Country Report Laos June 2009

The domestic economy: The global downturn affects the tourism industry

Laos's national airline, Lao Airlines, has been forced to reduce the frequency of both international and domestic flights owing to falling numbers of passengers. The airline blames the global financial crisis, political turmoil in Thailand, the regional travel hub, as well as the spread of swine flu for the downturn. In 2008 the airline carried more than 360,000 passengers, up by 7% from 2007. The Lao Association of Travel Agents estimates that advance bookings have dropped by 10% so far this year and will fall by the same amount again. Operators are being encouraged to lower prices in an attempt to attract more low-season visitors and local tourists. However, many operators do not agree with the plan, pointing to high occupancy rates in higher-standard hotels. The rates for top-end hotel rooms in Laos are 30-40% percent higher than for comparable accommodation in Thailand, but rates are 20-30% lower than in Vietnam. The Lao National Tourism Administration had originally forecast 1.9m tourist arrivals for 2008/09 and 2m for 2009/10, despite the financial downturn. A small local tourism market has grown from a base of virtually nothing in the past decade as purchasing power has risen and the concept of leisure time has spread. Lower fuel prices have also encouraged domestic travel this year.

Construction of a new road between the provinces of Savannakhet and Khammouane is well under way and is expected to be completed by April 2010, two months later than planned. The US$9.3m road will reduce the travel distance between the cities of Thakhek and Savannakhet by 40 km and will increase trade opportunities for villages along the Mekong valley. Laos's first railway service is struggling to attract passengers and changes are planned. The train runs across the Mekong bridge outside Vientiane to the Thai town of Nong Khai, where passengers mostly disembark to obtain a ticket for the onward journey to the Thai capital, Bangkok, on board a different train. Given that fewer than 2,000 people used the train in April, its first month of service, the Lao Railway Authority has asked its Thai counterpart to provide a direct train service between Vientiane and Bangkok. This would require a one-stop immigration and customs service between the two countries, demanding a practical level of bureaucratic co-operation that has so far proved to be elusive. Tickets for the Vientiane-Bangkok rail route cost US$10-32 per passenger.

The government aims to upgrade three airports in the north of the country to enable them to receive the ATR-72 turboprop aeroplanes used by Lao Airlines for international and major domestic routes. Improvements to existing airports in Xieng Khouang and Bokeo should be completed in about a year's time, but in Houaphan province a new facility is required, and this is expected to take two years.

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