Italthai Group is preparing a recapitalisation plan for its hotel business in Thailand to stem the impact of the pandemic because a full recovery is not expected for five years.
Yet the firm is keeping the faith in its resort expansion in the Maldives.
Yuthachai Charanachitta, group chief executive at Italthai Group, said a budget injection from shareholders is necessary as its eight hotels need financial support to stabilise given the uncertain tourism situation, which is estimated to last for two years.
“A partial reopening in some provinces will not provide an instant remedy. The best-case scenario for this year is we can break even with an average occupancy rate of around 40%, which is not yet profitable,” he said.
“This volatile situation led us to adapt our strategies on a quarterly basis, instead of following a long-term plan.”
Mr Yuthachai said recurring revenue each month still cannot cover monthly losses. Despite securing soft loans from the government bank, the additional 20-30 million baht geared for each hotel can only preserve liquidity for 2-3 months.
For instance, the Mandarin Oriental, the flagship property of the group, lost around 50 million baht per month during closure last year.
Upon reopening, even though the hotel is charging the highest room rate among luxury hotels along the Chao Phraya River, prices were still slashed by 50%, from almost 20,000 baht per night to 9,900 baht. This indicates the fierce competition in the domestic market, he said.
The average occupancy of its hotels in Thailand dropped 65 percentage points year-on-year to 15% in the first quarter, following a spike of new Covid-19 cases near Bangkok.
“I predict 20% of hotels in Thailand will close as tourism will only start to return in three years,” said Mr Yuthachai.
Recently Italthai finished two major renovations, using 2.5 billion baht for the 144-year-old Mandarin Oriental and 1.2 billion for Amari Watergate Bangkok. The plan was drawn up before the pandemic.
“Hotels are like human beings who need to take showers and get new dresses everyday. We spent a fortune on renovation to ensure our hotels will be ready when guests come back. Leaving all rooms closed could be costly, so we decided to continue services because at least employees can have an income,” he said.
In addition to the recapitalisation, Italthai pressed on with a joint venture in the Maldives worth US$80 million scheduled to open by the second quarter next year under the management of Onyx Hospitality Group, a subsidiary of Italthai.
This project is built on a sizeable island that can expand up to 400 rooms in the future.
Mr Yuthachai, also interim chief executive at Onyx, said the border reopening scheme in the Maldives is a good model for tourism, with no quarantine requirement.
Its existing hotel in the Maldives under Amari, an Onyx brand, reported over 80% occupancy, with most guests spending two weeks per trip, up from an average of one week in the pre-pandemic period.
He said the company froze other new hotel investment for three years to wait for more stable conditions. Onyx plans to continue growing its hotel portfolio via management contracts.
This year Onyx plans to open 8-10 new hotels in Thailand, China and Malaysia with a total of 1,100 rooms. It has 54 hotels featuring 8,700 rooms in eight countries, of which 31 properties are in Thailand.
The pandemic acts as an accelerant, making the company explore feasible options more quickly, such as consolidation to streamline costs, said Mr Yuthachai.