US embassy cable - 02KATHMANDU680

UNCLAS SECTION 01 OF 03 KATHMANDU 000680 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON, PREL, CASC, NP, Maoist Insurgency 
SUBJECT: HIMALAYAN TOURISM HEADED DOWNHILL 
 
REF: KATHMANDU 568 
 
1. SUMMARY:  Nepal's tourism industry, one of the 
country's top sources of foreign exchange, has been 
facing tough times in recent months, and the prolonged 
slump has negatively affected every sector of the 
tourism economy, from hotels and airlines to trekking 
agencies.  International arrivals at Tribhuvan 
International Airport were down by 56% this February, 
and occupancy rates at hotels around Kathmandu are at 
40% on average.  Although the GON has announced several 
relief measures, the mood among industry professionals 
ranges from skeptical to bleak, with most business 
owners blaming their woes on domestic and international 
security concerns. End summary. 
 
VACANT ROOMS 
------------ 
 
2. Nepal's hotel industry has been hit hard by the 
decline in tourist revenues, with five-star hotels 
apparently hit the hardest.  While most hotels in the 
capital report 40-45% rates of occupancy, the Yak and 
Yeti, one of Kathmandu's oldest luxury hotels, reported 
an occupancy rate of 25% for March, and the newer Hyatt 
cited a dismal 10-15% for the same month.  The Crown 
Plaza Soaltee is running at about 50%, according to its 
owner.  Conversely, the less sumptuous Kathmandu Guest 
House was bucking the trend with an occupancy rate of 
90%.  It appears clear that the high end of the tourist 
trade is taking a larger hit than the low -- backpacking 
-- end. 
 
3. Deepak Upraity, General Manager of Kathmandu's 
Shangri-La Hotel, estimates that occupancy in the 
capital is down 50% compared to last year's figures. 
According to Upraity, the decline may be too much to 
bear for an industry already suffering from oversupply. 
"We haven't started laying people off yet," he said in a 
meeting with EmbOff, "but we've stopped filling staff 
vacancies, and we've asked people to go on leave.  We're 
holding local events just to keep the staff busy and 
keep [the hotel] going. But we're also looking at ways 
to start seriously cutting costs." 
 
4. March is typically one of the best months for tourism 
in Nepal-- good enough to sustain the industry through 
the lean summer monsoon season.  But this year, with an 
occupancy rate of 45% in March and an expected 25% 
occupancy rate in June, Upraity is not optimistic. 
"Tourism has been steadily declining since 1999," he 
lamented, referring to the year in which an Indian 
Airlines jet was hijacked on departure from Kathmandu. 
"Last year, people had already made bookings when the 
royal massacre happened, and so they kept coming because 
they didn't want to cancel.  But now?" He simply 
shrugged. 
 
 
EMPTY SEATS 
----------- 
 
5. Immigration data documents the drastic decline in the 
number of foreign arrivals at Tribhuvan International 
Airport (TIA) when compared to last year.  American 
arrivals were down by approximately 62% in January, with 
1101 Amcits arriving this year, compared with 2950 in 
2001.  February numbers reflect a 56% decrease, from 
3296 last year to 1436 this year. Total arrivals by 
third-country nationals (excluding India) were down by 
62% in January and 59% in February.  Indian arrivals, 
perhaps boosted by the SAARC Summit, were only down by 
24% in January, but dropped by 41% the following month. 
 
6. Several airlines have cancelled service as a result 
of the shrinking demand for service.  The Dutch carrier 
Transavia will suspend flights to Kathmandu starting on 
April 28; Russian carrier Aeroflot is also canceling its 
Kathmandu schedule.  Thai Airways, which runs daily 
service to and from Bangkok, reports that their incoming 
flights are only carrying 30-40% of capacity, and a 
personnel officer at Royal Nepal Airlines, the national 
carrier, told EmbOff in March that the airline is "on 
the verge of complete collapse". 
 
7. Domestic airlines are also feeling the heat, with 
several of the small local companies laying off workers. 
Tulsi Karmacharya, Manager of NECON Air, stated that his 
company has had to lay off 25% of their workers, due in 
part to the decline in tourism, and Mountain Air has 
forced employees to take leave without pay starting in 
February. 
 
DESERTED TREKKING ROUTES 
------------------------ 
 
8. The lack of tourism has been devastating to Nepal's 
multitude of trekking firms, as the worsening security 
situation has made visitors less willing to travel to 
remote areas with poor communication and transportation 
infrastructure. Recent Maoist activities, such as 
blocking the road to Jiri, the origin point for the 
Everest trek, are likely to further impact the industry. 
Tsering Dorjee, Sales Manager at Malla Treks, indicated 
 
SIPDIS 
that their business was down by more than 50% and that 
many of their guides, cooks and porters, all of whom 
work on contract, are simply out of work.  "It's all 
because of the security situation," Dorjee said.  "No 
one wants to venture out anywhere." 
 
9. Foothills Trekking, which schedules about 40-50 
groups during the first three months of a normal year, 
is experiencing an even sharper decline in business. 
According to its Chairman, Birendra Gurung, the company 
has scheduled just three trekking groups so far this 
year.  "Everyone has the same problem," Gurung stated. 
"Maybe the number one or number two company has more 
groups, but everyone else is really suffering." 
Anecdotal evidence supports this: trekking guides and 
agents applying for non-immigrant visas since the start 
of the year have been reporting a complete evaporation 
of business, and have been presenting documents that 
show little or no income since September of last year. 
 
SAME PROBLEMS OUTSIDE THE CAPITAL 
--------------------------------- 
 
10. Kathmandu's hotels have historically survived the 
monsoon thanks to the trickle of tourists transiting 
Nepal on their way to Tibet, but hotels in Nepal's 
second city of Pokhara rely on Indian business travelers 
to fill their rooms during the rainy season. According 
to Shangri-La's Upraity, the situation in Pokhara is 
even worse than in the capital and not expected to get 
any better.  Claiming that tourism in Pokhara was down 
by 60-80%, he said that the worsening security situation 
had eroded the "friendly, brotherly impression" that 
Indian tourists had previously had of Nepal, and 
predicted a continuing freefall in occupancy rates. 
 
11. Even the Tiger Tops/Tiger Mountain juggernaut, which 
helped to pioneer eco-tourism in the jungle parks and 
mountain regions of the country, has been affected by 
the general decline in tourism. Tiger Tops CEO Kristjan 
Edwards told EmbOff that occupancy in the various Tiger 
Tops lodges is approximately 50%, even after the company 
closed its popular Tented Camp in Royal Chitwan National 
Park and began offering reduced rates to the other 
resorts for both residents and foreign tourists.  One 
night at the Tiger Tops Jungle Lodge cost $325 in 2000; 
this year the rate is as low as $75 per night. 
 
12. Though Tiger Tops has been able to keep 95% of its 
staff employed to this point, Edwards stated that 
they've reduced salaries in order to meet costs, and 
that in a normal year the company would be hiring above 
attrition rather than asking people to leave.  "There 
was a sharp decrease after September 11, and things have 
stayed about the same ever since," he said. "Hopefully 
things won't drop off too much more, or we'll have to 
make some drastic cuts." 
 
GOVERNMENT RESPONSE 
------------------- 
 
13.  The GON has begun to make changes to visa policies 
and other regulations in an effort to encourage tourism 
and other foreign travel to Nepal, but industry 
professionals are skeptical about the effectiveness of 
the new measures. Soft loans to hotels and other 
hospitality businesses were promised by the government 
but have not, as yet, materialized. According to the 
Shangri-La's Upraity, neither banks nor the government 
want to take responsibility for loans that may very well 
end up in default. 
 
14. Declaring 2002-2003 as 'Destination Nepal Year', and 
hoping to capitalize on this year's status as 
International Mountaineering Tourism Year and the 
fiftieth anniversary of the first successful ascent of 
Mount Everest, the GON has opened up an additional 103 
Himalayan peaks for mountaineering. Climbing fees for 60 
peaks have been reduced or eliminated, and the 
bureaucracy required to climb peaks of less than 6500 
meters has been simplified, eliminating the need for a 
liaison officer.  Response to the measures has been 
lukewarm, with most comments in the press echoing those 
of Tek Chandra Pokharel, a prominent industry 
entrepreneur. "Those were steps that should have been 
taken long, long ago," he said in a March interview. 
"They are welcome, but merely opening a few more 
peaks... will not help now." 
 
15.  To counteract the drop-off in tourism from the U.S. 
and other typical source countries, the GON and the 
Nepal Tourism Board (NTB) have been courting Nepal's 
northern neighbor, hoping to attract China's burgeoning 
tourist population. In November of last year, the GON 
signed an MOU with China regarding procedures for 
Chinese tourists to visit the country and has since 
approved 78 travel agencies to handle Chinese tourists. 
Earlier this year, NTB invited a group of Chinese travel 
journalists to tour the country's most poplar 
destinations, and the board has been producing pamphlets 
and CD-ROM promotional materials in Chinese. 
Nevertheless, Chinese arrivals at TIA dropped by 52% 
during the first two months of this year, compared with 
the same period last year. 
 
16. COMMENT:  While backpackers and trekkers continue to 
come to Nepal, albeit in much lower numbers than usual, 
wealthier "high-yield" travelers appear to have been 
scared off by the declining security situation.   Maoist 
leadership released a letter in March (REF) containing 
assurances that they are not targeting the tourism 
industry, but also containing threats to foreign 
tourists and Nepali businesses alike.  Though the events 
of September 11 and ongoing tensions in the region have 
had some negative effect on tourism in Nepal, the major 
threat to that sector of the economy derives from the 
domestic insurgency. 
 
17. Potential tourists, alerted by increased 
international news coverage of continuing violence by 
the Maoists, are researching the security situation in 
Nepal and rethinking or abandoning travel plans.  The 
trickle-down effect has deprived trekking guides, cooks, 
porters and other low-income contract workers of much- 
needed seasonal income.  Hotel workers, airline 
employees and travel agents may soon face unemployment. 
The severe effect that the downturn has already had on 
the industry has the potential to turn into economic 
disaster if the trend continues unchecked.  Blame for 
most of the industry's woes lies squarely at the feet of 
the Maoists, and once again calls into question the 
insurgency's proclaimed dedication to the people. 
 
MALINOWSKI