Value Enhancement in the Thai Tourism Industry- Implications of the Online Travel Business

π The contents of this paper in part or in whole are entirely those of the authors and do not represent the views and opinions of Sasin of Chulalongkorn University, Ministry of Finance and any organization associated with the authors. Comments are welcome. All correspondence is directed to Project Summary Findings 1. Tourism contributes 6% of Thailand's GDP at 323.5 billion Baht – increasing at 6% per annum, in contrast to 3.4% for GDP (five-year compound averages); this topic demands close attention. 2. The value chain shows the travel intermediaries as a key extractor of revenues from end users and suppliers due to informational barriers. 3. Evolving from low-margin manufacturer to high-margin design and marketing provider is possible by developing domestic (online) travel intermediaries. 4. Travel intermediaries must progress from service of demand-supply matching and payment transferal, to demand enhancement, database analysis, and financial contract issuance for revenue and risk management. 5. The market structure of tourism is analogous to that of agriculture, railroads as well as airlines, characterized by high entry cost and low marginal cost with inadequate information flow between suppliers and consumers. This leads to destructive competition and/or intermediary exploitation, particularly when intermediaries have market power. 6. Dynamic pricing can be extended and managed by online intermediaries. 7. Contracts between intermediaries and hotel operators are comprised of prepaid contracts and reserved allocations that may involve a fee analogous to an option premium; remaining capacity is sold on a free-sale basis analogous to commission sales. These contract prices exhibit characteristics of spot prices, forwards and options. 8. The agriculture industry resolved the price elasticity risk induced by market structure problems and separation of consumers from producers through the mechanism of forward and futures contracts. This approach offers great promise for the airline and hotel industries. 9. An analytical solution to the hotel operator's seasonal capacity allocation problem can be based on a linear/quadratic programming approach that determines the choice fixed or variable contracts and accommodates risk and seasonality. Value Enhancement in the Thai Tourism Industry 3 10. An analytical solution to the intermediary's problem of assuring supply to meet predictable demand is based primarily of unconstrained maximization of expected revenues by choice of fixed or variable contracts. 11. Intermediaries can profit from economies of scale by developing and exploiting databases. This permits optimization of the agent's problem in contract choice as well as the hotel operator's problem, the …