- Midscale hotels in Thailand fared the worst during the pandemic.
- Now, five-star hotels are lowering their prices to four-star levels to draw in travelers.
- It means that even in a recovery era, there’s no recovery in sight for midscale properties.
The Village Coconut Island Beach Resort, a five-star hotel on the Thai island of Phuket, is located on a private beach. In online reviews, guests rave about its location and its staff. It has two swimming pools, a spa, and a “very good” rating from nearly 1,500 visitors. And right now, its prices are down from a pre-pandemic $336 a night to $186 a night.
It’s not an outlier. Top-level hotels across Thailand are advertising similar price drops. The Wyndham Sea Pearl Resort (five stars, private balconies, wine cellar) has dropped prices from $268 to $123 a night; Diamond Cliff Resort and Spa (five stars, 20 acres, three bars) has dropped its nightly rates from $368 to $118.
With price cuts like these, hotels are making an obvious play at drawing in travelers now that Thailand has relaxed its border restrictions. But what they are also doing is eating into the middle-tier hotel market share. Consider the Holiday Inn Resort Phuket, a four-star hotel with a “fabulous” rating currently priced at $134 a night, or the Four Points by Sheraton and its undiscounted, $149 night price tag.
With prices like these, why would anyone pay more — or the same amount — for a lower-rated hotel?
The middle is falling out
A January 2021 Statista survey looked at the effect of the pandemic on Thailand’s hotels, broken down into four categories: budget, midscale, upscale, and luxury. The survey examined hotels across 20 Thai provinces, including Bangkok, Phuket, and Chiang Mai.
It turns out, mere 2.5% of Thailand’s luxury hotels were severely affected by the pandemic. In comparison, 29.4% of midscale hotels — the highest of any group — were severely affected.
Now, as Thailand welcomes back visitors, part, but not all, of the hospitality industry is in recovery mode — and midscale establishments are again falling on the wrong side of the curve. In addition to the fact that five-star hotels are bottoming out their prices to compete with four-star hotel fees, what’s also working against four-star hotels is that pent-up demand is driving some people to spend more on their vacations.
“I hate the word ‘revenge travel,’ but there is pent-up demand, and so people tend to spend a little more,” Bill Barnett, the founder and CEO of Phuket-based hospitality consultancy C9 Hotelworks, told Insider.
Barnett added that the list of things working against four-star hotels is longer than the list of things working for them right now.
“They lack distinction,” Barnett said of four-star hotels. “They’re not sitting on prime land, they’re not beachfront, so people are saying, ‘Why would I want to stay there?'”
It also comes down to room count. A quick search on Booking.com shows that Phuket, one of Thailand’s top tourist destinations, has nearly six times as many mid-scale hotels as luxury hotels. “They have too many rooms,” Barnett said of the middle tier.
The slash in Thailand’s hotel prices comes as hotel prices in the US soar. The average hotel price in the US right now is around $147, per The Washington Post, citing travel research firm STR. That’s $42 higher than last year and $15 higher than 2020.
But what’s bad news for the hotels could be good news for travelers.
“It’s a weird phenomenon,” Barnett said. “Because if five-star becomes four-star prices, then people will say, ‘Why should I book four-star?'”
That proved to be the case for Lauren Wedge, a logistics and imports professional from the UK, and her partner.
The pair recently traveled to Phuket for a friend’s wedding and stayed at the Amari Phuket, a five-star beachfront resort.
“Amari had uninterrupted sea views with the balconies looking right over their little beach,” she said of their decision to book a stay at the high-end resort, where a night currently goes for $247. “It also had a good deal available.”
“My partner hasn’t really experienced five-star hotels before, so it was really blown away by the whole experience,” she continued.
“On the holidays we’ve been on as a couple, we tend to stay in mid-range small hotels with not many facilities, or rent an apartment. So this was a new experience for us as a couple and one we’d definitely repeat after our wonderful experience at Amari,” Wedge added.
As for what the market implications will be if five-star hotels continue to take on four-star prices, Barnett was blunt.
“Domino,” he said. “The guys in the middle who have the most hotel rooms, they’re screwed.”