Thai Currency Crisis Trims T&E--For The Short Term

<B> Thai Currency Crisis Trims T&E--For The Short Term</B>

By Fred Gebhart

While Thailand, like the rest of Southeast Asia, continues to experience currency devaluations, travel managers aren't seeing much change in overall costs in Bangkok.

Local expenses have fallen significantly, but the two biggest cost categories, long haul air fares and hotel rates, are unchanged or down only slightly. In fact the currency-related bargains on the food and services front could create problems for the business travel market as leisure takes off.

Northwest Airlines spokesman Doug Killian said that while business traffic to Thailand is normal, leisure traffic is up, a change which he attributes to the new strength of the U.S. dollar here.

Rene Cortez, Los Angeles sales manager for Thai Airways, maintained that the growing demand for business class seats by leisure travelers is starting to pinch space for last-minute business flyers.

In contrast, Frank Scaraviglione, director of global hotel programs for mega agency Rosenbluth International, said the devaluations have made a positive impact on corporate buyers' bottom lines. "We haven't had any negative feedback or reports of gouging from our clients," Scaraviglione said.

The positive side in Thailand is an across-the-board drop of 30 to 50 percent in U.S. dollar in terms for meals, taxis, business entertaining and incidentals.

"As a business hotel with 95 percent of our business from overseas," said Pierre Bonard, general manager of the Grand Hyatt Erawan, "the currency flotation is advantageous to our clients."

The fixed taxi fare from Bangkok's Don Muang International Airport to downtown remains 300 Baht, for example, but it's showing up on travel vouchers as $8 instead of the familiar $12. The change reflects devaluation of the Indonesian rupiah, Malaysian ringit, Philippine peso, Singapore dollar and Thai baht, against the U.S. dollar since last summer.

But the impact on business travel has been most visible in Thailand.

Long-term stability had led hotels to negotiate contracts in baht, which had been pegged at approximately 25 to one U.S. dollar since the early 1980s. When the baht was allowed to float last July, it immediately dropped by 30 percent and has continued to drift lower.

The result was an overnight bonanza for travel managers and a disaster for hotels. Rates that had been negotiated in early 1997 at the equivalent of $150 per night were suddenly closer to $105. Local prices for fuel, wine and other imported goods priced in U.S. dollars on the international market jumped by the same 30 percent.

"If you're going to keep the same level of service and physical facilities, you can't put up with a 30 to 40 percent drop in revenues and spending," said Steve Goodling, North American marketing director for Shangri-La International. "Fortunately, we've gotten great support from our business clients. They didn't want to take unfair advantage."

Shangri-La, like Hyatt, Pan Pacific, Sheraton and most other international chains, started pushing to renegotiate contracts in U.S. dollars to counter currency changes (<I>BTN</I>, Oct. 27, 1997). Tour operators resisted the move, but travel managers saw impending disaster if they pushed hotels and other suppliers to the wall.

"You want to be sure your good suppliers stay in business," said Linda Baygens, Maritz/Internet corporate hotel program manager. "When you have a long-term relationship with suppliers, you don't automatically take advantage of the situation. The rate we negotiated last December was a good rate and a fair rate for our clients, our hotels, and us."

That's not to say that business travel buyers haven't seen savings. If the baht had remained stable, Shangri-La's Goodling noted, most Thai hotels would be raising their rates this fall and winter. By switching to U.S. dollar pricing computed at the old exchange rates, everybody wins. Hotels lock in a predictable revenue stream and travel managers avoid a price increase.

"I was happily surprised," said Shangri-La Bangkok general manager Michael Smith. "We had general acceptance over changing our rates to dollars. Our clients obviously think that $130 to $150 is still good value."

Small hotels that depend on leisure or local traffic generally are keeping their rates in baht to avoid pricing themselves out of the market. The only major property to follow suit is The Oriental, which has a strong leisure component and a traditionally strong international meetings business.

Pricing for both travel markets is set as far as two years out. "Devaluation is obviously beneficial to our clients," said sales director Pimpatai Techachukiat. "We're trying to set a good example for the industry to avoid scaring travelers away."

The Oriental also is going ahead with its regular fall price increases.

In past years, Pimpatai has inched prices up by 1 to 2 percent. This time, rates are jumping by about 8 percent to cover an increase in Thailand's value added tax and 5 percent to help cushion the effects of devaluation. If the baht doesn't stabilize this year, she added, The Oriental likely will price rooms in U.S. dollars.

The real bargains are in food, beverage and function costs. F&B and function sales have plummeted as local businesses have postponed or cut back on non-essential meetings. Restaurant covers are down at both hotel and independent restaurants.

So far, restaurateurs--including hotel restaurants--are holding the line on prices. As long as inventories of pre-devaluation imports hold out, travelers can expect bargains on French, Italian and other non-Thai food and drink. Once they start buying foie gras, steak, lobster, olive oil, wine, butter, flour and other imported ingredients in quantity again, look for prices to start creeping upward.