Cablegate: Tourism Sector Tries to Weather Political Storm at Home,

VZCZCXRO3443
PP RUEHCN RUEHDT RUEHHM
DE RUEHCHI #0163/01 2981401
ZNR UUUUU ZZH
P 241401Z OCT 08
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0872
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHCHI/AMCONSUL CHIANG MAI 0947

UNCLAS SECTION 01 OF 02 CHIANG MAI 000163

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD PGOV PREL TH
SUBJECT: TOURISM SECTOR TRIES TO WEATHER POLITICAL STORM AT HOME,
FINANCIAL STORM ABROAD

CHIANG MAI 00000163 001.2 OF 002

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Summary and Comment
-------------------

1. The Chiang Mai tourism sector, thought of as one of the
cornerstones of the local economy, is preparing to struggle
through the upcoming tourist season expected to be affected by
both the on-going political instability in Bangkok and the
financial troubles abroad. Local hotels and tour companies are
already reporting low and dropping occupancy and reservation
rates. Despite this temporary downturn, the long-term
investment outlook for Chiang Mai as a tourist destination
remains positive.

2. Comment: Local businesses in the tourism sector have set
realistic expectations for what would otherwise be a high-volume
tourist season given the potential impacts of both crises.
Nonetheless, struggling through these two crises in the coming
months may push both the industry and the local government to
reflect on the resilience of Chiang Mai as a global tourist
hot-spot. With an overabundance of hotel rooms and tour
companies even in the best of economic conditions in Chiang Mai,
this year's expected sluggish visitor rates may force the city
to select the long-lasting winners and losers in the local
tourism sector. It also highlights the importance of
diversifying Chiang Mai's provincial economy to make it less
dependent on tourism and agricultural, both of which are
seasonal. End summary and comment.

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A New Dry Season Begins
-----------------------

3. The end of the rainy season in Chiang Mai is a natural
reminder that the high tourist season is about to begin. But
this year, the coming dry season has taken on a whole new
meaning as on-going, and sometimes violent, political protests
in Bangkok and troubles in the financial markets signal a
slowing of tourist rates locally. According to the local
Tourism Authority of Thailand (TAT), tour operators and guest
houses with less than 20 rooms have seen a 30% drop in customers
since last year. The TAT Assistant Director estimates that the
overall drop in tourists to Chiang Mai since last year is just
under 20%.

4. Tourism business owners report that they expect both the
political and the economic crises to be relatively long-term.
Regarding the political instability in Bangkok, concerns among
business owners are focused on first-time visitors to Thailand
and non-Thai Asian visitors. Hotels noted that repeat visitors
to Thailand, who tend to have at least some understanding of the
political environment here, are less swayed by political
happenings; and they are relying on them for business through
this slump. Tourist operators' expectations regarding volume
from other Asian markets, namely Japan and Korea, are low as
these travelers tend to be easily turned away by political
strife, according to the TAT and local hotels. Regarding the
economic crisis, business hotels are particularly concerned as
business travelers scale back on the number of travelers and the
cost per person of those who do travel.

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Hotels Foresee Low Occupancy, Seek Cost-Cutting Measures
--------------------------------------------- -----------

5. Chiang Mai hotels are reporting already dropping occupancy
rates and increases in reservation cancellations. The Mandarin
Oriental said that 150 rooms were cancelled in September. The
hotel's sales director said it is difficult to gauge how grim
the season will be as there is no way to estimate how many
intended but unmade reservations were foregone due to the
crises. The Amari Rincome Hotel has faced a 10% drop in
occupancy compared to this time last year; and the Shangri-La
Chiang Mai, which opened in late 2007, noted that its occupancy
rates are lower than expected. All three hotel chains attribute
the drops to the two crises.

6. To tackle the dropping occupancy rates, hotels are taking
revenue-generating and cost-cutting measures. The Shangri-La
and the Amari hotels are dropping room rates in order to boost
occupancy. The Mandarin Oriental, which reports that lower room
rates will affect the hotel's reputation negatively in future
years, is maintaining its rates but cutting costs in other areas
including a hiring freeze, lower discretionary spending, and a
marketing push for already in-country tourists.

7. Hotels and tour companies have realistic expectations for
this season, and some have even described this twin crises
scenario as "a blessing in disguise" allowing businesses to
struggle through the pain all at once. Despite this temporary

CHIANG MAI 00000163 002.2 OF 002

slump, however, tourist officials and businesses remain
optimistic about Chiang Mai in the long-term as a global tourist
hot-spot. According to the Mandarin Oriental sales director,
"We thought 2009 would be the year for Chiang Mai. No one
doubts that Chiang Mai will one day be on the map, but we might
have to wait until 2010 or 2011 for that.
ANDERSON

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