Horwath Examines Luang Prabang’s High-end Hotel Scene

 

Horwath HTL – the global leader in hotel, tourism and leisure consulting – released “Luxury & Upper Upscale Hotel Market Overview Luang Prabang” in April 2019, which spotlights upcoming supply, delves into annual occupancy rates and ADR, and provides a peek into the future.

Pullman Luang Prabang

According to the Horwath report, only seven hotels meet their criteria for this sector, which is based on the quality of rooms and service, brand recognition, F&B variety, and an average daily room rate (ADR) above $200.

It places these properties in three zones: the Old Town Peninsula (Zone 1), the area bordering Old Town (Zone 2), and outside of the main UNESCO site (Zone 3).

None currently stand in Zone 1. Zone 2 includes the Amantaka, AVANI+, Belmond La Residence Phou Vao, Luang Say Residence, and Sofitel. Pullman and Rosewood sit in Zone 3.The report also notes nine upscale hotels with ADRs below $200.  

ADR & Annual Occupancy Start to Sink

In 2014 and 2015, the high-end segment recorded an ADR of $332, with an annual occupancy rate of about 35%. Occupancy jumped to 40% in 2016, while ADR slid 3% to $323.

AVANI+, Rosewood, and Pullman came on the scene in 2017 and 2018, increasing supply in the high-end segment by 54%. This prompted ADR and occupancy to continue to fall. In 2017, the ADR tumbled 4% to $310, while occupancy fell to 38%. Numbers continued to drop in 2018, with ADR sinking 5% to $293 with occupancy dipping to 34%.

Meanwhile, visitor arrivals to Luang Prabang continued to climb from 379,000 in 2014 to 576,610 in 2018, according to the Lao Ministry of Information, Culture and Tourism’s 2018 Statistical Report.     

Horwath states the occupancy dive is due to the inability for the high-end sector to absorb the large increase in room supply. “Basically, negative occupancy growth is due to supply outstripping demand in 2017-18,” the report said.

“Market demand in Luang Prabang has demonstrated to be relatively rate sensitive, and hoteliers have been finding it difficult to grow rates.”

The report added, “In 2018, the overall ADR dropped sharply due to the discounted rates from Pullman in its first year of opening.” The hotel offers 123 rooms, and needed to offer reduced rates to fill rooms, it said.

How They Book

Horwath divided super high-end bookings into four categories. Wholesale FIT leads the field at 39%. Direct FIT (22%) and OTAs (20%) follow, though the report considers OTA bookings as a subset of Direct FITs. Group/MICE bookings come in at 19%.

1.  Wholesale FIT

Wholesale FIT has traditionally been a luxury hotel’s largest demand source, but this has been gradually declining due to a rise in direct FIT and OTA bookings, the latter of which results in lower ADR, according to the report.

High-end hotels with large inventories often rely on wholesale FITs, but most of Luang Prabang’s luxury properties have small room counts. They depend too heavily on the state of Lao tourism (see below), and are usually part of a multi-country tour organized by agents or DMCs.

This segment is mostly from the US, UK, France, and Germany, and mainly visit during the high season (October-March). More big-spending Latin Americans have been arriving via wholesale FIT bookings in recent years.

2. Direct FIT.

Direct FIT bookings continue to grow among hotels that operate under well-established management companies with reputable branding and strong global sales network. These direct bookings present the highest ADRs, thus hotels favour this method.

Direct FITs tend not to be seasonal like wholesale FIT and Group/MICE. Of note, Chinese tend to be walk-ins, as they want to look before deciding.

3. OTAs

Online booking with Agoda, Booking.com and others play big role during Green Season (June-September). OTAs are especially popular among Asian markets during July and August due to school holidays and proximity. Australians using OTAs often come during Green Season to escape the cold.

4. Group/MICE

Most high-end Group/MICE demand comes from the Chinese and Korean markets, generally during the shoulder seasons, and the numbers keep rising for both. US groups are noticeable during the high season, and they spend more on F&B and spas than Asians. However, their average length of stay (ALOS) is only two-three nights.

US groups spend more, accounting for 28% of the revenue, while the top European markets pull in a combined 22%, though they tend to stay four-five nights. Closer markets account for less revenue and room nights. Thailand contributes 12%, China comes in at 11%, with the rest of Asia accounting for 19% and “others” provide 8%. Note that the double occupancy factor reveals 1.5-1.8 guests per room.

Luxury MICE is traditionally weak due to a lack of facilities and small room count at high-end hotels. According to the report, Pullman could be a “game changer”.

New Supply is Coming

Horwath has confirmed one Luxury & Upper Upscale hotel is on the horizon for Luang Prabang: The 54-room Centara Grand. Expected to open in 2021-2022, the hotel will be located in the Old Town where the provincial police station for visa extensions now stands. The lead-in category rooms are 56 sqm. The property will feature an F&B outlet, club lounge, gym, spa, meeting room, and swimming pool.

A step down in the “Upscale” category, Luang Prabang will welcome two new hotels in 2020-2021. Centara by Centara aims to open in 2020-2021 with 60 rooms. Information on this project has not been disclosed, nor has its location.

Ban Lao Hotel plans to open in 2020-2021 with 60 rooms on the Peninsula behind Wat Manorom. They have tapped MyLaoHome to manage the hotel. Ban Lao will offer standard rooms, suites, and villas with pool access, as well as an F&B outlet, gym, and spa treatment rooms. The historic main building will house the lobby and some rooms, and the hotel plans to convert its old vault into a museum. The rest will be in newly constructed buildings.

Market Outlook

On the Good Side…

Demand for Luang Prabang is expected to continue to grow and has huge potential to develop leisure demand with the new hotels. Nature is a big draw, and many say it tops Thailand for its untapped mountains and landscape.

Horwath also sees potential for sightseeing and adventure products such as hiking trails, mountain biking, zip lining, and kayaking.

“With a variety of stronger leisure demand generators, Luang Prabang will have a greater appeal to a wider spectrum of travellers,” the report states.

It noted improved access to neighbouring countries, and points the Lao-China high-speed train, set to open in 2021. Laos can expect a “surge” in arrivals over the next 10 years due to this major infrastructure addition.

However, the report warns that if not managed properly, this influx to Luang Prabang could lead to overcrowding in Old Town, which would diminish demand from high-enders.

On the Bad Side…

The report states that government support in destination marketing is weak, mainly due to a lack of funding. They had a very small budget to carry out the Visit Lao Year 2018 campaign.

Another concern is the commercialization of Luang Prabang. The new train could bring mass tourism and impact the destination’s charm and appeal. The city needs a balance between preserving its past and sustainable development.

“Luang Prabang should be positioned as a top-tier destination driven by quality over quantity,” the report said, adding that the destination needs to expand the visitor’s ALOS.

Limited flight connectivity has hampered Luang Prabang. There are no direct flights from many key Asian cities such as Hong Kong, Tokyo, and Kuala Lumpur, and more capacity from Seoul would fill the growing demand. This will help build new regional source markets, especially during Green Season.

The Crystal Ball

Horwath envisions Laos as an emerging destination, and believes average annual occupancy at the high-end will return to 40% from today’s 35%. They forecast ALOS in this category will climb from two-three days to around six.

The report concludes that Luang Prabang will be able to absorb the increased inventory by 2021, which will facilitate the recovery of ADR and occupancy rates.

 

266 thoughts on “Horwath Examines Luang Prabang’s High-end Hotel Scene”

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