568 visitors, representing an increase of 8.10% to same period in 2000. But over the following three months, Thailand faced the first decline in monthly tourist arrivals since February 1998. From September 2001 to November 2001 visitor numbers dropped on average by 2.69%, whereas November got hit hardest with a decrease of 4.29%.

Table C (TAT - Tourism Authority of Thailand)

Against the trend, tourist numbers in December 2001 exceeded the magical one million margin since record taking started. Despite the performance during the three negative months of the last quarter, the December result led Thailand to finish the year with 10.124.627 visitors, an increase of 5.70% over 2000. And for the first time in the kingdom’s history visitor arrivals topped 10 million. ¹⁹ Not even the economic crisis could stop the increase in tourism arrivals in the late 90’s. In 1999 tourist arrivals had risen 19.8% and in 2000 numbers climbed 32.65% using 1997 as the base year. The largest potential lies with the Chinese travelers. As travel restrictions have been eased and China finally entered the WTO, outbound travel from China accelerated. In 1999 Chinese travelers made up 9.4% of total arrivals, which meant an increase of 36% to the previous year. In 1999 the largest groups of travelers arrive from Japan and Malaysia, with 12.8% and 12%. Thailand’s prime tourist generating market, the Intra ASEAN market saw arrivals growing from 1999 to 2000 by a modest 0.5% despite the economic hardship. Looking at the top 10 tourist markets for Thailand for 2001 shows the mixed impact of recession and terrorist attacks. Former number one generating source Japan lost its top position from 2000 to Malaysia.

Table D (Travel Trade Report, February 6-12, 2002; Vol.25 Issue 5) In 2001 arrivals from Japan declined by 2.24%, whereas Malaysian arrivals continued to grow by 6.67% to 1.185891, a total share of 11.71%. As second largest source Japanese visitors made up 11.63% to a total market share of 12.55% 2000. ²⁰ China remained in third place with an increase of 6.31%, now contributing 7.91% to the number of total arrivals. Besides Japan, the market of Singaporean travelers generated the only additional decline in tourist arrivals to Thailand; numbers declined by 5.65%. Overall the top ten tourist markets for Thailand made up 68.40% of all arrivals in 2001, whereas the European, U.S. and Australian markets play only a minor role in this statistic. The best performing non-Asian nation is the U.K. in fifth position.

3. Bangkok and its First-Class Hotel Market

The previous pages show that tourism in Thailand is still on the rise and quite resilient to general economic downturns and military conflicts. The kingdom’s capital Bangkok benefits from the increase in arrivals as well. Also referred to as city of angels, Bangkok is a cosmopolitan city with a diverse mix of tradition and technology. In spite of being a unique example for East Asian modern development, it manages to retain its unique cultural identity. Key characteristics symbolizing this mega-city are its massive population, traffic jams, high-rise skyscrapers, traditional architecture, a steamy nightlife as well as its beautiful temples and palaces. In addition, Bangkok is on the way to one of the most preferred convention and conference destinations in Asia. Top facilities include the Queen Sirikit Center for up to 4800 participants, the United Nations Conference Center for over 2000 participants, the Thailand Cultural Center for 6000 people, the BITEC with 20.000 sq. meters the largest single level convention facility in South East Asia and the Impact Exhibition and Convention Center. Hotels offering some of the finest conference facilities in South East Asia, complement this portfolio and aim at the growing MICE market. Thailand as a whole is well equipped to handle the increased tourist and corporate business development. The kingdom offers many excellent hotels and resorts in every business and tourist

destination throughout the country. In 1999 the Thai hotel market included over 2500 hotels with far over 100.000 rooms in major tourist centers. ²¹ Bangkok alone offers over 73.000 rooms of all kinds. Most visitors to Thailand arrive by plane through Bangkok’s International Airport Don Muang. Over the years Bangkok developed into one of South East Asia’s major air-hubs, serving over 85 airlines and being the home base for Thai International Airways. In 1995 a new terminal was added to the existing airport, while current plans are underway for a new airport ready to go in operation in 2006. Bangkok as the major source for first-class hotels in Thailand experienced significant upgrading of its infrastructure with the opening of the Bangkok Transit System (BTS) in 1999. The Skytrain is an elevated railway, which connects the commercial centers on Sukhumvit Road and Silom Road. Originally built to improve traffic among these two highly frequented and always jammed up centers, it facilitates and comforts travel for tourists in Bangkok as a number of major international chain hotels and shopping centers are located along the track. For longer traffic-jam free traveling, the expressway takes visitors right into as well as around the center of Bangkok and its fine hotels. In addition, the subway, currently in its final stage of construction will also make traveling in Bangkok easier and further improve traffic conditions in the city.

3.1 The Bangkok Hotel Market in the Years after the Economic Crisis

The situation of the Bangkok hotel market in 1999 was marked by newly added supply to the upper class market as well as the market tried to finally overcome the aftermath of the Asian crisis. New quality supply came on the one side from the Peninsula Group with the opening of the 370-room Peninsula Bangkok Other completed five-star properties include the 410-room Merchant Court Hotel and the 673-room Baiyoke Sky Hotel. ²² The end of 1999 saw an increase in tourism demand absorb the newly added supply in rooms, resulting in modest performance improvements. Bangkok hotels recorded an occupancy rate of 67%, representing an increase of 2.8%. ADR climbed 7.4%, while RevPar recorded 10.4% above 1998 figures with Baht 1.403. ²³

In 2000 another 370 rooms were added to the first-class hotel market with the completion of the Hotel Plaza Athenee. The market adjusted well and fast to the new supply in rooms. In addition, several airlines paid tribute to Bangkok’s rise as an alternative destination for corporate headquarters in the region and its popularity for regional meetings. E.g. Air France and Singapore Airlines rerouted flights to Asian destinations, now with a stopover in Bangkok. In the contrary, there is a present trend to turn back to the Singaporean airport due to growing cost awareness in the industry. Qantas, British Airways and Scandinavian Airline Systems (SAS) have all dropped several flights to Bangkok due to extremely high charges and very low fixed airfares. ²⁴ The government and aviation authorities in Thailand should carefully and professionally deal with the situation to attract more instead of turning away airlines. Growing consumer confidence and national economic growth positively influenced the hotel market in 2000, besides global economic ups and downs at the beginning of 2000. Even the expanding mists of recession did not stop the year-end figures to remain positive.

3.1.1 The High-End Hotel Market in Bangkok

The high-end hotel market in Bangkok is home to the finest hotel brands and names in the industry. Fourteen of these top-ranking hotels have been chosen by the author and provide the performance related information for this survey. Attributes taken in consideration were service standard, reputation in the industry, tradition, technological standard, location and economical performance. An alphabetical list of the according hotels looks as follows:

1. The Banyan Tree Bangkok (former Westin Banyan Tree) 2. The Dusit Thani, Bangkok 3. The Grand Hyatt Erawan 4. The Hilton Hotel Bangkok 5. The JW Marriott 6. Le Royal Meridien 7. The Oriental Bangkok

8. The Peninsula Bangkok 9. The Hotel Plaza Athenee

10. The Regent Bangkok 11. Royal Orchid Sheraton Hotel and Towers 12. The Shangri-la 13. The Sheraton Grande Sukhumvit 14. The Sukhothai

Not included in this survey is the Siam Inter-Continental Hotel. The hotel has been under the influence it’s closing down procedures in June 2002. A Mall Department Store will replace the five-star property. An additional note regarding the Hotel Plaza Athenee is also necessary. After a soft opening in late 2000, the hotel went fully into operation in 2001. Because of missing comparable data for the year 200, the hotel does not offer sufficient information to be included in the general market overview, but it does provide interesting information for the individual hotel comparisons. The overall standard of the included hotels is one of highest in Asia. Five of the above hotels (2,7,8,9 and 14) belong to the exquisite circle of “The Leading Hotels of the World”, whereas another five hotels (10,7,12,8 and 3) were listed in the Conde Nast Reader’s Choice Award 2000. ²⁵ The not mentioned hotels all belong to the high-end margin of the market and/or their chain companies, e.g. the Sheraton Grande Sukhumvit is included in Starwood’s Luxury Collection, the upper market segment of Starwood’s hotel portfolio. Four hotels (7,8,11 and 12) are located on the Chao Praya River and will be referred to as the Riverside Hotels, while the other ten hotels (1,2,3,4,5,6,10,11,13 and 14) comprise the Downtown Hotels. A description of each hotel would take up too much time and space. Therefore focus is laid upon the most well-respected hotel in the market, followed by general description and summary of the fourteen hotels and their services. Tourism experts regularly rank The Oriental Hotel Bangkok among the top three hotels worldwide. Often referred to as the “Mother of all Hotels”, the Oriental marked its 125 ^th

anniversary in 2001. Originally built as a hostel for seamen staying in Bangkok in 1976, it was constantly upgraded and extended. In 1958 the colonial style hotel saw the completion of the Tower Wing and in 1976 the River Wing was added. 360 rooms and 35 suites make up the hotel’s current room capacity. The culinary side offers top of the range French, Italian, Thai, Chinese and Seafood specialties. In 1993 the Oriental Spa was added, offering various wellness packages as well as a light aromatic wellness cuisine. Further services include banquet and meeting facilities for up to 500 people, two swimming pools, a fully equipped sport center, tennis and squash courts, complimentary Yoga classes and the famous six-day Thai cooking school. Over 1000 employees, representing an employee per room ratio of above 2.46 ²⁶ , perform the perfect service for their guests. Many of the employees have been with the hotel for more than 20 years. Hotel officials claim that the fluctuation rate is minimal compared to other world-class hotels. Combining the fourteen hotels brings to live a great variety in service facilities. A fact sheet, showing all services and facilities of all hotels looks as follows:

- 5648 Rooms

- 654 Suites

- 14 Thai Restaurants

- 5 Chinese Restaurants

- 6 Japanese Restaurants

- 5 Cantonese Restaurants

- 1 Vietnamese Restaurant

- 12 International Restaurants

- 6 Italian Restaurants

- 2 French Restaurants

- 2 Seafood Restaurants

- 2 Steakhouses

- 41 Bars, Lounges and Terraces

- 16 Swimming Pools

- 14 Spas

Naturally all these facilities are provided with a maximum in service standards, as the hotels represent the best of their kind in Bangkok.

9-11 left its marks on the tourism and hospitality industry. Especially high-priced upper market products were believed to suffer the most from the general decline in international travel. How the high-end hotel market in Bangkok experienced the impact of 9-11 will be shown in this section. The performance related information includes annual and monthly occupancy rates, ADR as well as RevPar. ²⁷ This information will provide the backbone for further assumptions and reactions. Furthermore, the report looks at the performance of the Riverside vs. Downtown Hotels as well as the performance of the individual hotels. For a complete understanding of the market performance it is necessary to combine all three performance related findings. RevPar is the best way a hotel has to analyze its performance. It is a reflection of the way occupancy and ADR, which is an occupancy ratio derived by dividing net room revenues by the number of rooms sold, are being managed. To obtain RevPar, ADR is multiplied by occupancy for a specific period. RevPar can alert hotel managers to how well the hotel sells rooms during slow periods and how successfully the hotel uses the concept of upselling, convincing guests to stay at higher room rates or packages during peak season. Hotel revenue is a function of rate and occupancy. Initially, hotel managers look at either rate or occupancy as a measure of success and realize too late that they are misleading and that only when the concepts of rate and occupancy are analyzed together the true revenue picture can be fully understood. Thus, in order for hotel managers to understand revenue, they must understand RevPar and to understand RevPar, a clear understanding of ADR and occupancy is essential.

3.2.1 Occupancy Development for the First-Class Hotel Market

The average occupancy rate for the first-class hotel market in Bangkok during the observation period was 68.83%. The yearly occupancy rate for 2000 was 69.11%. The rate declined by 6.00% to 64.96% in the crisis year and saw a high 72.43% in 2002, which theoretically represents an increase of 11.50%. However, as the 2002 number covers only the first quarter, occupancy does not give a clear indication for the significance of the comparison. It is therefore necessary to separately focus on a comparison of the first quarters in 2001 and 2002. ²⁸ Looking at the first quarter alone shows that 2002 is making up lost ground after the attacks, but is still behind the previous year’s results. During the first quarter of 2001 the occupancy rate was 76.26% or 5.29% above the level in 2002. ²⁹ A closer look at the average occupancy development for the period following the terrorist attacks explains the loss in occupancy on a monthly basis, shown in Table E.

Table E (Bangkok Hotel Performance Variance)

Whereas occupancy in August 2001 fell by 2.44%, due to the negative economic atmosphere, the following months carried all the weight of the attacks. While the first ten days of September 2001 looked very promising, the attacks lead to a decline of 18.14% at the end of the month. Even worse off were October and November, experiencing heavy losses of 23.07% and 21.99%. After the shock settled in a little, the first months of the high season saw a slight recovery. In December, the variance shrank and the occupancy level recorded - 9.00% with a rate of 61.05%. The first quarter 2002 marks a turn around point. Occupancy grew stronger and the monthly variance between 2002 and 2001 started to decline. January 2002 saw an occupancy rate of 63.52% still 9.22% down to the previous year. The situation improved in February, when occupancy reached 79.45 only 4.77% off last year’s month. In March occupancy levels were almost leveled. The variance to the previous result was only 1.47%, marking a rate of 74.33%. Predictions for the following months seem to underline the continuous proceeding on the road to recovery with positive expectations for the rest the year. Compared to the previous period from September 2000 to March 2001, occupancy dropped 12.22% from 74.22% to an average of 65.15% for the current seven months period. A comparison between Riverside and Downtown Hotels does not lead to a clear conclusion of which group is ahead of the other in terms of occupancy levels. Looking at the average occupancy for the 27 months period shows that both groups are seeing head-to-head occupancy rates. On average, the Riverside Hotels with 69.65% performed slightly better than the Downtown Hotels with 68.47%. In 2000 both groups experienced rates slightly above 69.00%, whereas the Downtown Hotels were ahead of its competitors by 2.00% in the crisis year 2001. The road to recovery for the first quarter of the year 2002 shows a different trend than the just mentioned head-to-head performance. During the first quarter of 2001, both groups were separated by only 3.42%. But the hotels on the river were able to widen the gap to 6.28% during the following year. The Riverside Hotels managed to come close to their 2001 result, while the Downtown Hotels had to deal with a greater decline in occupancy, loosing 6.25% to the 1 ^st quarter 2001. ³⁰

Table F shows a month-to-month comparison between the hotels in the downtown area and on the river. Over the observed period of September 2001 to March 2002, the Riverside Hotels managed to stay ahead of the Downtown Hotels by 1.53%. 31

Table F (Bangkok Hotel Performance Variance)

The table shows that the Downtown Hotel and their corporate business lead the market until high season in December. In August, Downtown Hotels were up by 10.43%, whereas in November the variance was only 0.24%. And as soon as the season reached high-season, Riverside Hotels regained lost ground and stayed ahead until the end of high-season in March. The graph also shows the upward trend for the complete hotel market, due to the period of increased arrivals, which clearly marks the period from December to March as high-season and the top-performing months for Thailand’s tourism industry. Despite these observations, both groups lost in lost business after 9-11. During the month of December Riverside Hotels recorded a decline of 10.47% in occupancy. Moreover, during the observed seven-months period, both groups suffered, while the Riverside Hotels were worse off than their competitors with a decline of 13.67% compared to 11.57%. ³²

Looking at the individual performance in occupancy for the seven months period shows the JW Marriott, Le Royal Meridien, the Peninsula, the Hilton and the Oriental Hotel ahead of the other hotels. With 81.57% the JW Marriott leads the market, followed by le Royal Meridien Hotel with a rate 79.99%. Both hotels belong to the group of Downtown Hotels. ³³ Despite a double-digit average market loss, the individual performance in occupancy surprisingly produced well-performing hotels, not many but a few. Table G provides the information about the gains in occupancy for the top-performing hotels.

Table G (Bangkok Hotel Performance Variance)

Three hotels managed to maintain a positive growth in occupancy after 9-11. The top performers during the seven months period are the Hotel Plaza Athenee, le Royal Meridien and the Hilton. The JW Marriott managed to stay close to its September 2000 - March 2001 period, whereas the fifth ranking Sheraton Grande Sukhumvit experienced a decrease of 8.65%. All of the topperforming hotels belong to the group of Downtown Hotels. As the Hotel Plaza Athenee does not come from a high occupancy level, its increase from 21.44% to 24.85% explains the large

percentage figure. Therefore, the real top-performing hotel is le Royal Meridien, which managed to improve its performance from 74.61% to 79.99%. On the other side, the negative performing hotels outnumber the above-mentioned three by far. With an average market decline of 12.22% the poorest performers include the Dusit Thani Hotel with a major loss of 36.14%, the Banyan Tree with 24.93% and the Shangri-la reporting a drop of 16.86%. ³⁴ The enormous declines by the Dusit Thani and Banyan Tree are also subject of later discussions

3.2.2 ADR Development for the First-Class Hotel Market

The average daily room rate shows a continuous increase over the 27 months period, whereas this growth was significantly slowed down in 2001. From 2000 to the crisis year of 2001, the ADR increased by 15.7% or Baht 644.50. For the first quarter 2002, the ADR experienced another lift of Baht 157.51 or 3.31%, to the comparison of the complete year 2001. The average market rate for the first class hotels in Bangkok during the observed 27 months period equaled Baht 4588.37. ³⁵ Similar to the occupancy findings, the ADR of the first quarter 2002 looked different if compared to the period in 2002. Here the first three months saw only a small increase of 1.06% over the 2001 period. ³⁶ Ups and downs characterize the ADR development for the months following 9-11, shown in Table H. In August 2001, ADR managed to increase by 15.5% or Baht 595.99%. September saw slight decline, whereas the rate was able to remain above the 2000 margin. However, October experienced an increase in ADR to the previous month as well as to previous year measure. October 2001 was ahead of the 2002 month by 7.28%, whereas November 2001 was leveled to its previous result. December 2001 saw ADR 2.5% above the 2000 figure, while January 2002 was off by 1.5%. ADR in February 2002 reached the highest recorded level with Baht 5170.37, 5.1% above February 2001 and 9.25% above January’s ADR. In March the ADR came in 0.7% short of the recordings in 2001 as well as 6.74% below the February figure. With an average of

3.14% to Baht 4786.71 the complete market experienced only a modest increase in ADR for the seven months period.

Table H (Bangkok Hotel Performance Variance)