Thailand Tourism Report Q1 2009

Tourist Arrivals Drop Sharply Despite its decision to stop releasing official statistics, occasional announcements by the Tourism Authority of Thailand (TAT) paint a grim picture. Tourist arrivals were running at around 7-8% in the first half of the year, and grew by 5.5% y-o-y in July, However, arrivals dropped by 33% in August and 21% in September. We had expected slower growth in August, owing to the diversionary effect of the Beijing Olympics. However, this was well beyond expectations. Such a sharp drop reflected not only the global economic downturn – with a fresh bout of financial crisis beginning in August – but also the impact of Thailand’s ongoing political crisis, which began to worsen again towards the end of 2008.

Tourists may now be wary of visiting Thailand.

As such, we are pessimistic about the industry’s growth prospects into 2009 for two key reasons. First, we despite TAT’s efforts to market Thailand as a high-end tourist destination, on the basis that wealthier tourists will be less swayed by economic downturn considerations; this has been only partially successful.

Thailand will therefore suffer a downturn in arrivals in line with other countries in the region. However, this will be exacerbated by the political crisis, which is beginning to directly impact tourism. Should the political situation be resolved, whether via fresh elections or a further coup, there may be potential for a slight recovery in tourists arrivals. Yet given Thailand’s cycle of political instability since 2006, we believe the risks are weighted to the downwise. Our 2009 arrivals forecast is therefore for 17.1 million arrivals, representing growth of 5% y-o-y.

Violence Closes International Airport Thailand’s political crisis turned violent on 26 November, when protesters demanded the resignation of Prime Minister Somchai Wongsawat’s government stormed Bangkok’s international airport, Suvarnabhumi. The protesters were armed with guns and knives but no-one was reportedly hurt. The protesters had been hoping to intercept the prime minister’s return from a state visit but instead shut down the airport, leaving 3,000 international passengers stranded. Although some airlines attempted evacuation, this was confused and complicated by riot police surrounding the airport. The situation worsened on 27 November when protesters also occupied Don Muang airport, Bangkok’s domestic terminal.

Airport Closure Hits Airline Profits Leading domestic carrier Thai Airways was, as expected, hit most heavily by the November closure of Suvarnabhumi and Don Muang airports. The airline operates approximately 140 flights per day through Suvarnabhumi and was forced to cancel all. Plans to reroute the flights via old airport U Tapao in the neighbouring province of Chonburi were complicated by the airport’s small capacity. Thai Airways expects the costs to total THB500 million per day or more, incorporating loss of revenue from cancelled flights, compensation for stranded and cancelled passengers, as well as the accommodation costs for passengers and crew stranded outside Thailand. Thai Airways is already suffering this year, with rising fuel costs and decreasing passenger arrivals forcing it to cancel routes. In expectation of poor 2008 financial results, company president Apinan Sumanaseni resigned in late November.

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 has now reignited, 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. Indeed, the government appeared hamstrung in its response to the airport occupation.

Initial threats to send in riot police were dropped, presumably since this could have endangered those tourists still inside.

Although most tourists had been evacuated by end-November, the continued occupation of the airport meant that the main route into Thailand was closed, forcing many tourists to cancel their holidays, Some flights were rerouted to other Thai airports, but these are substantially smaller and could not accommodate the required number diverted from Suvarnabhumi. Regardless of the outcome of the political crisis, 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.