Modest goals for Phuket luxury hotels Investors and operators on the island see a few positive signs, but full recovery is still far off, says Knight Frank Thailand

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Modest goals for Phuket luxury hotels  Investors and operators on the island see a few positive signs,  but full recovery is still far off, says Knight Frank Thailand

The deserted Phuket airport in June 2021, prior to the arrival of foreign tourists under the sandbox scheme. Dusida Worrachaddejchai

Inbound tourism to Phuket dropped further in 2021, following the collapse in 2020 after travel restrictions were imposed in response to the Covid-19 pandemic.

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Tourism is starting to make a modest recovery with the continuation of the Phuket Sandbox programme, while the revival of the broader Test & Go programme on Feb 1 after a brief suspension could provide further momentum.

But a return to pre-pandemic tourism conditions and arrival numbers in Thailand and Phuket is doubtful in the near term. Luxury and upscale hotels on the island will probably see room occupancy rates of 20-30% this year, which would be an improvement from just 12% last year, according to the real estate company Knight Frank Thailand.

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The number of international passenger arrivals in Phuket reached a record 5.3 million in 2019 but fell to 1.1 million — almost all of them before March — in 2020. Airports of Thailand Plc recorded just under 190,000 international arrivals in Phuket in 2021, a plunge of 83% year-on-year, despite the increase in the second half as a result of both the Phuket Sandbox and Test & Go programmes.

Modest goals for Phuket luxury hotels  Investors and operators on the island see a few positive signs,  but full recovery is still far off, says Knight Frank Thailand

The international terminal at Phuket airport in June 2021, prior to tourists arrival under the Phuket sandbox scheme which reopened the island to vaccinated foreign arrivals. Dusida Worrachaddejchai

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Phuket was the first destination in the country to allow international visitors to enter without a quarantine requirement, through the Sandbox programme in July 2021. An average of 15,200 foreign visitor arrivals per month were recorded under the programme, a significant increase from the low three-digit figures seen during the first half of the year.

Foreign arrivals quadrupled after the government in November introduced the Test & Go programme, which expanded quarantine-free entry for vaccinated travellers from more than 60 countries. Seven weeks later, the programme was suspended due to the threat of the Omicron coronavirus variant, but on Feb 1 registrations will reopen, offering renewed hope to the tourism sector.

Supply and demand: Hotels in Phuket are highly reliant on international tourists. Amid dire market conditions, especially in the first half of 2021, some hotels remained temporarily closed, and other operators readjusted their business models and switched their focus to domestic travellers, launching various promotions, including dining and accommodation discounts, and campaigns on social media.

The average daily rate (ADR) of luxury and upscale hotels last year plunged by 35% year-on-year to 2,442 baht, and the average occupancy rate dropped 14 percentage points to 12%. However, performance indicators improved in the second half, doubling the occupancy rate and increasing the ADR by 8% compared to the first half.

Modest goals for Phuket luxury hotels  Investors and operators on the island see a few positive signs,  but full recovery is still far off, says Knight Frank Thailand

Tourists at Patong beach in Phuket, which has seen a gradual flow of both locals and foreigners because of the Phuket sandbox. Dusida Worrachaddejchai

At the end of 2021, the overall supply of luxury and upscale hotels reached 23,565 guest rooms, up 3% year-on-year, indicating that investors and operators are still confident in the recovery of the hospitality industry on the island.

New hotel openings in the luxury and upscale segment in 2021 included Avani+ Mai Khao Phuket (100 rooms), Melia Phuket Mai Khao (164 rooms), Hilton Garden Inn Phuket Bang Tao (177 rooms) and Holiday Inn Vana Nava Phuket (300 rooms). Some hotels delayed opening to 2022 as the market remains weak.

Around 5,000 new rooms are planned to open in Phuket this year. The largest supply of rooms is located at Patong beach (25%), followed by Karon (18%), Bang Tao (12%), Kata (11%) and Kamala (11%).

Outlook: The recovery momentum during the high season in the last two months of 2021, helped by the introduction of Test & Go, was disrupted amid the threat of a new surge of coronavirus cases, particularly the Omicron variant. Daily foreign arrivals to Phuket averaged about 500 in the early days of the Sandbox programme in July, rising to 1,200 in November and reaching a peak at 2,800 in December, but still far from the average of 14,800 in 2019, pre-Covid.

Modest goals for Phuket luxury hotels  Investors and operators on the island see a few positive signs,  but full recovery is still far off, says Knight Frank Thailand

Foreigners represented 74% of all visitor to Phuket in the pre-pandemic period. Key source markets included China with 32% of total foreign arrivals, Europe (29%), Russia (9%) and Oceania (6%). The complete absence of Chinese visitors is expected to continue well into this year as Beijing pursues tough outbound travel restrictions under its zero-Covid policy.

Furthermore, continuous short-notice changes and unclear quarantine rules have not helped to restore travellers’ confidence, especially long-haul travellers from Europe who generally plan their trips a few months in advance. Thus, in the first half of the year, domestic tourism is expected to remain the main driving force behind Phuket’s hospitality industry.

“We are cautiously optimistic about the gradual recovery of Phuket’s hotel industry as the pandemic situation continues to be highly unpredictable,” said Carlos Martinez, director of research and consultancy with Knight Frank Thailand.

Modest goals for Phuket luxury hotels  Investors and operators on the island see a few positive signs,  but full recovery is still far off, says Knight Frank Thailand

The atmosphere at Phuket airport prior to the Phuket sandbox scheme that was introduced from July 1, 2021. Dusida Worrachaddejchai

“There remain various positive factors though, including widespread vaccination coverage in Thailand and the main source markets, the mild symptoms experienced by most infected people allowing for self-isolation, the pent-up demand for travel, and government support including the Phuket Sandbox programme and several phases of subsidised travel schemes to boost the number of domestic tourists.”

In 2022, the average occupancy rate of luxury and upscale hotels in Phuket might increase to between 20% and 30%, if travel restrictions are relaxed early in the first half of the year.

The slow and gradual recovery reflects limited demand from China, and the expected increase in the number of rooms with the reopening of existing hotels and the opening of new ones.

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