Hoteliers worst affected as many are forced by circumstances to sell cheap

Dechen Dolkar

Despite the increase in tourist arrivals in the spring 2024 by almost twofold, the service industry, including tour operators, is struggling to reap the benefits from the increased numbers. 

The Department of Tourism recently revealed that 41,394 tourists visited Bhutan in the first quarter of 2024 compared to 26,465 in the same quarter last year, bringing in a revenue of USD 13 million. However, those in tourism and allied sectors like the hotel industry claim that the increased arrivals have not translated to improved business.

The revenue from the revised sustainable development fee goes straight to the government coffers. Tour operators compete to bring in tourists playing on the margins after paying the SDF. This has forced them to undercut to remain in business.

Tour operators said it was wrong to compare this year’s tourism arrivals with last year’s because tourists last year came under the previous SDF of USD 65. In fact, compared with 2019, this year’s tourist arrivals have decreased. In the first quarter of 2019, 83,729 tourists visited Bhutan. 

Tour operators are now blaming the government’s decision of doing away with the minimum daily package rate (MDPR) policy. With the MDPR, tourists had to come through tour operators and pay in advance. The MDPR was USD 200 to 250 per person per day. 

Doing away with the MDPR, they say, was legalising undercutting.

It was learnt that some tour operators sell packages at USD 150 to USD 180, including SDF, per person per night, depending on the group size. This means they have to adjust the cost of rooms, meals, transport, and guides from the USD 50 to USD 80 margin. Many prefer to keep guests in homestays because of the cheaper rates.

A new trick, even if it is shooting in their foot, is forgoing the daily  Nu 1,200 SDF tourists charged on Indian Tourists and building it into the lum sum amount. While this is attractive, it is adjusted from the room and meal costs.

Star services at cheap rates?

While it is their call to undercut or sell tour packages at cheaper rates, there is a ripple effect, which is heavily borne by hoteliers. The hotel industry is dependent on tour agents for guests although they could also market on their own. Many tour agents own hotels to make up for the loss from reduced rates. Hoteliers feel the brunt of this.

Besides, the hotel industry experiences cannibalism of sorts given the sheer number of hotels that have opened in the last few years. The number of hotels increased by about 54 percent between 2019 and 2024. This excludes farmhouses.

The chairman of the Hotel and Restaurant Association of Bhutan (HRAB), Jigme Tshering, said this is why some hotels are forced to sell at cheaper prices.

Small hotels rely on tour operators. They would instead fill their rooms than leave them empty. The proprietor of a three-star hotel in Babesa said star-rated hotels today sell at the rates of budget hotel because of the competition. “What we sold at Nu 6,000 a day, inclusive of free breakfast, we are forced to sell at Nu 4,500 with two free meals,” she said. “Hotels with 40 to 50 rooms can make up for the number. We cannot compete with them. It is either leave the hotel empty or sell it cheap.” 

The explosion of hotels and ratings given by the authorities without monitoring the standards, she added, has affected hotels. “There were only six hotels in our area when we started operations before the Covid-19 pandemic. Today, there are 13.”

The vice-chairman of HRAB, Tshewang Jurmey, said the occupancy rate is not even 20 percent. He said some three-star and four-star hotels have lowered their prices, bringing them down to the level of one- and two-star hotels, forcing some of them to close shop.

All these, they say, could undermine the services they provide to tourists.

“Tourists do not enjoy a high-value experience in Bhutan,” said service providers. “To get more tourists, service providers cut their costs, which affects the services. There is no one monitoring the market.”

For instance, instead of offering five menu options, they offer only three. For transportation, instead of providing a Pardo, they provide a Creta.

Fronting in the hotel business?

A new game in the business could be termed fronting. Tour operators  claim that foreign tour operators are now dictating the local tour operators forcing them to sell tour packages at lower rates to compete for tourists.

According to service providers, although not proven with evidence, this is done through foreign tour agents allegedly running tour operations in the country.  Foreign tour operators are now recruiting Bhutanese under their payroll, including guides and drivers and applying for visas themselves, bypassing local operators.

A tour operator told Kuensel that foreign tour operators have invested in Bhutan to provide services, buying bulk hotel room bookings while some of the local tour operators have become commission agents for foreign tour operators.