Bhutan’s Hotel Industry Under Pressure

Oversupply Meets Soft Demand

Bhutan has seen a marked rise in hotel supply—especially certified star-rated properties—without matching tourist demand. While luxury and boutique properties still command attention, many three-star hotels, particularly in Thimphu, Paro and Punakha, are operating far below capacity. Occupancy rates for some mid-tier hotels have dropped sharply, forcing heavy discounts just to stay afloat.

Tourism Recovery is Sluggish and Uneven

• Tourist arrivals are increasing year-on-year: for instance, Bhutan saw about +31.7% more arrivals in H1 2025 over H1 2024, which itself had surged over pre-pandemic levels.
  
  

• However, total numbers are still lagging behind 2019 peaks. Some key markets (notably India) dominate the arrival mix, leaving many regions under-visited.
  
  

• Revenue from the Sustainable Development Fee (SDF) has risen due to increased arrivals, particularly in Q4 2024. But hoteliers argue that higher fees and flexible visa or tour package policies are contributing to lower occupancy and price sensitivity among travelers.
  
  

Mid-Tier Hotels are Hit Hardest

Three-star hotels are squeezed from both ends:

• On one side, luxury hotels and branded boutiques are able to maintain higher rates and offer immersive experiences that attract long-stay and high-spend guests.

• On the other side, uncertified homestays, informal lodging, and cross-border options (especially along the Indian border) compete aggressively on price. This undercuts mid-tier properties substantially.

• Many three-star properties are reporting single-digit occupancy rates; some have even recorded zero bookings for extended periods.

Key Policy & Regulatory Tensions

• SDF & Visa Policy: The Sustainable Development Fee structure, and its daily vs one-time format, is under debate. Hoteliers argue current SDF levels discourage group travel, especially from India.
  
  

• Minimum Daily Package Rate (MDPR): Earlier mandatory daily minimum package rates have been relaxed or removed, which, while giving more flexibility, has also encouraged undercutting and price wars.
  
  

• Certification & Standards: There are now more non-star hotels being certified, but concerns remain about whether standards (amenities, safety, hygiene) are being maintained uniformly.
  
  

• Call for Moratorium or Loan Measures: Many mid-tier hotel owners urge the government to halt new hotel licensing/construction, or devise loans/deferrals, as many fear default risk given low revenues.
  
  

Implications for B2B Travel Agents, Airlines & Corporate Travel Planners

• Pricing & Product Packaging Strategy:
  
  Agents will need to rethink packages: combining mid-tier hotels with experiences or transportation might be more attractive than just lowering hotel rates. Similarly, offering bundled premium or wellness options could appeal to international / luxury segments less sensitive to SDF.

• Market Segmentation is Crucial:
  
  Focus on markets willing to pay more for quality: luxury, wellness, culture. Also, target off-peak seasons or under-explored regions where competition is lower.
  
  

• Quality Assurance & Branding:
  
  Agents & airlines working in Bhutan may want to partner with or promote properties that strictly adhere to certified standards. Differentiation on service, hygiene, authenticity, guest experience can help mid-tier hotels survive.
  
  

• Policy Advocacy:
  
  Industry stakeholders should engage with Bhutan’s tourism and hotel associations to advocate policy adjustments: re-examining SDF, supporting moratoriums on new hotels in saturated zones, or commissioning standards and enforcement.
  
  

• Risk Mitigation in Investments & Operations:
  
  For airlines or consolidators considering joint ventures or partnerships with local hotels, due diligence on occupancy trends, financial health, and load factor sensitivity is more important than ever.
  
  

What’s Changing: Bright Spots & Opportunities

• Luxury and boutique lodging are expanding, especially in regions beyond the standard tourist hubs. New branded high-end resorts are being planned or constructed.

• Higher growth rates in “other nationalities” (non-Indian visitors) suggest Bhutan may have room to broaden its target markets.

• Infrastructure projects like Gelephu Mindfulness City and its associated airport are in development, potentially unlocking new routes and dispersing demand beyond Thimphu & Paro.

Conclusion & Takeaways for B2B Travel Industry

Bhutan stands at a cross-roads. While tourist numbers are rising again, mid-tier hotels—especially three-star properties—are caught in a tough squeeze from oversupply, regulatory complexity, and shifting traveler expectations. For travel agents, airlines, and corporate planners operating in or with Bhutan, strategic agility will matter more than ever.

Key takeaways:

• Brands and operators should shift focus toward quality, experiences, and service differentiation.

• Policy adjustments (particularly around SDF and hotel licensing) are needed to stabilize the mid-tier market.

• Diversification of source markets and geographic dispersion of hotels can help spread risk.

• For sustainable growth, strong collaboration between private sector (hoteliers, agents) and government policy-makers will be essential.
  
  

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