It is quite strange that while the demand for hotel rooms increases, its cost per night keeps dropping. This phenomenon is prevalent in Thailand, Phuket and in several parts of the world. The surge in demand for room is due to increase in the inflow of travelers. Normally, when demand is higher, prices go up. So, one would now expect to an upsurge in the prices of rooms per night.
But what is happening is contrary. Demand keeps increasing and prices keep sliding down further year after year. What made this phenomenon interesting is the fact that it has become a global issue. It is not peculiar to certain parts of the world.
This observation led to a more critical look into the industry to figure out the cause of the seeming anti-economics anomaly. Some factors have been discovered to be the cause of the phenomenon. The first one is low inflation rate. When there is low rate of inflation, the prices of commodities will no longer rise in the proportion with the rise in demand of that commodity.
Why do the prices drop?
This explains why the prices of rooms are not going up as demand does. But it still does not explain the drop in hotel rates. This is important as the prices do not remain the same, rather they slide every year. Another factor is drop in the global oil prices. When this happens it forces down the prices of a lot of other commodities.
What really contributes to the continuous slide in the prices of rooms, especially in Phuket, is the continuous emergence of new world class hotels. This means more rooms that will take care of the upsurge in demand and it also means more competition for players within the industry.
Several international hotel brands have begun building several hotels. This gives them control over a major part of the industry. More have been built and more are being expected. In preparation for the keen competition that lies ahead, players in the hospitality industry are being forced to either drop their prices or lose out completely.
With about thirty-two hotel building projects in pipeline, industry players need to reposition themselves as quickly as possible and one of the weapon with which to fight the battle and capture a large chunk of the market is competitive prices. Otherwise, they may not only fail to grow their number of customers, they may also fail to retain the existing ones.
In Phuket precisely, the number of available rooms are expected to increase by over 5,000 between 2016 and 2019. With thirty percent increase taking place in 2016 and another twenty-three percent in the year after, one can understand the enormity of the issue. It is a real dilemma for industry players. This is because the price decline will definitely continue.