I presented this paper to the Institute of Ecotourism Conference in 1998. I had my own ecotourism consultancy business and I was also doing part time teaching at the Prince of Songkla University in Thailand.
Ecotourism in Thailand – Where Does the Money Go? Tourism revenues in the light of the Southeast Asian Economic Crisis.
Institute of Ecotourism, Srinakarinwiroj University, Thailand – Third International Conference – ‘Community Based Ecotourism”
July 13 – 14 1998, Bangkok, Thailand
Noah Shepherd, Faculty of Hotel and Tourism Management, Prince of Songkla University, Thailand
Governments view tourism as a practical source of foreign currency earnings. In the case of developing nations, these invisible exports can form a considerable proportion of a nation’s export revenue. In the case of Thailand, tourism is the nation’s largest single source of foreign currency. The nature of the tourism industry gives operators an ideal opportunity to channel revenues directly into local communities, however, this is not always the case.
Examples of ecotourism operators in South Thailand are used to show how in some cases, revenues remain overseas and in others, how revenues are retained in the host nation through niche marketing. The role of the travel agent and wholesaler is discussed and the nature by which these middlemen are responsible for a considerable reduction in host nation revenues.
The paper focuses on activities in the tourism industry from the time of the Asian financial crisis (July 1997) to July 1998. During this period, the Thai Baht collapsed from a fixed rate of 25THB:$US to a relatively stable level after about six months of 40THB:$US. At its worst, the Baht was trading at almost 60THB:$US. At the same time as the start of the currency crisis, the Tourism Authority of Thailand (TAT) launched its Amazing Thailand campaign for 1998/9 (1).
The campaign, planned in advance of the financial crisis, aimed to attract 17 million visitors to the kingdom and generate 600 billion Baht in revenues. This target related to a 7% increase in visitor numbers on 1997. Of those visitors to the kingdom 60% were from Asian countries – almost all of which had been hit by the currency crisis. By the end of quarter 1 of 1998, Malaysian arrivals were down 6% (2). The significance of this was that whilst Malaysians visit the kingdom for shorter periods of time than Europeans, the Malaysian marketplace, in terms of tourist arrivals is bigger than that of Germany, Austria, Switzerland and Scandinavia combined. Similarly, the Japanese market, down 7%, represented arrivals equal to that of the UK, USA, Australia, New Zealand and Canada combined. In this case, however, the length of stay by Japanese in Thailand was much longer than that of Malays and the drop in arrivals was extremely significant. Worst affected was the Korean market, which was down 80%.
The TAT was in an impossible situation, because of the financial crisis, it faced massive budget cuts of a billion baht, which would certainly affected promotion of the Amazing Thailand campaign. The reality was that following the collapse of the baht, a 60% increase in tourism arrivals was required to stand still in true US dollar terms – something that was completely unrealistic.
The start of the high season was marred by bad publicity. The smog from Indonesian farmers ‘burning off’ scrublands in Sumatra hit south Thailand for just three days. CNN reported severe smog in the region despite the fact that this was confined to Indonesia and peninsular Malaysia. Several wholesalers reported initial bookings as down for the season as a result of these reports (3).
By January, arrivals from Europe seemed to be higher than the previous year. This, in the initial stage was not due to the cheap baht, but to an increase in package holidays and charter flights, especially from Scandinavia. As, an example, Swedish holiday companies had run a massive ‘Thailand’ campaign that autumn which had been very successful.
At the beginning of 1998, the Bangkok Post (4) suggested that the cheaper baht was not affecting interest in travel to Thailand. However, as far as Phuket was concerned, there certainly was a considerable increase in tourism numbers based on the following evidence in advance of official figures from the TAT:
Local travel agents, hotels and ground handlers were reporting a very busy high season.
Overseas travel agents were selling Thailand as a “value for money” destination, although prices of package holidays had not dropped.
A considerable increase in the number of charter flights at Phuket Airport was noted.
A survey of 250 western tourists was carried out on Patong Beach, the major resort town of Phuket (5) on 14th January 1998. Of those surveyed, one third said that the cheap baht was a deciding factor and almost all said that they found Thailand to be “cheap” or “reasonable”.
Ten of south Thailand’s more experienced ecotourism operators were also surveyed and reported between a 30 – 40% increase in revenues. However, in these cases, some were charging in Dollars, some in baht. The increase was not clearly as a result of numbers, but in some cases as a result of prices quoted in dollars, and revenues received in baht at a different rate of exchange to the previous high season. What made many of these operators different however, was that several of them did not use wholesalers or travel agents to market their products.
The TAT ran a campaign in January to the travel trade to take advantage of the cheap baht. The campaign referred to “Sunny clear skies… warm smiles…hot discounts…47 baht to the US Dollar – Amazing Thailand, Amazing Value” (6). To the public, the TAT’s Value for Money ll campaign
promoted “Happy Hour in Thailand – Your pound now buys 59% more in Thailand” (7)
The Thai hotel industry, which is highly leveraged, was very badly hit by the devaluation. Room bookings may well have been up, but costs of electricity, directly linked to the dollar and oil prices were hitting their bills for air conditioning, in one of the hottest countries in the world. Imported goods, cost of foreign staff and overseas marketing costs were also badly affecting margins. These increased overheads were nothing compared to the cost of servicing their loans.
The first problem that hotels had to face in mid 1997 was the increase in VAT from 7% to 10% as part of the government’s austerity measures. Wholesalers insisted that the hotels absorbed this tax increase. The hotels held contracts with wholesalers, which used the previously stable Thai baht, negotiated in 1996 and early 1997, long before devaluation. The 1997/8 catalogues of holiday companies, showed prices in overseas currencies that related to old exchange rates. The wholesalers insisted that rates remain in baht, with no savings passed on to customers – who were paying in Pounds, Marks and Francs.
Many hotels announced that they would negotiate future contracts in US dollars (8), a point that angered the large wholesalers. One Bangkok wholesaler, in early 1998, claimed that his company was making more from the currency spread, than they were from trading. Others, trying to justify their position, claimed that they had bought currency forward to pay for their contracts.
The issue of charging in hard currency was introduced to the public by some hotels who introduced a ‘walk in’ rate in US$. Reports in the press suggested that the traveling public were not pleased with being charged in two currencies (9), however the trade argued that this was standard practice in many countries such as the Philippines, Indonesia and Vietnam. Some shops also started quoting prices is $US, but this was short lived.
On a smaller scale, some of the local ecotourism operators had an advantageous position because of the demographics of their own customer base. In 1997, 74% of frequent travellers who took active or nature based holidays in Asia possessed one degree or more, had a mean income of $82 K and more than three quarters of them took more than one holiday a year (10). This was a very similar profile to that of the earlier computer nerds who were the initial users of the Internet, and such people were more likely to be independently seeking their own holidays, taking an active part in the selection of destination and operator. The key was that those customers dealt directly with the operator, and paid in hard currency.
The Adventure Travel Society reported a 12% per annum growth in outdoor/adventure/eco type holidays (10). The Society attributes this growth to many factors, including more women travelling; people living longer; people travelling further afield and more frequent air services. Other sources (11,12,13) refer to growth in this field claiming opportunism and the greenwashing of nature based tourism. Whatever the reasons, this type of tourism is certainly gaining increased popularity.
In Phuket, ecotravel operators reported a definite trend of increased business, that seemed to be linked to increased general travel. It is fair to assume that this was as much a result of the increased popularity of the destination as anything else.
A WWF survey in Malaysia in 1995 (13), showed that ecotourists spent more cash in country than any other form of tourism. As a niche market, it is possible for ecotourism to capitalise on this by dealing directly with the client and avoiding the middlemen.
Agents and wholesalers may take 20% commission for booking tours although in some cases, this may be as high as 40%. Whilst, in most cases, sales tax or VAT is not payable for holidays taken overseas, this commission percentage is actually increased by the true costs of marketing to agents. Free inspection or familiarisation trips (FAM trips) are expected, not only for the buyer from the agency, but for many of their staff. Whilst this is sensible for agent education and product knowledge, the travel industry is built on a reputation of favours and expectations of free trips. This rubs off on the smaller operators, especially those who organise small groups who frequently experience unreasonable demands for FAM trips from wholesalers for friends, family and staff not directly involved in the selling of the programme. In addition to this, exhibiting and travelling abroad (all of which are hard currency costs) are expensive, but necessary to market to the traditional agency/wholesaler chain.
Considerable financial leakages can arise when comparing a tour product sold locally with another tour product sold overseas, the picture can be quite frightening. In the case of sea kayaking in Phang Nga Bay, Thailand, one tour operator sells its product locally to agents and tour representatives which are sold to mainly European tourists already ‘on island’, the other sells their product locally which is resold overseas in Taiwan
|Operator 1||Operator 2|
|Gross selling price to end user||2970 Baht||4000 Baht|
|Money received in||Phuket||Taiwan|
|Net selling price to wholesaler/agent||2376 Baht||500 Baht|
|Local agent net revenue||594 Baht||500 Baht|
|Retained in Thailand||2970 Baht||1000 Baht|
Operator 1 manages to sell a tour locally, retaining all revenues in country. Operator 2 sells cheaply to a local wholesaler, who, after adding on his markup, sells the product to an overseas agent, who charges the end user 4,000 baht (in Taiwan). This is an extreme example of such a case, but is very common, especially in the Asian group tour market.
Direct marketing of ecotourism products to end users is not an easy task, and in many cases, may require specific skills training. The use of specialist direct marketing, Internet web sites, mailing lists and PR may is alien to many ecotourism operators. There may be little knowledge of overseas market places and language too may also be a barrier – a product will often be sold a different way in each different market. There are also the problems of dealing with remittances from overseas which can be complicated. Taking all of these points into consideration makes the apparent simplicity of using a wholesaler immediately clear.
In conclusion, niche market products, such as ecotourism can benefit from selling directly to end users because of the affinity between operator and traveller. Selling directly allows the operator to dictate selling price, in whatever currency he chooses. Such a direct sale will reduce leakage and benefit the host nation far more than dealing through an overseas wholesaler. In the case of the Asian economic crisis, operators, through niche marketing of niche products can successfully ride out the recession.
Janarat, Jutamas and Williams, Lesley, Preconditions for Successful Collaborative Tourism Marketing: The Critical Role of the Convener, Third International Conference – Tourism and Hotel Industry in Indo China and Southeast Asia, Phuket, June 1998.
Phuket Gazette, International Arrivals Post Gain June 1998, p 3
Bangkok Post Economic Review Year End 1997, January 15th 1998, p 10
Bangkok Post, January 2 1998, Business p 1
Unpublished survey of Phuket tourists – 2nd year students of the Faculty of Hotel and Tourism Management, Prince of Songkla University, Phuket Campus.
Tourism Authority of Thailand Advertisement, Travel Trade Report, January 12, 1998, p12
Value for Money Campaign, Tourism Authority of Thailand, Bangkok Post, June 30th 1998, p 7
Travel Trade Report, Thai Hoteliers falter over decision to quote dollars, January 12th 1998
Bangkok Post, Dollar Change Irks Tourists, 19th January 1998
Rosci, Frank; Soft or Hard Adventure, ASTA Agency Management, December 1997, p 40
The Economist, How Green Can You Get? A Survey of Travel and Tourism, January 10th 1998, p 16
Gray, John; How Green is your Ecotour, Sawasdee January 1998
Shepherd, Noah; Educating the Traveling Public and the Investor, Proceedings of the 9th PATA Adventure travel and Ecotourism Conference, Kota Kinabalu, Sabah, 12 – 15 January 1997