Hotel industry goes from boom to bust as tourism fluctuatesFrequent plane crashes, misguided policies and political instability cast a pall over the sector that is still struggling to recover from the Covid pandemic.
It’s spring in Nepal. This is peak tourist season when foreign thrill seekers flock into the country to go trekking or mount expeditions in the Himalayas.
But the nation’s hotels complain they are not seeing the deluge of reservations one would expect at this time of the year.
“One-fourth of hotel rooms are still vacant,” said Vinayak Shah, vice-president of Hotel Association Nepal which has 2,000 hotels across the country as its members.
“Our member hotels produce 10,000 room nights; of which only 25 percent have been sold.”
The association says tourism recovery has reached 50 percent of pre-Covid levels.
“We had not expected the industry to slow down to this level,” said Shah. According to him, nearly 20 percent of small and medium-sized hotels have closed.
Industry insiders say Nepal’s hospitality industry is facing a “boom and bust” syndrome.
“It’s true. During the Covid period, hotel construction boomed, but tourist numbers have not grown,” said Sreejana Rana, president of the association. “The industry is recovering, but the government thinks the tourism industry is fine, that everything is in order. But actually it is not so.”
After Nepal announced the construction of two international airports in Bhairahawa and Pokhara, nearly seven decades after Kathmandu’s Tribhuvan International Airport was constructed, the hospitality industry saw an unprecedented and game-changing expansion.
Investors poured billions of rupees into dozens of hotel projects across the country. The number of four-star properties, which was only three in 2017, has now jumped to nearly 20. More such properties are being built.
“There has been an infrastructure boom. That’s definitely not the problem of the private sector. The government has lost momentum. The need is to attract visitors to fill the new rooms,” said Chandra Prakash Shrestha, president of the Siddhartha Hotel Association in Bhairahawa.
“An international airport has been constructed, But we don’t see tourists coming directly to Bhairahawa, the birthplace of the Buddha,” he said. “What’s wrong?”
The objective of building Gautam Buddha International Airport, situated around 20 km from the UNESCO World Heritage Site of Lumbini, the birthplace of Lord Buddha was to boost trade and tourism.
It was expected that the construction project, which was implemented under the South Asia Subregional Economic Cooperation programme, would generate employment in the region and stop young people from going abroad to find employment.
Other infrastructure projects have also proliferated—at least two dozen luxury hotels, wide highways, restaurants and transport—but Bhairahawa has not seen the expected tourist numbers.
Insiders say the development priorities got mixed up.
“There is only one international flight operating out of Bhairahawa airport. It does not bring tourists,” said a local tourism entrepreneur.
“Bhairahawa lacks proper marketing and branding. This the government has failed to do,” said Shrestha. “But we have not lost hope.”
Hotels have proliferated but business has not increased, and this will certainly push some of them to the brink of bankruptcy, analysts say.
Gandhi Pandit, a corporate lawyer who specialises in commercial and banking law, says not only the hotel industry but other industries too were hit after bank interest rates rose from single digits to double digits.
“Banks have started recovering their money by auctioning off the collateral, and the first casualty will be the hotels,” he said. “We have suggested to Nepal’s central bank to make a wise move because this can put the economy into total disarray. Hotels defaulting on loans can be blacklisted. If the economy runs, hotels will run too.”
Pandit said that in the current situation, the central bank should act prudently.
Entrepreneurs in Pokhara are the most worried. They saw their five-decade-old dream materialise when a new international airport was inaugurated in Pokhara on January 1.
But there was a plane crash near the airport before it could begin international operations, casting a pall over the tourism industry.
“A crash is always bad for Nepal’s economy. It actually crashes the tourism industry,” said a hotelier in Pokhara.
“Before the crash, 80 percent of the hotel rooms in Pokhara were filled. After the disaster, cancellations flooded in. Everything went in a flash,” said Biplab Paudel, executive director of the Barahi Group of Hotels.
Travel as an industry is vulnerable to getting whipsawed.
“Several unusual circumstances could add to the volatility if it is not addressed in time,” said Paudel. “The interest rate is one of them.”
Hoteliers say that the 7 percent interest rate on loans has soared to more than 16 percent.
The International Monetary Fund has flagged concerns about large boom-bust credit cycles in Nepal’s financial sector. That means excessive credit growth amid erosion in borrowers’ repayment capacity.
“At this interest rate, not only hotels but all other sectors' performance will be hit,” said Rana.
“High Inflation has impaired the hospitality industry’s long-term performance. We need an extension of the loan repayment period otherwise the hotels will fall one after another. We need the interest rate brought down to single digits.”
The hotel sector is cyclical. Its fortunes rise and fall with the economic boom and bust. The travel sector is ordinarily a leading indicator of recession, say insiders.
Nepal’s travel and tourism industry, which contributes around 7 percent to the country’s GDP, has been struggling to rebound from the Covid-induced slowdown.
Based on forward-looking scenarios for 2023, international tourist arrivals could reach 60 percent of pre-pandemic levels this year.
In 2019, before the Covid pandemic struck, Nepal received 1.19 million foreign tourists. Now, it is facing setbacks one after another.
The hotel association says that the Nepal Tourism Board's decision to ban solo trekking on routes other than the Everest region is an example of another misguided policy.
David Ways, a travel writer from the United Kingdom who has written a series of guidebooks on Nepal, told the Post in an email, “The number of not only trekkers but also non-trekking tourists contacting me in distress over the new rules on mandatory guides has risen dramatically since the announcement.”
Ways wrote, “There's been an uptick in the number of solo trekkers now looking for guides... not because they want to, but because they have already bought their flight tickets. They are not happy at the rush announcement one month, if not weeks before they are due to arrive in Nepal. This has resulted in a frenzy of disdain towards Nepal, whereas normally there would be a positive vibe.”
He wrote, “It is worrying that Nepali trekking companies are seeing this surge as a positive. They don't seem to realise that the bookings for Oct-Nov have dropped dramatically. So too have flight bookings. It seems the typical short-sighted money-for-today mentality is looming up to be something quite devastating to the local economy.”
The tourism industry is having problems for reasons of air safety, policy instability and poor connectivity.
“We spoke to various ministries about these problems, but there was no response. There are changes in government, and the changes of ministers and secretaries are uncountable. In Nepal, there is no good governance,” said Rana.
The Culture, Tourism and Civil Aviation Ministry holds the record for the fastest minister turnover—seven in four years.
The tourism ministers who have come and gone in short order are Yogesh Bhattarai (who lasted from July 2019 to December 2020), Bhanu Bhakta Dhakal (December 2020 to June 2021), Uma Shankar Argariya (June 4 to 22, 2021), Lila Nath Shrestha (June 24 to July 12, 2021), Prem Ale (October 2021 to June 2022) and Jeevan Ram Shrestha (June 2022 to January 2023). Minister Sudan Kirati is currently at the helm.
“But like all the others who have come and gone, Kirati is quite busy inspecting the toilets of the airports and is least bothered about the industry’s grievances,” said a senior tourism entrepreneur. “What can we expect from the minister on the policy front?”