Thailand Hotels Struggle with Rising Costs and Vietnamese Competition in Price Driven Battle for Tourists

Bangkok Hotel News: Tourist Preferences Shift as Thailand Becomes More Expensive

Thailand’s hospitality sector is navigating increasingly choppy waters as rising operational costs, shifting tourist demographics, and intense regional competition begin to reshape the industry’s long-standing dominance in Southeast Asia. Once considered one of the most affordable and desirable holiday destinations, Thai hotels now face mounting pressure as destinations like Vietnam offer lower prices and comparable experiences—particularly to travelers from major source markets such as China, India, and the UK.

Room rates in Thailand surged during the recent high season, with the national average rising to US$157 by March 2025—an 8% increase from the previous year. In contrast, Vietnam’s average room rate stood at just US$129 during the same period, drawing the attention of price-sensitive travelers. This Bangkok Hotel News report highlights how these pricing shifts are starting to redirect tourist flows and redistribute market shares across the region. With Thailand’s reputation as a budget-friendly destination increasingly under threat, the implications for hoteliers, tourism planners, and policymakers are enormous.

Vietnam Gains Ground as Tourist Numbers Surge

One of the most telling indicators of shifting preferences is the surge of Chinese tourists visiting Vietnam. For the first time, Vietnam attracted more Chinese travelers than Thailand in the first quarter of 2025. With Chinese tourists historically forming the largest share of arrivals in Thailand, this shift represents a significant blow to the kingdom’s tourism sector. Hoteliers and analysts warn that this trend could persist unless Thailand reassesses its pricing strategy and market appeal.

At the same time, Vietnam’s hotel industry has been refining its offering while keeping prices competitive. With their average room rates rising only slightly—about 4% year-on-year—Vietnamese properties are attracting a growing number of international travelers. Occupancy rates in Vietnam rose from 55% to 60% over the past year, signaling healthy growth. Meanwhile, Thailand’s occupancy rate hit 72% in March 2025, up from 69% a year ago, but the high cost of staying in the country may soon limit further growth.

Phuket at the Forefront of the Pricing Tug of War

Nowhere is this pricing dilemma more evident than in Phuket. Once the jewel in Thailand’s tourism crown, Phuket is now a focal point in the broader pricing debate. During the most recent high season, five-star hotels on the island were charging average rates of 10,000 baht per night, with luxury villas demanding upwards of 30,000 baht. Four-star properties followed suit, with prices reaching between 6,000 to 7,000 baht per night. However, these rates have been slashed in the current low season, with five-star hotels now charging 5,000 to 6,000 baht, four-star properties going for around 2,500 to 3,000 baht, and luxury villas dropping to 15,000 baht a night.

These fluctuations reflect a broader trend among Thai hoteliers—namely, a strategic attempt to avoid aggressive discounting while still adapting to seasonal demand. The practice of deep discounting, common in previous years, has been largely abandoned following its damaging effects on profitability and long-term brand perception.

Operational Costs and Inflation Drive Pricing Changes

Behind the steep hotel rates are operational costs that have ballooned across the hospitality industry. Labour and energy expenses in particular have become a burden. In Phuket, the daily minimum wage has jumped from 354 baht in recent years to 400 baht in 2025, representing a significant cost increase for hotels operating on thin margins. Higher wages across the board, including for cleaning staff, front desk agents, and kitchen workers, mean that hotels must either raise prices or compromise on service quality—something most operators are unwilling to do.

Electricity and maintenance costs have also risen, forcing hoteliers to reassess their pricing strategies to ensure financial sustainability. For many operators, particularly those running mid-range and luxury properties, increasing prices was not merely a business decision—it was a survival tactic.

Lessons from the Past Inform Today’s Pricing Strategy

Hoteliers in Phuket and other key destinations have not forgotten the destructive effects of past price wars. Following the COVID-19 pandemic, many hotels slashed rates in a desperate attempt to win back tourists. However, this strategy backfired, leading to unsustainable operations and widespread financial strain. Industry veterans are now advocating for more stable pricing, emphasizing value over volume.

There is also a growing awareness that Thailand’s current infrastructure cannot support unlimited tourism. In 2019, Phuket reached its maximum sustainable capacity of 14 million tourists. In 2024, the island welcomed nearly 13 million visitors—pushing the boundaries of what the local infrastructure can handle. From traffic congestion to environmental degradation, the consequences of overtourism are becoming increasingly visible.

Diversifying the Market to Reduce Dependency

Another major change in strategy among Thai hoteliers is the shift toward market diversification. The sharp decline in Chinese tourists—once the dominant market—has forced many operators to look elsewhere. In the first quarter of 2025, the number of Chinese arrivals stood at just 196,880 in Phuket, less than half the number of Russian arrivals, which reached over 429,000. India and the UK have also surpassed China as key source markets, prompting a reevaluation of marketing campaigns and guest engagement strategies.

Rather than relying on sheer volume from one region, hotels are now casting a wider net, targeting a broader mix of nationalities and income brackets. This shift not only reduces vulnerability to market-specific downturns but also stabilizes revenue across seasonal cycles.

The Risk of a New Price War in the Low Season

Despite this cautious optimism, there are growing fears that Thailand may once again fall into the trap of rate cutting—especially during the slower months. With tourist arrivals already dipping in some areas, desperate operators may feel compelled to lower prices in a bid to maintain occupancy. This could trigger a chain reaction, dragging rates down across the board and undoing recent progress.

Such a scenario is precisely what industry leaders want to avoid. Many believe that maintaining fair but firm pricing—even during the low season—is essential for the long-term health of the industry. Cutting prices too deeply not only reduces profitability but also attracts the wrong type of tourist, further compounding the challenges of sustainability and quality control.

Pricing with Precision Is Now a Necessity

In light of these challenges, Thai hoteliers are walking a tightrope between affordability and sustainability. They must price rooms high enough to remain profitable, yet low enough to stay competitive against rising stars like Vietnam and Indonesia. Strategic price fluctuations based on seasonality appear to be the most viable solution, allowing hotels to maximize earnings during peak periods while offering relief during off-peak months.

Lighthouse, a commercial travel industry platform, reports that Thailand ranked second in Southeast Asia for average room rates during the 2024 high season, behind only Singapore. However, during the low season, it slipped to third place—behind Singapore and Indonesia—highlighting the delicate balancing act Thai hoteliers must perform.

Maintaining Thailand’s Tourism Prestige Amid Cost Challenges

Ultimately, Thailand’s ability to retain its position as a leading tourist destination will depend on how well the hotel industry can adapt to this new pricing environment. With competition from Vietnam heating up and traveler expectations continuing to evolve, Thai hotels must offer not just a bed, but a compelling, well-rounded experience that justifies the price. This requires investment in service, facilities, sustainability, and infrastructure—all of which are made possible only through smart pricing strategies that avoid the pitfalls of the past.

If Thailand’s hospitality sector can manage these challenges wisely, it will continue to attract millions of global tourists while safeguarding the natural and cultural assets that make the country unique. Hoteliers, industry leaders, and policymakers will need to remain vigilant, collaborative, and innovative as they navigate this evolving landscape.

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