Tourism in Nov 2004

What's in store for other sectors?

Tourism is a business which has a cascading effect on all other sectors of the economy - from poultry farms to taxicabs, handicrafts to roadside tea stalls, liquor industry to florists and laundry to carpets. The continuous decline in the numbers of tourist arrivals has alarmed the entire economy as it could affect the nearly 300,000 people employed directly in the tourism industry, according to some official estimates, along with those indirectly dependent on tourism. Equally important is the effect on the banks that have very high exposure in this industry. They are already complaining of surging bad debts in the tourism portfolio.

The situation is worse this year then in the past. ‘During September 2004 business was almost totally wiped out, laments one hotelier recalling the situation which was largely due to the closure of several businesses including Soaltee Hotel during September 2004. Though a modest growth was registered in October compared to the previous month, business was lower than that of the same month last year. Then what lies in store for November 2004 and after ?

Ask any hotelier, tour operator or trekking agent, they all have the same story to relate – the bookings for November and December are lower than what they were last year. Narendra Bajracharya, the president of Hotel Association Nepal (HAN), adds, ‘As this is the trekking season, most of the tourists who have arrived during this time go on treks. Therefore, hotels in Kathmandu do not benefit from these tourists.’

In this situation, various tourism firms are resorting to numerous strategies – some are closing down (e.g. Hotel Narayani rented out its property to a supermarket), and others have opted for cost-cutting exercises and some say that they are surviving by putting in what they earned during the past 30 to 40 years. Businesses that are dependent on tourism (such as poultry farming, laundry, handicrafts, vegetable farming), are finding it more difficult because their nature of business is such that they have no room to cut costs or to change their line of business.

One hard hit sector is the handicraft export business, in which the importers personally visit the producer units to place orders. Only those units are able to record growth in exports that have already developed good relations with the importers who have enough confidence to place orders from their home offices.

Also among the tourism businesses, the big hotels have more pronounced problems than other category firms. Some of them have asked their staff to utilise their accumulated leave, but this will only help for a short while as they have to employ the bare minimum number of staff as standby. Some have even closed down some sections of their business. For example, recently Radisson, a five star property, closed down its restaurant, Olive Garden. But they cannot go on closing down all their in-house restaurants. If they have to keep the restaurants running, they must have a minimum of a captain, a couple of waiters and kitchen staff. The same applies to all the other departments.

More importantly, the staff have to come back to work after their leave of a month or a fortnight is used up. This strategy has helped only in the cases of those hired on a contract basis.

However, the problem is not less severe in other categories of the tourism business, though it may not be as pronounced as it is in the big hotels, because the problems of big hotels get quicker publicity. To be sure, small hotels that outsource most of their services may have found it easier to cut costs in some headings, but they too are facing financial crunches as they have, by nature, very low savings from past profits which they could  have used during these days of bad business. It is also true that those firms are facing less difficulties which have no or less bank loans as their debt servicing requirements are lower.

Another strategy being adopted by some hotels and resorts is to offer special rates on restaurant meals and holiday packages to lure local customers. But as these methods can be fast copied by others, there is a risk of a continuous downward spiral in rate cuts across the industry.

So, whatever steps the tourism and tourism dependent businesses are taking today are only patch up measures that would be viable on a short run. But the continuous slide in tourist arrivals has already reached the long run from the point of view of any individual business firm.

The situation is rather bewildering as the industry is facing a dilemma regarding the appropriate strategy that it should follow at this juncture. The problem is due to the lack of relevant data to base the decision upon. ‘Figures released by Nepal Tourism Board (NTB) do not help because they do not clearly identify what types of tourists we are receiving. For example, are they repeat visitors or first timers, big spenders or budget tourists, pilgrims or business travellers, young or old ?’, laments Basant Raj Mishra, President of Nepal Association of Tour Operators (NATO). Absence of a system of satellite accounting in tourism is another problem to assess the effect with more accuracy and to decide on the appropriate strategy.

Still one thing is clear – most of the tourists arriving in Nepal now are spending less number of days and less amount of money in Nepal. Moreover, the Kathmandu hotels are not benefiting from these tourists even though they might help trekking agencies to keep their business rolling. For example, the major arrivals in September were from Spain and Italy, known for low spending habits, short duration of stay and preference to trekking. In October, the largest arrivals comprised of Germans and French – again people who prefer trekking. Also the arrival of Indians, the largest spenders in recent years and the major category of guests in Kathmandu hotels, has taken a nose-dive.

As a result, the hotel occupancy in Kathmandu in October was estimated to be somewhere between 35-40% in average compared to 40-60% last year. In Pokhara and Chitwan, the figure has been estimated at 10-15% as compared to 25-35% last year.

What is to blame for this decline ?

The usual answer one gets regarding the tourism sector problems is the lack of peace and security. But though it may explain the situation of September 2004, it is not enough to explain the general trend. A number of international examples are enough to prove the point. Mishra says: ‘South Africa is known as a country with one of the highest crime rates in the world (remember Prime Minister Deuba losing his passport immediately after landing there during his previous term in office?), but it is getting increasing number of tourists every year. In Sri Lanka, a plane was bombed at the Colombo International Airport, but it continued getting tourists. Thailand too has a very high crime rate, but it too gets increasing number of tourists.’

In other words, security or peace have not been issues that affects tourist arrivals in a country. While accepting the fact that Maoists are very much in control of the trekking routes, the tour operators say that the insurgents provide a safe passage to the trekkers when the trekking agent pays them a specified sum of money per trekker. The trekking agents are not complaining because that may aggravate the problem further while the status quo allows them to continue with their business.

That may be the reason why Ashok Pokharel, Director of Himalayan Journeys, one of the top trekking agencies of the country, is not so pessimist. ‘Talking about my company, we expect to exceed last year’s numbers if nothing dramatically bad happens in the next couple of months,’ he says. ‘There is lot of pent-up demand for Nepali tourism products –especially for adventure travel because Nepal has no real competitor in this segment. People are just deferring their plan to come to Nepal.’

Another fact to prove the point is Indian arrivals. Compared to 2003, the arrivals from India are lower this year but it is not because of the security concerns, say the entrepreneurs. Indians came in good numbers to Nepal in 2003 because they could not go to South East Asia due to the threat of SARS virus. This year there is no SARS, so they prefer South East Asia.

As for the not-so-promising arrivals figure from China the reason is something other than security, they say. In this case the major problem is the flight connections rather than anything else.

Same is the case with MICE (Meetings, Incentives, Conventions and Exhibitions) tourism. No big MICE event has been organised in Nepal in recent months, but it is not due to the peace concern, say the entrepreneurs. According to them, it is because the hotels in Nepal’s competitor countries are offering better packages than what Nepali hotels could under MICE.

However, there is no denying that the image projected in the outside world about the situation in Nepal is as worse as (if not more worse than) in Iraq. The governments of major tourist-originating countries have been strongly advising their citizens against visiting Nepal, but Nepali authorities and tourism entrepreneurs have not been able to convince them to soften the advisories and give the real picture. Only recently, the British government has, however, softened its travel advisory a bit and said that it is safe to visit Nepal if the tour is conducted by a well-known operator.

Search for right strategy

This is a time for taking stock of the situation and laying plans for the future, say the tourism entrepreneurs. While getting 500,000 or so tourists is not a big deal once peace is restored (nearly that many tourists were received way back in 1998 and 1999), the present infrastructure is not sufficient to serve that number properly as was experienced in 1999, they point out. ‘During October-November, when the number of the tourists is maximum, there will not be enough space even to park tourist buses if the arrivals are as many as in 1998 or 1999,’ points out Pokharel.

So, he suggests, the time available now due to the lack of business should be used to chalk out the programs and execute them so that the infrastructural bottlenecks will not be there when the Nepali tourism industry bounces back to life eventually.

Equally important is the marketing strategy. As Mishra notes, the mindset of the government as well as of the private sector has to change. ‘They just sit and hope that tourists will come because we have unique products in the world. But those days are now over as the number of competitors have increased,’ he says.

Estimates show that Nepal gets nearly Rs. 16 billion a year from tourism, out of which not even one per cent is spent on tourism marketing. Last year, Nepal Tourism Board spent nearly Rs. 40 million and another Rs. 120 million is estimated to be spent by the private sector. This is a very small budget while it also shows that the money spent by Nepal on tourism marketing is quite productive.

Only increasing this figure is not going to be enough, says Pokharel with the suggestion to have a proper marketing mix. ‘Participating in trade fairs is not marketing,’ he notes indicating the prevailing practice of the Nepal Tourism Board (NTB). Mishra adds, ‘Participation in trade fairs is for private sector firms, the national tourism promotion body should do something else. By participating in fairs, NTB is in fact competing with the private sector.’

Some international tour operators are also promoting Nepal but their efforts are not enough, says Pokharel. ‘Because they are usually small operators with little budget for promotion. So they do not go to the clients. At this time we have to directly go to the clients on our own.’

Where will we find the budget?

Marketing internationally is a very big budget affair and the national marketing organisation, NTB, is facing budget constraints. Its major source of income is the tourism service fee (TSF) that the hotels and tour operators collect along with Value Added Tax (VAT) from their clients. Since the tourist arrival has gone down and those who are coming are most likely to be budget travellers who use the services of operators outside the VAT net, NTB is getting very little as TSF.

The solution is to turn to the government. Mishra says, ‘The government must support the industry by providing the necessary finance during these days of crisis. A person would be all right in a shirt during normal days, but he should have an umbrella when it rains and a sweater when it is cold. The government should now provide the sweater and the umbrella to Nepali tourism.’ Mishra notes that marketing investment in tourism has been yielding good returns to the government and economy. He also points out that the government in fact owes the NTB a lot of money. It was supposed to provide a matching grant to the NTB equal to the amount it gets in the form of TSF, but the government has never given this money. ‘Now is the time when this money is urgently needed by NTB.’

NTB has its own weakness for it cannot give the government a calculation of how the investment made now would benefit the government and the economy. This is because there is no satellite accounting system to collect the relevant data about the cascading effect of tourism in the other sectors of the economy.

Narendra Bajracharya President  Hotel Association of Nepal

But what to market?

This question has vexed the tourism entrepreneurs. Bajracharya says, ‘Our marketing activities are now stagnant because we are not sure about the outcome of our marketing activities.’ However, he suggests that during these circumstances, the marketing focus of Nepali tourism now has to be different from what it should be during normal times.

For example, now is not the time to harp on about Buddha’s birthplace or about Mount Everest. Even those who already know this are not coming because they are advised by their own governments against visiting Nepal.

So the first level of marketing has to be on persuading foreign governments not to exaggerate the situation here. ‘Of course we cannot hide the real situation and project the same rosy picture of a perfectly peaceful country as it used to be in the early 80s, but we should remember that the tourists today are prepared for some level of risk,’ says Mishra and adds, ‘So an effort to convey an objective assessment of the situation would help.’ Recalling the Sri Lankan example, he notes that the Sri Lankan government had the guts to show the photo of a perfectly normal plane near the other plane bombed by terrorists and claimed that despite that particular incident Sri Lanka was perfectly safe for travellers. ‘Why could we not do a similar thing when some bombs went off in the Soaltee Hotel premises while all the guests were safe in their rooms, restaurants and the lobby ?’ he inquires.