The boom in tourist arrivals to Thailand over the past five years finally appears to be over. The industry will remain one of the country’s best-performing sectors but cannot maintain previous growth rates.
While Chinese demand for holidays in Thailand will continue to rise, it can no longer drive the rate of industry expansion recorded from 2011 to 2015. Growth in Chinese tourist arrivals fell to 13.2 per cent in the second quarter, dragging down overall arrivals growth. The sector will become increasingly dependent on rising spending per visitor.
As tourism growth decelerates, the Thai economy risks more severe underperformance. The sector has an outsized influence on the economy, directly contributing 13.2 per cent of GDP growth in the first quarter, the highest level on record.
After years of rapid expansion, the growth of Thailand’s tourism industry is slowing. In the second quarter of 2016, arrivals increased a relatively modest 8.2 per cent year on year (see chart), largely due to a deceleration in growth of arrivals from China. FT Confidential Research nevertheless believes the sector is heading into a new era of healthy, if slower, growth.
Over the past decade, Thailand has become one of the world’s top tourist destinations. In 2015, the country ranked sixth globally for tourism receipts and 11th for arrivals. Visitor numbers nearly doubled between 2010 and 2015, rising from 15.9m to 29.9m, and annual receipts now exceed Bt1.4tn ($40.5bn).
In the first quarter of the year, tourism revenue accounted for a record 13.2 per cent of GDP, more than Thailand’s entire agricultural sector. This does not include the secondary effects of tourism, which probably push the total contribution of the sector above 20 per cent of GDP.
Slower growth in Chinese arrivals
Rising incomes in China have led to a surge in outbound tourism, with an estimated 120m Chinese tourists spending $215bn on international travel in 2015, according to the China Tourism Research Institute and World Travel and Tourism Council, respectively. Thailand has been a primary beneficiary. Nearly 8m Chinese tourists visited Thailand in 2015, according to the Thailand Department of Tourism, a more than sixfold increase over the 1.1m recorded in 2010. China accounted for 29.5 per cent of foreign arrivals last year.
Lost in Thailand, a hit film released in 2012, helped make Thailand a priority destination for many Chinese. Beside its beaches and cuisine, Thailand has become a destination of choice due in part to the low cost of travel and accommodation and ease of access. Direct flights to Bangkok are now available from most second-tier Chinese cities, while Shanghai, Beijing and Guangzhou also offer direct flights to Chiang Mai and Phuket.
Annual growth in arrivals averaged 47.9 per cent from 2010 to 2015, even with the inclusion of 2014, when political turmoil caused growth to stall completely. Arrivals growth from other key markets has been much slower (see chart).