TOURISM SECTOR TRIES TO WEATHER POLITICAL STORM AT HOME,

UNCLAS SECTION 01 OF 02 CHIANG MAI 000163 SIPDIS E.O. 12958: N/A TAGS: ECON EINV EFIN ETRD PGOV PREL TH SUBJECT: TOURISM SECTOR TRIES TO WEATHER POLITICAL STORM AT HOME, FINANCIAL STORM ABROAD CHIANG MAI 00000163 001.2 OF 002 -------------- Summary and Comment -------------- ¶1. The Chiang Mai tourism sector, thought of as one of the cornerstones of the local economy, is preparing to struggle through the upcoming tourist season expected to be affected by both the on-going political instability in Bangkok and the financial troubles abroad. Local hotels and tour companies are already reporting low and dropping occupancy and reservation rates. Despite this temporary downturn, the long-term investment outlook for Chiang Mai as a tourist destination remains positive. ¶2. Comment: Local businesses in the tourism sector have set realistic expectations for what would otherwise be a high-volume tourist season given the potential impacts of both crises. Nonetheless, struggling through these two crises in the coming months may push both the industry and the local government to reflect on the resilience of Chiang Mai as a global tourist hot-spot. With an overabundance of hotel rooms and tour companies even in the best of economic conditions in Chiang Mai, this year's expected sluggish visitor rates may force the city to select the long-lasting winners and losers in the local tourism sector. It also highlights the importance of diversifying Chiang Mai's provincial economy to make it less dependent on tourism and agricultural, both of which are seasonal. End summary and comment. -------------- A New Dry Season Begins -------------- ¶3. The end of the rainy season in Chiang Mai is a natural reminder that the high tourist season is about to begin. But this year, the coming dry season has taken on a whole new meaning as on-going, and sometimes violent, political protests in Bangkok and troubles in the financial markets signal a slowing of tourist rates locally. According to the local Tourism Authority of Thailand (TAT),tour operators and guest houses with less than 20 rooms have seen a 30% drop in customers since last year. The TAT Assistant Director estimates that the overall drop in tourists to Chiang Mai since last year is just under 20%. ¶4. Tourism business owners report that they expect both the political and the economic crises to be relatively long-term. Regarding the political instability in Bangkok, concerns among business owners are focused on first-time visitors to Thailand and non-Thai Asian visitors. Hotels noted that repeat visitors to Thailand, who tend to have at least some understanding of the political environment here, are less swayed by political happenings; and they are relying on them for business through this slump. Tourist operators' expectations regarding volume from other Asian markets, namely Japan and Korea, are low as these travelers tend to be easily turned away by political strife, according to the TAT and local hotels. Regarding the economic crisis, business hotels are particularly concerned as business travelers scale back on the number of travelers and the cost per person of those who do travel. -------------- -------------- Hotels Foresee Low Occupancy, Seek Cost-Cutting Measures -------------- -------------- ¶5. Chiang Mai hotels are reporting already dropping occupancy rates and increases in reservation cancellations. The Mandarin Oriental said that 150 rooms were cancelled in September. The hotel's sales director said it is difficult to gauge how grim the season will be as there is no way to estimate how many intended but unmade reservations were foregone due to the crises. The Amari Rincome Hotel has faced a 10% drop in occupancy compared to this time last year; and the Shangri-La Chiang Mai, which opened in late 2007, noted that its occupancy rates are lower than expected. All three hotel chains attribute the drops to the two crises. ¶6. To tackle the dropping occupancy rates, hotels are taking revenue-generating and cost-cutting measures. The Shangri-La and the Amari hotels are dropping room rates in order to boost occupancy. The Mandarin Oriental, which reports that lower room rates will affect the hotel's reputation negatively in future years, is maintaining its rates but cutting costs in other areas including a hiring freeze, lower discretionary spending, and a marketing push for already in-country tourists. ¶7. Hotels and tour companies have realistic expectations for this season, and some have even described this twin crises scenario as "a blessing in disguise" allowing businesses to struggle through the pain all at once. Despite this temporary CHIANG MAI 00000163 002.2 OF 002 slump, however, tourist officials and businesses remain optimistic about Chiang Mai in the long-term as a global tourist hot-spot. According to the Mandarin Oriental sales director, "We thought 2009 would be the year for Chiang Mai. No one doubts that Chiang Mai will one day be on the map, but we might have to wait until 2010 or 2011 for that. ANDERSON