Rampant undercutting still affecting Bhutanese hospitality industry

The practice of undercutting in the tourism industry, which has become a norm rather than an exception, is seriously comprising the visitor’s experience say some industry insiders.

Undercutting is generally referred to the practice of bringing in tourists at lower than the fixed tariff of USD 250 a day during peak seasons and USD 200 a day during lean seasons.

The Vice-Chairman of Hotel and Restaurant Association of Bhutan (HRAB), Sonam Wangchuk, attributed the difficulty some restaurateurs and hoteliers are facing to run their business or pay their debts to the rampant practice of undercutting. “When some of the tour operators ‘negotiate’ rates with other agents abroad, they in turn negotiate with the hotels in the country and ask for the services at half the fixed rates. The hoteliers do not have any choice but to provide them at discounted rates which affects their business,” said Sonam Wangchuk adding that some operators sell Bhutan for as low USD 126 to USD 146 a person a day.

“The government’s revenue is not affected with the mandatory USD 65 a day royalty, but in the long run with the frequency of such practices leading to compromise in the experience of visitors with poor accommodation facilities, transportation, and food, it will ultimately stain our image in the international front and gradually lead to reduction in the number of tourist visiting Bhutan,” said the HRAB vice chairman.

HRAB officials said there is lack of an efficient mechanism by the Tourism Council of Bhutan (TCB) to monitor or curb such practices.

Three star hoteliers also raised the issue that though as per rules tariff paying tourists are allowed to stay only in three star and above hotels but tour operators and guides are keeping them in cheaper hotels due to undercutting.

They say this is not fair as three star hotels have invested a lot in the past to get the three stars. They say this goes on as the TCB does not have inspectors or the ability to monitor such practices, which not only affect the business of these hotels but also degrade the Bhutan experience for these tariff paying tourists.

The hotel owners say this can be found out from the airport survey forms as three star hotels will show very unrealistically high bed stays as tour operators keep the guests in non three star hotels but claim to keep them in three star hotels.

There are reports of tourists being kept in apartments and food also being cooked in such overnight apartment restaurants to save money for tour operators. As a result both hotels and restaurants lose money.

Earlier, National Council asked the Royal Audit Authority (RAA) to ascertain the prevalence of such illegal practices in the tourism sector and accordingly RAA carried out a study by forming an independent committee and the findings from the report have been submitted to the National Council. The Deputy Audit General, Chimi Dorji, said the report is yet to be tabled in the parliament.

An official from Association for Bhutanese Tour Operators (ABTO) said although the prevalence of undercutting in the tourism industry cannot be denied they said they are not aware of the strategy involved in such business. “We are not sure of how they ‘negotiate’ with other agencies abroad because the market now is very competitive and if any of the agents undercut, it will greatly affect their profit margin and compromise the visitors’ experience,” said the official.

The president of guide association of Bhutan (GAB), Garab Dorji, said there is no proper system to monitor and proceed with the investigation of such practices. “From what I have been told most of the agencies that route tourist through Nepal are involved in undercutting through collusion with agents in Nepal and India,” he said.

Garab also added that there is no proper mechanism in place by Tourism Council of Bhutan (TCB) to carry out vigilant monitoring in the hotels to check if the guests are kept at the registered hotels and that TCB has been always been pointing about the shortages of manpower they are facing.

The Tourism Council of Bhutan, however, maintains that there is no undercutting as the tour agents have to remit the full payment to TCB account before issuing the visa. Damcho Rinzin from Tourism Promotion Division said that TCB is very firm on undercutting and will also take up legal action against defaulters should they receive any formal complaints on the issue. “However we have not received any such complaints so far,” he added.

The National Council also recommended that the government frame a comprehensive sustainable tourism policy for the positive growth and draft a tourism bill. “We already have a draft policy and we are also focusing on the preparation for 12th FYP,” said Damcho Rinzin.

TCB is currently monitoring the issue through the Tashel Online System, which facilitates the online processing of tourist visas. “Without receiving the full tour payments the system will not allow issuance of the visa,” said Damcho Rinzin. “The tour payments have to come from abroad and will not be accepted from within the country. Moreover it calls for the tour operator’s own sense of responsibility and integrity.”

He also said that TCB carries out regular monitoring of the tourist accommodation and guides among other things.

“It is convenient and lucrative for those hoteliers who operate a tour agency, but it is hard to survive for hoteliers like us where we have to depend on the tour operator for guests,” said a hotel owner.

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