Hotels not reaping the benefits of tourism

The hotel industry, which adds the highest value to tourism, does not reap the same levels of benefits it deserves, according to a recent report by the Hotel and Restaurant Association of Bhutan (HRAB).

“The high value that the tourism sector endeavours to create for tourists and accordingly to the various stakeholders involved is not shared proportionally based on the value added by each player,” it states.

In the last six years, the sector grew by over 124 percent with a compound annual growth rate (CAGR) of over 14 percent during the same period.

However, it was unable to keep pace with the growth in tourist arrivals, which has been growing at an average annual growth rate of about 17 percent.

This, according to the report was because the sector is faced with problems that refrain it from growing into its true potential.

While problems regarding seasonality in the arrival of tourists, unbalanced regional tourism development, undercutting and unfair sharing of the value concern the tourism sector, the report states that the current tourism tariff system is a driver of some of these problems.

According to the report, the current tariff structure allows for a higher value retention (more than twice) for tour operators during the peak season than the off-peak season (USD 56 vs. USD 24), leading to tour operators pushing for dollar paying tourists to visit Bhutan during the peak season and translating it into a seasonal based industry.

The report claims that tour operators retain a high value from the current tariff system – as much as USD 50.4 a person a day (post-tax) from the average Minimum Daily Package (MDP) rate of USD 225 compared to USD 6.42 per person a day by an average three-star hotel.

“This unfair share of the value coupled with the high value retained by the tour operator incentivises undercutting to the MDP tariff by the tour operators,” it states.

To address these issues, the report recommends a thorough and in-depth study of the current tariff structure in line with Economic Development Policy – 2016 which states that the TCB shall draw up a strategy for tariff rationalisation by 2017.

While the hoteliers make the highest levels of financial investments, top generating employment opportunities, take the biggest degree of risks and make the highest contributions in the value chain of the sector, it claims that they are not compensated fairly for the benefits that accrue as a result.

“This unintended outcome is directly in conflict with the national tourism policy of high value, low impact,” it states.

About Nu 28 billion has been invested in the hotel sector to date. It is estimated that another Nu 3 billion worth of investments is underway. As of September 2018, there were 276 hotels offering 5,868 rooms and 11,195 beds. The sector provides direct jobs to over 10,000 people.

In the absence of a tourism act or a policy today, there is no mechanism to provide a clear vision and a way forward for the development of the sector and meeting the true potential that it has to offer.

“This can be a major bottleneck to the development of the tourism sector in the long run,” it states.

Meanwhile, low occupancy rates with high seasonal variance, late or delayed payments and bad debts by tour operators, low revenue realisation per room, and manpower or immigration issues are some of the operational problems faced by the hotels.

The report recommends the government to undertake a study to assess the carrying capacity of the tourism sector so that a road map and appropriate strategies can be developed.

Tourists visiting Bhutan consists of two different and distinct segments – the dollar paying international tourists and the regional tourist. The report recommends that the current system pertaining to regional tourist be retained, and cautions that taking drastic and hasty decisions would be detrimental for the country.

However, if any policy decisions are taken with regard to regional tourists, they should be rolled out gradually and all stakeholders should be given about one year or more time to transition.

“It is hoped that this report will set the tone for instituting an appropriate mechanism to initiate necessary reforms in the tourism sector which will help the sector to grow even further and enable it to contribute to the overall development of the country,” it states.

The HRAB is a federation of hotels and restaurants from all over the country. Members range from restaurants to small family-owned properties to major convention hotels.

Dechen Tshomo

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