Tourism sector

Event: Yesterday SCBS organized an event “Thai Tourism Day: Growing Chinese Tourists” for local institutional investors. Presentations at the event were made by entities related to the accelerating trend of Chinese tourists: 1) Khun Thapanee Kiatpaibool, Director of Marketing Information Technology Group of Tourism Authority of Thailand (TAT), 2) Khun Kanyarat Krisnathevin, Chief Financial Officer of The Erawan Group Plc (ERW) and 3) Khun Tassapon Bijleveld, Chief Executive Officer of Asia Aviation Plc (AAV). The highlights are summarized below.  

 

TAT (government entity): China is a key market for Thailand and is expected to continue growing strongly. The consumer pattern in China is changing, influenced by rising internet penetration and social networking. This means that online and celebrity marketing can be used to promote Thailand.   

 

 In 2015, TAT targets total international tourist arrivals at 28mn (up 13% YoY from 24.7mn in 2014). It expects domestic travelers at 151mn trips (up 9% YoY from 138mn trips in 2014). This will bring in total revenue of Bt2.15trn. 

 

 After the surprise 2012 hit movie “Lost in Thailand”, Thailand has headed the list of destinations for Chinese tourists. Since the movie aired, Chinese tourists to Thailand surged from 1.7mn to 4.6mn in 2014, supplying 19% of arrivals, the largest contribution by country. TAT expects this growth to continue given China’s large population and the rise in middle class in tandem with economic growth. Despite no official target for Chinese tourists, TAT believes no fewer than 5mn will come to Thailand this year. 

 

 A TAT survey found that wealthier Chinese tourists are coming as independent travelers who are more interested in other destinations such as Krabi and Trang, than the traditional group tour destinations of Phuket and Pattaya. 

 

 China’s consumer pattern is changing, influenced by rising internet penetration and social networking. China leads the world in internet usage at 642mn users or 47% penetration rate, above the world average of 42%. To get in on this change, TAT has begun online marketing in coordination with Ctrip, the biggest online travel agent in China, to promote Thai tourism, as well as internet marketing via Chinese search engines and on WeChat, a popular social application in China. 

 

 Celebrity marketing is a strategy TAT is using to attract Chinese tourists since Thai movies and dramas and its move stars are very popular in China. TAT earlier used Pong Nawat Kulrattanarak, an actor, to promote tourism to Thailand. TAT plans to launch a campaign “Amazing Thailand: Happiness You Can Share”, a website where Chinese citizens can share their favorite tourism spots in Thailand. Winners of the competition will be provided a special dinner in Thailand with Mario Maurer, a young Thai actor who has a lot of fans in China. 

 

ERW: Rising revenue contribution from Chinese tourists to third place in total room revenue in 2014; bookings high for Chinese New Year in February.  

 

 ERW said that contribution from Chinese tourists has risen from 5% of total room revenues in 2010 to 9% in 2014 to now rank as third largest, following the U.S. (12%) and Thailand (11%). By segment, Chinese tourists contributed 13% of room revenues for luxury resorts, 12% for mid-scale, 10% for economy and 6% for luxury Bangkok.  

 

 ERW’s operations are strong, aligning with the recovery of Thai tourism since October last year. YTD, its average occupancy rate is at 81%, mainly off the high 84% rate for luxury hotels in Bangkok. ERW reports high forward bookings for February, driven by more Chinese tourists during Chinese New Year. 

 

 The site affected the most by declining Russian tourists is ibis Kata at Phuket, as 70% of this hotel’s revenue is supplied by Russian tourists. However, ERW expects minimal impact overall as ibis Kata is small and room revenues from Russian tourists account for only 4% of total room revenues. It believes strong growth of other markets such as India and China will offset the drop of Russian tourists. 

 

 ERW expects 35% revenue growth this year, consisting of 30% YoY from existing hotels and 5% from hotels opened in late 2014. Key will be operational recovery of luxury hotels in Bangkok (~50% of revenues) that were hit hard last year.  

 ERW plans capex of Bt1.8bn this year. It plans to open four HOP INN hotels this year. There are 11 HOP INN facilities under construction, scheduled to open in 2016. With no large hotel opening, ERW believes 2015 will be a year in which it will be able to enjoy better earnings, repeating benefit from previous investments.  

 

 ERW expects to finalize the setup of a REIT this year. The REIT size will be similar to ERWPF at ~Bt1.8bn and it plans to inject mature and freehold hotels into it.   

 

AAV: China is important: it has 21 daily flights to/from 10 cities in China. AAV has a pivotal role in Thai tourism, carrying 20% of all Chinese tourists that came to Thailand in 2014.  

 

 AAV, through Thai AirAsia, carried ~900K Chinese passengers or ~20% of all the Chinese tourists that came to Thailand in 2014. AAV now has 21 daily direct flights to/from 10 cities in China: Hong Kong, Macau, Changsha, Chongqing, Guangzhou, Hangzhou, Kunming, Xi’an, Shenzhen and Wuhan. Airplane slots are now very tight at Don Mueang and this has led AAV to introduce new routes to China from its other hubs Chiang Mai, Phuket and Krabi.  

 

 AAV is cruising with the changing trend of Chinese tourists towards more independent travelers and rising internet usage – since the bulk of its bookings (~70%) are done online.  

 

 AAV sees government measures as key to bringing in more Chinese tourists, one of which was the visa fee waiver. One limitation to growing Chinese visitors is the tight capacity at airports in China’s big cities such as Beijing and Shanghai, both of which are now expanding capacity. AAV sees secondary cities, e.g. cities that have lower population, as potential markets.  

 

 AAV has hedged 50% of jet fuel usage in 1H15, higher than the normal 30-35%, in response to the slowing in jet fuel price falls after a sharp drop earlier.