Introduction
Bangkok, a sparkling metropolitan city with a deep historical core, declares its dominance as one of the world’s top vacation destinations. This charming city, which is tucked away in the center of Southeast Asia, draws travelers looking for depth and variety in their journeys because it provides an unmatched fusion of vibrant city life and enthralling cultural history. Living costs in Bangkok are far less than in megacities like New York or Tokyo, offering unrivaled value and attracting tourists seeking both luxury and affordability. The city’s hotel sector expanded significantly between 2019 and 2021, driven by an increase in both domestic and foreign tourists. Forecasts indicated a positive spike in tourism, with rises in domestic and foreign visits of 7% and 4%, respectively, expected to increase hotel occupancy in downtown areas to an astounding 79–80%. The increasing demand highlights the significance of flexible pricing and creative marketing approaches, pushing hotel operators to continually adapt and improve their competitiveness in the face of shifting customer tastes and market dynamics.
Demand and Supply on the Luxurious Hotel in Bangkok
Demand
The global pandemic in 2020 presented Bangkok’s hotel business with never-before-seen difficulties, which led to a sharp decline in visitor numbers and hotel occupancy rates. From the 36.41 million tourists registered in 2019, the total number of Thai and foreign visitors staying in Bangkok’s hotels fell to 12.47 million, a sharp 66% decline. Thailand’s rigorous restrictions on international travel, which were put in place to stop the spread of COVID-19 and negatively impacted the number of foreign visitors, were mostly to blame for this reduction.
In sharp contrast to the 82.2% occupancy rate recorded in 2019, Bangkok’s average hotel occupancy rate across all categories showed a dramatic decline to about 28%. January and February of 2020, in particular, were the only times to sustain an occupancy percentage higher than 20 percent. The whole year was marked by a sharp absence of international visitors, who usually come to Thailand for vacation, business, or other reasons.
However,in 2020’s last quarter, from October to December, there was a ray of hope as the organization responsible for COVID-19 Situation Administration gradually relaxed travel restrictions. As long as foreigners followed the obligatory 14-day quarantine upon arrival, Thailand started to accept international tourists again. A little boost to the tourist and hotel industries was provided by this policy modification, which permitted the admission of 10,822 foreign nationals during this time. In particular, the luxury hotel industry had a lengthy road to recovery. Luxurious hotels, renowned for their exorbitant costs, were at odds with the current financial crisis. Travelers opted for more economically feasible hotel alternatives or decided to postpone their plans entirely as a result of the economic concerns and decreased disposable cash. This change emphasizes how the luxury hotel sector, which heavily depends on foreign tourism and affluent customers, is being disproportionately affected. The luxury hotel industry had to overcome these protracted obstacles as nations anticipated wider vaccine availability and more convincing evidence of pandemic control. The circumstance brought attention to the industry’s need for creativity and adaptability, forcing upscale hotels to reconsider their services and approaches that must coordinate with their target audiences’ changing needs and budgetary constraints during this historic worldwide occasion.
Supply
By the end of 2020, Bangkok’s high-end hotel industry had a healthy portfolio of around 16,370 rooms, which had been enhanced by the addition of roughly 1,507 additional rooms in the same year. This expansion is a part of an ongoing increasing trend that began in 2016 and has been repeatedly reinforced by annual expansions of more than 1,500 rooms. The luxury hotel sector in Bangkok has maintained its growth pace in spite of the global economic downturn, and through 2020 to 2023, over 1,000 new luxury hotels are expected to open. This upsurge is rooted in the 2018–2019 tourism peak, which served as a major catalyst for extensive investment in opulent accommodation around Bangkok and other popular tourist destinations in Thailand. More than 5,200 opulent hotel rooms are now being built with completion in sight.
In the years 2021–2023. This construction boom is not limited to luxury accommodations; it also includes mid-range establishments, adding an estimated 13,800 new rooms. However, the pandemic’s impact on foreign travel has caused several of these projects’ development timelines to slip, delaying openings that were originally scheduled for 2020 to as late as 2021. This measured postponement reflects the industry’s optimism and preparedness to accommodate the expected tourist resurgence, highlighting confidence in Bangkok’s continued appeal as a premier travel destination and its capacity to meet demand for upscale lodging in the future.
Equilibrium
Before the Pandemic Equilibrium
Previous to the pandemic, Thailand’s growing appeal as a holiday destination contributed to the strong demand for luxury hotels in Bangkok’s local and international tourism markets. The high occupancy rate of 82.2% in 2019 is indicative of a robust demand for upscale lodging that was met by supply. In response to this strong demand and in anticipation of future development, the luxury hotel industry made investments and expansions.
Disruption by Pandemic: Demand Shock
The start of the worldwide health crisis and the stringent limitations on overseas travel caused an unparalleled shock to demand. A substantial contraction in demand is evident from the abrupt 66% fall in tourists and the plummeting hotel occupancy rates to roughly 28%. The luxury hotel industry, which is highly dependent on foreign travel and affluent customers, faced an outsized effect. Consumer preferences have further changed towards more economically possible lodgings or delaying vacation plans entirely as a result of the economic slump and lower disposable money.
Response from the supply side
The supply side of the luxury hotel industry continues to grow despite the shock to demand; around 1,507 new rooms were added in 2020, and more than 1,000 units are anticipated to debut between 2020 and 2023. The overabundance that resulted from this continuous development during a slump in demand made it more difficult for luxury hotels to meet their occupancy and profitability goals.
Shift in Equilibrium
A brief shift in the market equilibrium was brought about by the pandemic-induced demand shock and the ongoing supply expansion. This shift was characterized by lower occupancy rates and maybe lower room prices or more promotional efforts to draw in customers. To somewhat offset the loss, the luxury hotel industry has to adjust by improving health and safety procedures, providing flexible booking rules, and focusing on domestic and tourists from overseas.
Nevertheless when the pandemic struck, there was a huge demand shock, as the dashed orange line illustrates, with demand falling as a result of a 66% decline in travelers and falling hotel occupancy rates. It is evident from the dashed green line that the supply side grew in spite of this, adding more rooms and exacerbating the supply and demand mismatch. A new equilibrium was created as a result of this transition, one that was marked by decreased occupancy rates, maybe cheaper hotel rates, or more aggressive customer-attracting marketing. A comprehension of the market dynamics during the pandemic is made possible by the annotations, which highlight the supply rise, the demand shock, and the original and new equilibrium positions.
Market Structure
Throughout the epidemic, Bangkok’s luxury hotel industry was typified by an oligopolistic market structure. This judgment is based on a number of crucial elements that the events that are transpiring have shed light on.
Few Sellers: A very limited number of businesses or hotel chains, each with a large market share, dominate Bangkok’s luxury hotel sector. This is a characteristic of an oligopoly, in which a small number of companies dominate the market.
Product Differentiation: To set themselves apart from other hotel business sectors, luxury hotels provide goods that are superior in terms of quality, brand reputation, facilities, and customer service. In oligopolistic marketplaces, where businesses compete on criteria other than price alone, differentiation plays a crucial role.
Entry Barriers: Because building, branding, and establishing a presence in a cutthroat market involve large capital investments, there are substantial entry barriers in the luxury hotel industry. This restricts the amount of new competitors and strengthens the market’s oligopolistic structure.
In a market with oligopoly, one firm’s decisions can have a huge impact on the other firms. This was made clear when Bangkok’s luxury hotel industry as a whole was hit by the pandemic-induced demand shock and the ensuing supply reactions. Businesses in this industry are well aware of the tactics used by their rivals, such as production increases, marketing campaigns, and price strategies.
Non-Price competition: To draw customers, the luxury hotel industry places a strong emphasis on non-price rivalry. Instead, it highlights brand image, quality, service, and exclusive services. This included improved health and safety protocols, accommodating reservation restrictions, and focusing marketing efforts on both local and foreign visitors who might still visit during the outbreak.
The stated situation exemplifies the variety of variables and strategic choices characteristic of an oligopolistic market. This includes the response to the demand shock caused by the pandemic, the ongoing expansion of supply despite decreased demand, and the following adjustments made by the market. To be competitive, businesses in this kind of market need to continuously innovate and adjust to shifting customer tastes and marketplace dynamics.
References
Frank, K. (2023) Bangkok Hotel Market 1h 2023, Real Estate Agents in Thailand – Residential & Commercial Properties for Sale or Rent in Thailand. Available at: https://www.knightfrank.co.th/blog/2023/08/10/bangkok-hotel-market-1h-2023 (Accessed: 04 March 2024).
Phoenix Property: Property Research, article, news (no date) https://www.phoenixproperty.co.th. Available at: https://www.phoenixproperty.co.th/en/blogs/news/2024 (Accessed: 04 March 2024).
(No date) Industry outlook 2019-2021: Hotel in downtown Bangkok. Available at: https://www.krungsri.com/en/research/industry/industry-outlook/services/hotels/io/io-hotel-in-downtown-bangkok-19 (Accessed: 03 March 2024).
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