HIMALAYAN TOURISM HEADED DOWNHILL

UNCLAS SECTION 01 OF 03 KATHMANDU 000680

SIPDIS

E.O. 12958: N/A
TAGS: ECON PREL CASC NP
SUBJECT: HIMALAYAN TOURISM HEADED DOWNHILL

REF: KATHMANDU 568


1. SUMMARY: Nepal's tourism industry, one of the
country's top sources of foreign exchange, has been
facing tough times in recent months, and the prolonged
slump has negatively affected every sector of the
tourism economy, from hotels and airlines to trekking
agencies. International arrivals at Tribhuvan
International Airport were down by 56% this February,
and occupancy rates at hotels around Kathmandu are at
40% on average. Although the GON has announced several
relief measures, the mood among industry professionals
ranges from skeptical to bleak, with most business
owners blaming their woes on domestic and international
security concerns. End summary.

VACANT ROOMS
--------------


2. Nepal's hotel industry has been hit hard by the
decline in tourist revenues, with five-star hotels
apparently hit the hardest. While most hotels in the
capital report 40-45% rates of occupancy, the Yak and
Yeti, one of Kathmandu's oldest luxury hotels, reported
an occupancy rate of 25% for March, and the newer Hyatt
cited a dismal 10-15% for the same month. The Crown
Plaza Soaltee is running at about 50%, according to its
owner. Conversely, the less sumptuous Kathmandu Guest
House was bucking the trend with an occupancy rate of
90%. It appears clear that the high end of the tourist
trade is taking a larger hit than the low -- backpacking
-- end.


3. Deepak Upraity, General Manager of Kathmandu's
Shangri-La Hotel, estimates that occupancy in the
capital is down 50% compared to last year's figures.
According to Upraity, the decline may be too much to
bear for an industry already suffering from oversupply.
"We haven't started laying people off yet," he said in a
meeting with EmbOff, "but we've stopped filling staff
vacancies, and we've asked people to go on leave. We're
holding local events just to keep the staff busy and
keep [the hotel] going. But we're also looking at ways
to start seriously cutting costs."


4. March is typically one of the best months for tourism
in Nepal-- good enough to sustain the industry through
the lean summer monsoon season. But this year, with an
occupancy rate of 45% in March and an expected 25%
occupancy rate in June, Upraity is not optimistic.
"Tourism has been steadily declining since 1999," he
lamented, referring to the year in which an Indian
Airlines jet was hijacked on departure from Kathmandu.
"Last year, people had already made bookings when the
royal massacre happened, and so they kept coming because
they didn't want to cancel. But now?" He simply
shrugged.


EMPTY SEATS
--------------


5. Immigration data documents the drastic decline in the
number of foreign arrivals at Tribhuvan International
Airport (TIA) when compared to last year. American
arrivals were down by approximately 62% in January, with
1101 Amcits arriving this year, compared with 2950 in

2001. February numbers reflect a 56% decrease, from
3296 last year to 1436 this year. Total arrivals by
third-country nationals (excluding India) were down by
62% in January and 59% in February. Indian arrivals,
perhaps boosted by the SAARC Summit, were only down by
24% in January, but dropped by 41% the following month.


6. Several airlines have cancelled service as a result
of the shrinking demand for service. The Dutch carrier
Transavia will suspend flights to Kathmandu starting on
April 28; Russian carrier Aeroflot is also canceling its
Kathmandu schedule. Thai Airways, which runs daily
service to and from Bangkok, reports that their incoming
flights are only carrying 30-40% of capacity, and a
personnel officer at Royal Nepal Airlines, the national
carrier, told EmbOff in March that the airline is "on
the verge of complete collapse".


7. Domestic airlines are also feeling the heat, with
several of the small local companies laying off workers.
Tulsi Karmacharya, Manager of NECON Air, stated that his
company has had to lay off 25% of their workers, due in
part to the decline in tourism, and Mountain Air has
forced employees to take leave without pay starting in
February.

DESERTED TREKKING ROUTES
--------------


8. The lack of tourism has been devastating to Nepal's
multitude of trekking firms, as the worsening security
situation has made visitors less willing to travel to
remote areas with poor communication and transportation
infrastructure. Recent Maoist activities, such as
blocking the road to Jiri, the origin point for the
Everest trek, are likely to further impact the industry.
Tsering Dorjee, Sales Manager at Malla Treks, indicated

SIPDIS
that their business was down by more than 50% and that
many of their guides, cooks and porters, all of whom
work on contract, are simply out of work. "It's all
because of the security situation," Dorjee said. "No
one wants to venture out anywhere."


9. Foothills Trekking, which schedules about 40-50
groups during the first three months of a normal year,
is experiencing an even sharper decline in business.
According to its Chairman, Birendra Gurung, the company
has scheduled just three trekking groups so far this
year. "Everyone has the same problem," Gurung stated.
"Maybe the number one or number two company has more
groups, but everyone else is really suffering."
Anecdotal evidence supports this: trekking guides and
agents applying for non-immigrant visas since the start
of the year have been reporting a complete evaporation
of business, and have been presenting documents that
show little or no income since September of last year.

SAME PROBLEMS OUTSIDE THE CAPITAL
--------------


10. Kathmandu's hotels have historically survived the
monsoon thanks to the trickle of tourists transiting
Nepal on their way to Tibet, but hotels in Nepal's
second city of Pokhara rely on Indian business travelers
to fill their rooms during the rainy season. According
to Shangri-La's Upraity, the situation in Pokhara is
even worse than in the capital and not expected to get
any better. Claiming that tourism in Pokhara was down
by 60-80%, he said that the worsening security situation
had eroded the "friendly, brotherly impression" that
Indian tourists had previously had of Nepal, and
predicted a continuing freefall in occupancy rates.


11. Even the Tiger Tops/Tiger Mountain juggernaut, which
helped to pioneer eco-tourism in the jungle parks and
mountain regions of the country, has been affected by
the general decline in tourism. Tiger Tops CEO Kristjan
Edwards told EmbOff that occupancy in the various Tiger
Tops lodges is approximately 50%, even after the company
closed its popular Tented Camp in Royal Chitwan National
Park and began offering reduced rates to the other
resorts for both residents and foreign tourists. One
night at the Tiger Tops Jungle Lodge cost $325 in 2000;
this year the rate is as low as $75 per night.


12. Though Tiger Tops has been able to keep 95% of its
staff employed to this point, Edwards stated that
they've reduced salaries in order to meet costs, and
that in a normal year the company would be hiring above
attrition rather than asking people to leave. "There
was a sharp decrease after September 11, and things have
stayed about the same ever since," he said. "Hopefully
things won't drop off too much more, or we'll have to
make some drastic cuts."

GOVERNMENT RESPONSE
--------------


13. The GON has begun to make changes to visa policies
and other regulations in an effort to encourage tourism
and other foreign travel to Nepal, but industry
professionals are skeptical about the effectiveness of
the new measures. Soft loans to hotels and other
hospitality businesses were promised by the government
but have not, as yet, materialized. According to the
Shangri-La's Upraity, neither banks nor the government
want to take responsibility for loans that may very well
end up in default.


14. Declaring 2002-2003 as 'Destination Nepal Year', and
hoping to capitalize on this year's status as
International Mountaineering Tourism Year and the
fiftieth anniversary of the first successful ascent of
Mount Everest, the GON has opened up an additional 103
Himalayan peaks for mountaineering. Climbing fees for 60
peaks have been reduced or eliminated, and the
bureaucracy required to climb peaks of less than 6500
meters has been simplified, eliminating the need for a
liaison officer. Response to the measures has been
lukewarm, with most comments in the press echoing those
of Tek Chandra Pokharel, a prominent industry
entrepreneur. "Those were steps that should have been
taken long, long ago," he said in a March interview.
"They are welcome, but merely opening a few more
peaks... will not help now."


15. To counteract the drop-off in tourism from the U.S.
and other typical source countries, the GON and the
Nepal Tourism Board (NTB) have been courting Nepal's
northern neighbor, hoping to attract China's burgeoning
tourist population. In November of last year, the GON
signed an MOU with China regarding procedures for
Chinese tourists to visit the country and has since
approved 78 travel agencies to handle Chinese tourists.
Earlier this year, NTB invited a group of Chinese travel
journalists to tour the country's most poplar
destinations, and the board has been producing pamphlets
and CD-ROM promotional materials in Chinese.
Nevertheless, Chinese arrivals at TIA dropped by 52%
during the first two months of this year, compared with
the same period last year.


16. COMMENT: While backpackers and trekkers continue to
come to Nepal, albeit in much lower numbers than usual,
wealthier "high-yield" travelers appear to have been
scared off by the declining security situation. Maoist
leadership released a letter in March (REF) containing
assurances that they are not targeting the tourism
industry, but also containing threats to foreign
tourists and Nepali businesses alike. Though the events
of September 11 and ongoing tensions in the region have
had some negative effect on tourism in Nepal, the major
threat to that sector of the economy derives from the
domestic insurgency.


17. Potential tourists, alerted by increased
international news coverage of continuing violence by
the Maoists, are researching the security situation in
Nepal and rethinking or abandoning travel plans. The
trickle-down effect has deprived trekking guides, cooks,
porters and other low-income contract workers of much-
needed seasonal income. Hotel workers, airline
employees and travel agents may soon face unemployment.
The severe effect that the downturn has already had on
the industry has the potential to turn into economic
disaster if the trend continues unchecked. Blame for
most of the industry's woes lies squarely at the feet of
the Maoists, and once again calls into question the
insurgency's proclaimed dedication to the people.

MALINOWSKI