Bhutan's Tourism Under 'cutting' the industry 2007 Bhutan Information Bhutan Videos

2007: Under 'cutting' the industry

Tourists at a festival Months before the season approaches, tour operators spend hours online exchanging mails with tour agents within the region and abroad. Deepak, who has barely been a tour operator for a year, sits glued to his computer in his residence cum office in Thimphu town. He replies to a tour agent in Nepal who had offered to send a group of tourists from Nepal to Bhutan through him for a certain commission. While he sends the agent his package and rate he asks for a few more days to think about the offer.

Two days later the agent in Nepal has written again. The deal has been given to another tour operator in the country willing to pay the agent more commission.

Deepak has been "undercut", a practice that is rampant and unhealthy for the industry but which many tour operators cannot avoid to stay in the business.

For the government undercutting has no impact because it dutifully collects 40 percent of US $ 200 a day peak season charge, as royalty.

But where it could impact and has an impact is in the quality of services. Depending on the commissions offered operators cut corners to make their margin and also offer the services that the tariff covers. That includes hotel, food, transport and guide.

"Although I am willing to offer 10 percent commission to the agents abroad or within the region, agents prefer the bigger companies," said a fresh tour operator. "They provide a better commission and are in a position to offer better services."

Deepak said that the established tour companies could afford to reduce the tariff as low as US $ 130.

An official from one of the big tour companies said that undercutting was prevalent both among the big and small tour operators. He said that they did extend commissions to the agents beginning with 10 percent, which increased to 20 and 30 percent depending on the business generated by the agents. Discounts were also given depending on the size of the group and duration of stay. The managing director of Etho Metho tours and treks, Dago Beda, however, argues that undercutting was not feasible in the present context where hotel rents had shot up, transportation costs had increased and there were more tour operators.

"For all that reasons we are charging our tourists more than the base price of US $ 200 a person a day.

An official from one of the big tour companies said that undercutting was prevalent both among the big and small tour operators.

He said that they did extend commissions to the agents beginning with 10 percent, which increased to 20 and 30 percent depending on the business generated by the agents. Discounts were also given depending on the size of the group and duration of stay.

The managing director of Etho Metho tours and treks, Dago Beda, however, argues that undercutting was not feasible in the present context where hotel rents had shot up, transportation costs had increased and there were more tour operators.

"For all that reasons we are charging our tourists more than the base price of US $ 200 a person a day. So there is no question of under cutting," said Dago Beda. "That's an old story."

The tourism department's director general, Lhatu Wangchuk, also believes that undercutting may not be feasible, especially, with hotel standards having gone up.

He also agreed that such practises generally led to compromises on services, especially meals. That, he said, was one of the reasons why the country was named as having the worse foods in the world. "Which is not true, because we have one of the best cuisines in the world," Lhatu Wangchuk said.

A tour operator pointed out that they had no option but to tie up with operators in the region because tourists visited Bhutan as part of a regional package. Those visiting Bhutan exclusively were few and came through niche markets. With more than 200 operators in the country the practice was getting tighter, he said.

The tourism department's joint director, Thuji Dorji Nadik, attributes the substantial increase in the tourist arrivals to undercutting. " There is nothing to feel good about the increase in tourist arrivals in the country since the revenue staying back is quite low. The only actual revenue is the royalty," he said. Thuji Dorji Nadik said that undercutting in tourism worked both ways.

The smaller tour operators pointed fingers at bigger tour operators with economies of scale and vertical integration, which placed them in a comfortable position to offer discounts.

The bigger tour operators argued that it is the smaller ones engaging in the undercutting because they had no overheads or an office and staff to pay.

But he pointed out that it could be more prominent among the small tour operators since they had nothing to lose, unlike the bigger operators who had a reputation and credibility to maintain and overheads to pay.

Small tour operators, he said, brought in just two to three tourists a year which was a bonus for them because it was not even a means of livelihood for them, but a supplement income. "They are fly-by-night operators," said Thuji Dorji Nadik. "We want to discourage that."

In recent months, tourism officials said that, they received a number of complaints from tourists, some of whom even cut short their trips and returned, against the small tour operators because of poor services.

Thuji Dorji Nadik pointed out that it was a complicated situation where on the one hand they were trying to provide employment opportunities to as many people while on the other too many of the "unscrupulous" or "unethical" tour operators came into the business.

"This could be disastrous to the industry," he said. "That only creates room for unprofessional and poor tour packages." A consultant for Department of Tourism said that in the 90s Bhutan was considered an expensive product selling itself as high value, low volume tourist destination, consciously excluding backpackers who roamed neighbouring countries like India and Nepal.

"It is no longer an expensive destination," he said. "It is a lot cheaper than many other destinations in the world." He said that in 1991 when he first visited the country, there were only over 1,700 tourists and that the number had increased by 1,000 percent today.

"US $ 200 is peanuts," he said. "In UK even a hotel charges a minimum of 200 pounds a night."

According to tourism officials, the base price would soon be increased by 15 to 20 percent and encourage tour operators to get a bit more innovative and imaginative and try doing things like weddings and honeymoon.According to tourism officials, the base price would soon be increased by 15 to 20 percent and encourage tour operators to get a bit more innovative and imaginative and try doing things like weddings and honeymoon.

Contributed by Samten Wangchuk, KUENSEL, Bhutan's national newspaper, 2007