With tourism opening in Bhutan on 23rd September 2022, under the new USD 200 Sustainable Development Fee (SDF), there are already Bhutanese tour operators selling discounted packages after paying the SDF.
For example, a tour operations company in Nepal that sells tour packages for a Bhutanese tour operator is selling packages as low as USD 280 inclusive of the USD 200 SDF, which means a tour package of USD 80 a day.
Given that the Nepal operators will have a 10 to 15 percent commission then the actual package per day may be USD 70 or even lower.
The Nepal rate card, starts with a rate of USD 370 for one tourist (1 pax), USD 312 for two tourists, USD 302 for three, USD 295 for four to six, USD 289 for seven to eight, USD 286 for nine to twelve, USD 284 for thirteen to fifteen, USD 280 for 16 to 18 tourists and finally USD 278 for 19 to 20 tourists in a group.
The above all include SDF, which means the highest tour package is USD 170 and the lowest is USD 78.
If the commission of the Nepal agent at 10 to 15 percent is deducted, then the tour packages could be USD 150 to USD 70 or even USD 60 per day.
Since tourists usually come in groups then the main rate would be from USD 100 to USD 80 above the SDF. If the commission is deducted it could be USD 90 to USD 70 per day.
The paper talked to some of the tour operators, and they all confirmed that the above is a matter of concern, as the rates above are lower than the undercutting rates under the Minimum Daily Package Rate.
These operators admitted that under the earlier MDPR, there was widespread undercutting due to the commission that had to be passed on to tour operators in India and Nepal and also in USA, Europe, etc.
An operator said under the MDPR system of the USD 250 rate, after giving commissions to foreign tour operators the actual amount would be USD 180 to 170 left. With the USD 65 SDF deducted, the amount left would be USD 115 to USD 105 for hotel, food, transport, guide and the tour operator’s profit margin.
During the off season rate of USD 200, after giving commissions, the amount left would be around USD 150 to USD 140 and minus the USD 65 the amount left would be around USD 85 to USD 75.
It must be noted that under the earlier MDPR system, individual tourists were charged USD 290, USD 280 for two people and USD 250 for three or more. This is because lower the number higher the cost.
This means that going forward the peak tourist season months of autumn (September to mid December) and spring (March to mid June) which attract the maximum visitors could be cheaper than under the MDPR rate, if nothing is done.
This raises questions of how it will impact the experience of tourists who will be expecting a better experience with the higher SDF, and also the profit margin for hotels, tour operators, guides etc.
It also raises the question of how the Tourism Council of Bhutan (TCB) will work to prevent this new undercutting and ensure a good experience for tourists coming in.
ABTO member confirms cheaper rates
A member of the Association of Bhutanese Tour Operators (ABTO), on the condition of anonymity, affirmed the above realities and trends and said Bhutanese tour operators after including the new USD 200 SDF are selling at USD 60, 70 and 80 per day after deducting the commissions to foreign operators.
The person said that earlier, the accountability could be fixed to the tour operator, but right now, it is up to the tourist where they want to stay in terms of cheaper accommodation, and they can even avoid guides to save costs.
The ABTO member said that with this new undercutting, tour operators and tourists will try and cut costs on the hotel, food, guides, transport, etc. He said people will opt for cheaper hotels or rates, a three course meal may turn into two or one, and people will take cheaper guides and transport options.
He said in the earlier system, undercutting, while rampant, still could ensure an experience as USD 115 to 105 was still there, but now, it will be difficult with USD 60 to USD 80.
He said that ironically the tourists, paying such a high overall rate, will expect a better experience.
The ABTO member said that apart from cutting costs, tour operators may now seek to avoid paying taxes or under declare it even more, especially since the MDPR is no longer applicable, and apart from the SDF, the rest of the money will go in the personal accounts of tour operators.
The member said that now that anyone can bring in a tourist, the tour operator license for which the annual renewal fee us Nu 12,000 is no longer worth it.
The member said that it is not even clear how TCB will monitor this, as ABTO is not included in the drafting of rules and systems.
The member said that even overseas agents, who sell Bhutan, will be selling it cheaper given the SDF fee.
He said that bigger operators take only a narrow margin on tourists. He said the world’s largest tour company Touristik Union International (TUI) only makes 10 to 15 cents per person per night.
He said the other challenge for Bhutan is that it is not a repeat destination, but more like once in a lifetime destination since it offers culture, and not the shopping, sun, beach and sand experience which usually leads to repeat tourists.
He said it will be easier for the bigger tour operators who get in large numbers and also own or lease hotels, which will allow them to control costs, but it will mean a smaller profit margin for them.
Mid-sized operators says tough days ahead
A mid-sized tour operator said that tour operators will be selling at the minimum floor price to get guests.
He said since the MDPR is done away with, and Bhutanese tour operators are no longer mandatory, it weakens their bargaining position against international operators who can go to someone with a lower price.
He said this will hit hotels and guides too who will not be in a position to negotiate.
The tour operators said that this year, it will not be too bad due to the pre USD 200 SDF bookings, but from next year, a drop of 80 to 90 percent is expected.
The tour operator said that on top of this, a tourist will have to pay around a one time USD 220 monument fee if he or she wants to visit all the tourism sites.
The operator predicted that half the hotels may have to close down by next year. He said while TCB may think that it can get the same SDF overall, even if 20,000 tourists come the other income like BIT, CIT and sales tax will be lost.
He also said that the earlier average length of stay of six nights is anticipated to drop, and very less tourists will head to central or eastern Bhutan.
The operators said that around half the SDF tourists are from Asian countries, like Japan, China, Singapore, Thailand, etc., but the Asian tourists are more price sensitive than European and American ones, and so a drop in Asian tourists is anticipated.
The operator said that as long as the new rules are not clear and the systems are not set up, it is not possible to take bookings.
Large operator says change is inevitable and international operators try new rate
However, a large tour operator, who brings in a lot of guests every year, offered a different perspective from the above.
The large operator said that the need, now, is to take out the middlemen – Nepalese and Indian tour operators, out of the scene and promote Bhutan as an exclusive destination.
He said tourism has become very competitive, and this will give the push to take out the middlemen as it will also save costs.
The operators said that he and other major companies like him would sell Bhutan at around USD 300 to 340 with USD 200 as the SDF and USD 100 to 140 for the hotels, transport, meals and guides.
He said with the USD 200 SDF, the tourist will be expecting an experience worth that value and so the government should provide it in terms of very smooth facilitation, facilities, etc.
He said TCB, in its latest notification, wants to standardize and monitor hotels, operators and guides, but all the responsibility to improve the experience cannot solely be pushed on the sector, but TCB and the government must also do their part.
The operators said that it is too early to judge the new approach, and only time will tell if it is a successful approach.
For the tour operators and hotels trying to operate on the lower USD 80, 70 or 60 per day package, he said that it will not work for them.
“You cannot underestimate the intelligence of the tourist or the international tour operators. If you try and cut corners and not give a good room or good food and other facilities, then next time around you will be off the list,” he said.
He said rates of USD 60 or 70 will not be sustainable, and the operators trying to operate at this margin will have to close down.
He said market forces and the expectations of tourists will not allow for such low cost operations.
He also said that credible tour operators still have a role to play, as no major international tour company will want to send a group to Bhutan without having a tour operator in Bhutan who can take the risks and make the arrangements.
The operator said that people are resistant to change, and that is the human nature, but at some point Bhutan must change.
He said that while international hotel chains in Bhutan will be able to do marketing and get guests, the challenge will be for the Bhutanese properties and three star hotels who do not have that kind of reach.
On the rates, a major adventure-based tourism company called G Adventures that sells treks in Bhutan is charging USD 4,449 for 11 days which includes a trip from Paro to Bumthang and back part of which includes treks. This comes to USD 409 per day which means minus the SDF, the tourist will get an experience of USD 209 per day.
Another major Australia based international tour operator called World Expeditions has said that its 27-day Snowman trek that used to cost USD 8,253 will now cost USD 11,900 which translated to USD 440.74 per day or an experience of USD 240 per day minus the SDF.
If there are enough takers for the above international tours, and also Bhutanese tour operators who charge up to USD 340 or more, then Bhutan’s new tourism policy will start seeing success and the experience of tourists will be preserved.
TCB’s monitoring measures
The paper contacted a senior TCB official on how the above issues of under pricing and preserving the experience of tourists will be handled.
The TCB official said that one approach is validation where hotels and tour operators are required to have certain minimum requirements, like a good website, customer service, etc.
He said the rules and monitoring system are still not finalized and still being put in place, but he said technology can be used to monitor.
He said, for example, like in India, it can be made mandatory to provide the passport details for booking hotels or while checking in, and TCB can use this online data to monitor where the tourists are staying.
They said that monitoring can also be done by finding out how much guides or hotel employees are paid.