Hard times are hard to deny

by Yeoh Siew Hoon

Last night, I caught up with the former CEO of one of Europe’s largest tour operators for many years. I asked him, “What do you think of what is happening in Bangkok?”

“Terrible,” he said. “Imagine what will happen to tour operators in Europe.”

Yes, the impact of the closure of Bangkok’s two airports by mobsters (now thankfully over) will not only be felt within the region but half a world away.

For most tour operators in Europe, Thailand is their number one destination in Asia. Whether it’s TUI, Kuoni or Hotelplan, Thailand is the destination that gives them the most demand and profits, year after year.

According to Sean Tipton, spokesman for the Association of British Travel Agents (ABTA), 850,000 Britons visited Thailand last year, 40% of them on package tours. Germans, French, Spanish, Italians, Russians – all are major markets for Thailand in the winter season.

Any hopes European tour operators had that a high winter season will make up for what has been a dismal year so far have been dashed. This winter looks like a write-off.

The violence in Mumbai will also make Europeans think twice about traveling to India, another major destination for European tour operators.

Well, those Europeans who were still thinking about travelling longhaul anyway – the economic bug has also bitten Europe hard and those to whom travel is a right, not a discretionary pleasure, will be looking for more affordable holidays.

And let’s not even consider the US as a viable market for Asia for the next year or so. Those Americans who will still want to travel will do so at home. There’s plenty at home to keep them occupied.

Within the region, the closure of Bangkok’s Suvarnabhumi Airport has led to untold travel chaos. Andrew Herdman, director general of the Association of Asia Pacific Airlines, said, “The airline industry is used to dealing with operational disruptions, such as typhoons, in the region. But this is particularly severe, as Bangkok is a major hub for the whole region.”

Thailand is a top selling destination for most travel agents in Asia – from Singapore to Hong Kong to China to Japan – the damage to their business this holiday season will be considerable. The silver lining is that it being shorthaul, and provided Thailand controls the situation quickly, demand can be quick to switch back on.

Travel volumes had already fallen 10-20% from the political instability of recent months but air traffic had remained high. Last year, Suvarnabhumi handled 261,592 commercial flights, more than 41 million passengers and 1,209,720 tons of freight. So it’s no transportation lightweight.

The troubles compound an already grim tourism picture throughout Asia. Macau, once touted as the tourism juggernaut of the region, has come to a grinding halt.

Visa restrictions and new regulations by the Chinese government have put the squeeze on the main market everyone was relying on – Chinese gamblers.

According to a report, Macau’s gaming revenues that had grown by a compound annual growth rate of 26% between 2004 and 2007 fell 10% in three months this year.

Las Vegas Sands is fighting for its life. Work on the rest of the Cotai Strip has stopped. Assets are up for sale, if buyers can be found. Up to 11,000 workers have been laid off.

Said a report in the Financial Post, “For now, the Venetian and Four Seasons are surrounded by half-finished buildings, empty concrete shells flagged by bamboo scaffolding and encircled by an eight-foot high fence. Cranes stand idle, workers have been sent home and everyone connected with the Cotai Strip is counting the cost.”

Then on November 20, Galaxy Entertainment Group said it would delay the opening of its Macau casino until 2010. “This is in no way a change in our strategy for Cotai. It is a commercial decision motivated by our objective to achieve a balance between development and the optimisation of shareholder returns,” Galaxy said in a statement.

In Singapore, Las Vegas Sands has promised that its Marina Bay Sands project would be completed. The government has also given its reassurance to its citizens. According to a report in Asia Times Online, LVS has won approval to increase the number of gaming tables from 600 to 1,000.

Singapore is betting heavily on the Marina Bay Sands and Resorts World at Sentosa to give its tourism industry a fillip. It badly needs it. Since June, visitor arrivals have been on a slide. In October, it dropped 8.1%. Singapore has said it will not meet this year’s target of 10.8 million visitors.

“So if you were still running your company, what would you do right now?” I asked my tour operator chief executive friend.

“That’s a tough question, I have been away four years. But I’d get all my guys in and ask them to give me a 30% cut across the board,” he said.

“How can you stimulate demand?”

“You can’t. The ones who want to travel will travel anyway. The ones who won’t, won’t. If you discount, you only cut your margins.”

In Los Angeles, at the PhoCusWright conference, one investment manager – Sophie Forest, managing director, Brightspark Ventures – had this advice. “Make all the cuts you can, then make 100% more and make sure you have enough money for 18 months and don’t expect any capital injection for 24 months.”

Out on the streets in Singapore, life seems to go about as normal. The shopping malls are busy with people. Still, retailers are reporting slowdown in sales.

At Gunther’s, one of Singapore’s top restaurants, five out of seven tables were occupied Thursday night. At CHIJMES, the bars were packed with people drinking under the stars.

“Doesn’t feel like recession,” said my friend.

“People are in denial here,” I replied.

“Maybe if they stay in denial long enough, it’ll be over before they know it,” he said,

We wish.

Catch Yeoh Siew Hoon every week at The Transit Cafe – www.thetransitcafe.com