TRIS Rating Co., Ltd., the Thai credit rating agency, today expresses concern that businesses in the Thai tourism sector are expected to face more severe pressure on operating performance than previously expected. Tourism-related businesses, which have already been hurt by record high fuel costs and the global financial crisis, now must content with the seizure of two Bangkok airports by anti-government protestors. The rating agency says that the continuing political impasse has directly affected the ratings of Thai Airways International PLC (THAI) and King Power Duty Free Co., Ltd. (KPD), while the ratings of hotel operators are likely to face unfavourable prospects for a prolonged period. The rating agency concludes that it is currently paying very close attention to the performance of each rated company and will take prompt rating actions when necessary.
Dr. Warapatr Todhanakasem, TRIS Rating’s President, says that TRIS Rating’s rated clients in the tourism sector had already suffered from the spike in fuel costs a few months ago. The rise in fuel costs led airline company managers to take several initiatives to bring down costs. At the same time, many tourists have tightened their traveling budgets in light of the global financial crisis, which is now spreading out of the financial services industry and into the real sector. Rising layoffs have also lowered the number of tourists. However, Dr. Warapatr says that the final blow to the tourism industry is the recent seizure of the two Thai airports, directly affecting THAI and KPD, a sole operator of airport duty free shops.
The impact will also hit hotel business, especially five-star properties, because they largely depend on tourists and business traveler. However, such operators can promote revenue from food and beverage or banquet services to make up pooper room revenue.
Dr. Warapatr says that TRIS Rating will closely monitor all rated companies in the tourism industry. Should the effects impinge the companies’ financial profiles, further rating action may be needed.
Recently, TRIS Rating downgraded the ratings of THAI from “AA-” to “A+” due to weaker operating performance since July 2008. In addition to THAI, TRIS Rating also rates companies in the tourism industry: Minor International PLC (MINT), Central Plaza Hotel PLC (CENTEL), and MBK PLC.
TRIS Rating views that among all the rated companies, THAI will be affected by far the most since over 90% of the company’s revenue is from transportation services. The closure of the two airports has cost THAI Bt548 million per day in lost revenue, on top of fixed operating costs of around Bt140 million per day. TRIS Rating expects THAI’s revenue passenger kilometers in 2008 to drop by 6%-8% from the previous year. The cabin factor in 2008 is expected to be around 74% and will likely drop further should the political conflict continue to be unresolved.
TRIS Rating adds that should the unfavourable business conditions continue, other clients in the tourism sector such as MINT, CENTEL, and MBK will be hurt as well. TRIS Rating believes that five-star hotels, with revenues highly sensitive to foreign tourist arrivals, will experience lower numbers of bookings. Advance bookings are anticipated to drop, both for the upcoming 2009 New Year period as well as for later in 2009. Competition among operators will limit their ability to raise prices. Hence, revenue per available room (RevPAR) is expected to soften. However, the effect on each operator will vary. To counterbalance the slumping hotel business, MINT and CENTEL have quick-service restaurant (QSR) businesses accounting around 50%-60% of their respective total revenue. MBK can rely on revenue from retail property and rice mill, which typically makes up 60% of revenue. As a result, the current conditions will have a moderate impact on MINT and CENTEL and a negligible effect on MBK.
In addition, TRIS Rating believes that the performance of KPD will suffer, given that income from Suvarnabhumi International Airport accounts for approximately 90% of the company’s total revenue. Sales to foreign tourists make up 75%-80% of total revenue.
TRIS Rating notes that the extent of the negative consequences will depend on when the political turmoil ends and how each company’s management team responds to the unfolding events. TRIS Rating will closely monitor the performance of these rated companies along with the current political turmoil, and will evaluate the impact to the credit ratings and outlooks of the rated companies in the tourism sector. If the impact from the global economic slowdown and the prolonged political turmoil hurt operating performance more than expected, further rating action may be needed.
Currently, TRIS Rating has rated KPD at “BBB-/Stable”, THAI at “A+/Stable”, MINT at “A/Stable”, CENTEL at “A-/Stable”, and MBK at “A-/Stable”. -- End
1. Thai Airways International PLC (THAI)
Company & Issue Ratings: A+/Stable
2. King Power Duty Free Co., Ltd. (KPD)
Company Rating: BBB-/Stable
3. Minor International PLC (MINT)
Company & Issue Ratings: A/Stable
4. Central Plaza Hotel PLC (CENTEL)
Company & Issue Ratings: A-/Stable
5. MBK PLC (MBK)
Company & Issue Ratings: A-/StableCopyright 2008, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.