3. Operation of Each Product or Service

3.1 Nature of Products and Services

  Laguna Phuket Hotels

  Banyan Tree Phuket

  This award winning resort offers a unique holiday experience,
  featuring 149 exclusive villas, 32 with jacuzzis and 117 of which have
  their own swimming pools. This unique resort is further enhanced by
  the Banyan Tree Spa offering massage, body and beauty treatments. The
  Banyan Tree Phuket opened in May 1995 and is managed by Banyan Tree
  Hotels & Resorts Pte. Ltd. The resort is positioned as being one of
  the premier resort and spa destinations in the Asia Pacific.

  Dusit Thani Laguna Phuket

  The first hotel to open at Laguna Phuket, in November 1987, offering
  beachfront accommodation in 254 rooms, suites and villas. The resort
  is managed by Dusit Thani Public Company Limited. In 2008,
  construction was completed on 28 Dusit Thani Pool Villas which are
  available for sale to the public. The resort’s facilities and services
  includes the Angsana Spa, managed by Banyan Tree Resorts & Spas
  (Thailand) Company Limited, which opened in December 1999. Dusit
  targets the independent traveler segment from Europe in the high
  season and the local regional market in the low season.

  Laguna Beach Resort

  Laguna Beach Resort offers deluxe accommodation in 254 superior rooms
  and suites. The resort opened in November 1991, under the management
  of the Pacific Islands Club Group, but has been owner operated since
  1994. In September 2001, the Angsana Spa opened adjacent to Laguna
  Beach Resort. The resort targets the high end, family orientated
  market.

  Sheraton Grande Laguna Phuket

  The Sheraton Grande Laguna Phuket is a 70 acre complex. The resort
  opened in 1992 and offers 422 rooms, suites, villas and residences. It
  is a member of the Starwood Luxury Collection, which comprises
  Sheraton’s most prestigious hotels in the world. The Angsana Spa
  operates a facility within this hotel. The resort targets families and
  independent travelers during its high season and the corporate
  meetings customer segment and the regional market during the low
  season.

  Laguna Property Sales

  Laguna Property Sales offers residential and vacation properties such
  as Laguna Village Villas (duplex apartments), Laguna Townhomes
  (semi-detached villas) and Laguna Residences (detached villas).

  In addition, hotel residences are offered for sale in the Dusit Thani
  Laguna Phuket (Dusit Thani Pool Villas) and the Banyan Tree Phuket
  (semi-detached Two Bedroom Pool Villas and the ultra luxurious
  detached Banyan Tree Double Pool Villas). The Group owns significant
  land both within and adjacent to Laguna Phuket upon which it plans to
  construct future property developments.

  The latest developments released for sale are phase 1 and phase 2 of
  Laguna Village (which comprises of 36 Laguna Village Villas, 102
  Laguna Townhomes and 76 Laguna Residences), 28 Dusit Thani Pool
  Villas, phase 2 of the Banyan Tree Double Pool Villas (4 villas),
  phase 3 of the Banyan Tree Double Pool Villas (8 villas) and phase 3
  of the Banyan Tree Two Bedroom Pool Villas (22 villas). In 2008, the
  Company released its first apartment project for over 15 years. The
  Lofts at Laguna Village is a development of one, two bedroom
  loft-style apartments and three bedroom penthouses and will commence
  construction in the second half of 2009.

  Investors in the Dusit Thani Laguna Phuket, Banyan Tree Phuket, Laguna
  Townhomes, Laguna Residences and The Lofts at Laguna Village have the
  option to receive a return on their investment by joining a hotel
  management scheme and renting their properties to guests.

  Laguna Holiday Club

  The Laguna Holiday Club opened in 1998 selling memberships that
  entitle participants to annual vacations at the participating member
  resorts of Laguna Holiday Club Phuket resort (a member-dedicated
  79-suite resort which was opened in October 2006), Allamanda Laguna
  Phuket, Sheraton Grande Laguna Phuket, Sheraton Private Pool
  Residences, Angsana Resort & Spa Bintan, Springfield Cha-am and Chiang
  Mai Twin Peaks. Members also have access to over 4,000 resorts in more
  than 100 countries through reciprocal arrangements with RCI and
  Interval International. Laguna Holiday Club is now well established
  with 7 sales offices branches located in Laguna Phuket, Bangkok,
  Chiang Mai, Cha-am, Hua-Hin, Pattaya and Bintan (Indonesia).

  Laguna Phuket Facilities

  Laguna Phuket Golf Club

  This resort-style, 18-hole golf course has been open to members,
  guests and the public since August 1992. It is managed by Banyan Tree
  Hotels & Resorts Pte. Ltd.

  Quest Laguna Phuket Adventure

  Quest is a corporate training facility providing management groups
  with programs tailored to suit individual company goals. Common focus
  areas include problem solving, team cohesion, leadership and effective
  communication. Quest also operates recreational programs for resort
  guests and children. It opened in 1994 and is managed by Sheraton
  Overseas Management Corporation.

  Canal Village

  Canal Village is a shopping center with more than 50 outlets for
  lease, centrally located on 10 Rai of land within Laguna Phuket. Canal
  Village officially opened in 1994 and is owner operated.

  Banyan Tree and Angsana Gallery

  This chain of retail outlets specialises in indigenous artifacts and
  handicrafts. The chain has over 22 outlets worldwide, 8 of which are
  located within the Laguna Phuket hotels and golf course and Canal
  Village shopping center.

Laguna Wedding Chapel 

  In early 2005, the Company opened and commenced operating a wedding
  chapel, known as the “Chapel on the Lagoon”. It is owner managed and
  well positioned to capture the lucrative Japanese and European wedding
  markets.

  Laguna Tours

  Laguna Tours sells selected third parties tours to Laguna guests. In
  late 2007, Laguna Tours established its own operated tours which
  commenced by offering speed boat tours and city tours as well as
  offering luxury boat charters.

  Estate Service Management

  Estate Service Management started operation in early 2007 in order to
  provide services to the customers who buy properties within Laguna
  Phuket. The services comprise of pool maintenance, handyman services,
  ground and landscape maintenance, engineering services and common area
  management.

  Laguna Service Company Limited

  Laguna Service Company Limited (“LSC”) is a non-profit, joint venture
  company established in April 1991, to provide essential services to
  the hotels, such as laundry, water supply, inter-resort
  transportation, landscaping, common area maintenance, marquee
  facilities, a gas station, central car park, staff transportation and
  centralized destination marketing. Furthermore, a computer school
  provides computer training for all Laguna Phuket employees.

Bangkok operations 

Banyan Tree Bangkok 

  Located in central business district of Bangkok, The Banyan Tree
  Bangkok is a 215-suite hotel managed by Banyan Tree Hotels & Resorts
  Pte. Ltd. A Banyan Tree Spa operates within the hotel. The Banyan Tree
  Bangkok targets business travelers as well as the wholesale business
  and independent tourist markets.

Office rental 

  Strategically located on South Sathorn Road, Thai Wah Tower I is a
  24-storey granite clad building and is one of the very first office
  condominium buildings in Bangkok. The entire building has
  approximately 20,000 sq.m. of usable area of which 15,390 sq.m. is
  owned by the Group. Through the years the building has maintained its
  reputation as a premium office building with timely refurbishments.

  Opened in late 1995, Thai Wah Tower II, is a 60-storey mixed use
  building situated next to Thai Wah Tower I and is the home to the
  Banyan Tree Bangkok which is located on the higher floors. In late
  2007, office space on floors 10 to 32 have commenced being converted
  to hotel rooms and residences. The construction is expected to be
  completed in the first half of 2009.

Overseas Investment in Hotels and Resorts

  Banyan Tree Lijiang, opened in 2006, a joint venture company
  incorporated in the People's Republic of China between Laguna Banyan
  Tree Limited ("LBTL"), a wholly owned subsidiary of the Company, and
  Banyan Tree Holdings Limited ("BTH"). The property features 88
  luxurious villas, restaurants, bar, spa complex, gallery shop, gym,
  treks and tours.

  Otherwise, LRH invests overseas through Tropical Resorts Limited
  (“TRL”) and Bibace Investments Ltd (“BI”) which invests in luxury
  resorts largely throughout the Pacific Rim area.

  3.2 Marketing and Competition

3.2.1 Laguna Phuket Marketing

Review of Sales and Marketing Plans

  All of the Laguna Phuket hotels and business units are required to
  provide a Sales and Marketing Plan as part of their budget
  presentation. These all include a summary of their plans to provide
  the budgeted levels of income. For the hotels, the plans include
  statistics showing month-by-month comparisons to prior year and a
  market segmentation analysis. For the 2009 budgets, the Company looked
  at several years’ history due the unusual business trends in recent
  years, and set targets based upon 2007 and 2008 business levels.

  A summary of the hotel plans is as follows:-

a)  Hotel occupancies and average room rates, together with the
    resulting revenue per available room, are analyzed during the budget
    reviews on a month-by-month basis. Comparisons are carried out over
    the past five years, and in several cases this has meant substantial
    changes to the originally submitted budgets.

b)  The Company believes it is important to consider several years to
    provide a normalized comparison in the light of events in recent
    years such as Bird Flu, SARS, the Bali bombing, the Tsunami, etc.

c)  The hotels exhibit a high level of communication and cohesion in
    their Sales and Marketing approach. This has led to excellent
    flexibility and different reactions to changing market conditions.
    They continue to work together, but at the same time carve out new
    market segments.

d)  The very successful Laguna Phuket Plus campaign can now be switched
    on and off in reaction to market conditions and provides an
    important delivery from regional markets in the low season.

e)  The Laguna Phuket centralized Destination Marketing meetings
    provides a platform for inter-hotel discussion and the formation of
    resort wide programs.

f)  The focus in 2009 will be on volumes via targeted rate promotions.
    The economies of our key markets have been hit hard by the global
    recession and the propensity to spend on luxury holidays will be
    reduced next year. As a result, the regional markets will be
    particularly targeted and promotional rates will be offered in all
    of our key markets in order to generate occupancy.

g)  The www.lagunaphuket.com website is now well established and the
    Company plans continued enhancements in 2009.

  The property sales sector in Phuket will be severely impacted by the
  global economic recession and credit crunch. Significantly reduced
  sales are expected in 2009 and marketing efforts will be concentrated
  on guests in our respective resorts, which is considered to be the
  most cost effective approach in order to manage profitability. We plan
  to maintain consumer interest so that when the economy improves there
  will be a willingness for customers to then commit to purchasing a
  property. The Company will continue to focus on selling out Laguna
  Village, the Banyan Tree Double Pool Villas, and the Dusit Thani Pool
  Villas. The Company will stay very close to market forces to ensure
  that the Company continues its leadership position.

Targeted Markets

-   Leisure FITs

-   Leisure Group

-   MICE group (Meeting, Incentive, Convention and Exhibition)

-   Government and Embassies

-   Airline programs

  Sales & Marketing Tactics

-   Build and manage customer database

-   Develop sales and promotion collateral to the highest standard

-   Develop and upgrade electronic marketing – Website, E-mail, CD ROM,
    etc.

-   Participate in major travel trade shows such as ATF in January, PATA
    travel mart in

  March, ITB in March, EIBTM in May, IT& CMA in October and WTM in
  November.

-   Develop direct mail campaigns for MICE market

-   Sales representative calls to corporate accounts in key markets –
    Bangkok, Hong Kong, Singapore, Taiwan and Japan.

-   Sales representative visits to major wholesalers in UK, Germany,
    Russia, Switzerland, France, Italy and Scandinavia.

-   Create awareness through advertising in the regional leisure and
    consumer magazines.

-   Organize familiarisation trips by inviting clients from Europe, Asia
    and North America, including selected Bangkok based meeting
    organizers.

-   Create an effective advertising campaign to develop the market
    segments targeted.

-   Establishing close relationship with various government
    organizations and bodies.

-   Implement a customized process which involves database analysis,
    behavior segmentation, brand contact and network.

-   To work closely with the TAT, TG and TICA.

-   Further emphasis on public relations.

-   Participate in various Frequency Marketing Programs, being a member
    of Airlines mileage program, credit card companies, etc.

-   Develop special summer packages for low season.

-   Tie in with the major airlines that fly into Phuket to develop
    promotional packages.

-   Organize Thai Airways Laguna Phuket triathlon, Laguna Phuket
    International Marathon and other events to gain media coverage and
    positioning.

Distribution Channels

  A significant portion of the Company’s guests are traveling for
  leisure purposes, the majority of the clients book through their
  travel agencies. The hotels therefore, work very closely with them and
  offer contracts that are normally signed on a one year basis so that
  these travel agencies or wholesalers will promote the hotels to the
  consumers. Also, many guests have started to book directly with the
  hotel through the hotels worldwide reservation system of each hotel
  chain and by direct booking through the internet.

  Laguna Phuket hotels are also very popular for MICE (Meeting,
  Incentive, Convention and Exhibition) where the organizers normally
  deal directly with the hotels.

  Source of Reservations

  Overseas & Local Travel Agencies 45 percent

  Direct Bookings 24 percent

  Worldwide Reservation system – hotel chain 9 percent

  Reservation & Sale offices 9 percent

  Internet 7 percent

  Others 6 percent

Type of Customers

  Leisure 85 percent

  Meeting and conference 15 percent

  Geographic Origin

  Major geographic markets of the hotels in Laguna Phuket have been as
  follows: -

  Asia 40 percent, mainly from Korea, Hong Kong, Thailand, Singapore,
  Japan and China

  Europe 42 percent, mainly from United Kingdom, Russia, Germany,
  Switzerland, Scandinavia and Spain

  Australia / New Zealand 10 percent

  America 5 percent

  Others 3 percent

The Phuket Situation

  There continues to be plenty of development activity on Phuket, with
  several new hotel projects being announced during the year and also
  there are a number of hotels under construction but most notably the
  Shangri-La has now commenced construction with a revised opening date
  of 2011. However, as a result of the current global recession, the
  development activity in Phuket is likely to slow down in the next year
  or two.

  A summary of the infrastructure in Phuket and recent developments is
  included below:

-   The Phuket International Airport, currently has the capacity to
    handle 6.5 million passengers a year. In May 2008, the Airports of
    Thailand (AOT), the national airport operator, announced plans to
    expand the Phuket International Airport. This will raise the
    airport’s capacity to 11.5 million passengers per year. Construction
    is expected to begin in 2010 which may take a year to complete.

-   The three existing marinas in Phuket, Boat Lagoon, Yacht Haven
    Marina and Royal Phuket Marina have a total of 455 berths with more
    marinas in the construction and planning phases.

-   There are currently three international schools with just over 1,000
    students.

-   There are six major hospitals in Phuket, of which three are
    private:Phuket International Hospital, Bangkok Phuket Hospital and
    Mission Hospital.

-   There are six golf courses in Phuket, covering a total area of 4,053
    rai. The six courses comprise a total of 135 holes and are able to
    accommodate about 1,600 golfers daily.

-   Retail developments in Phuket have grown to serve demand from both
    locals and foreigners. In addition to Tesco Lotus, Big C and
    Carrefour hypermarkets, the island is also home to a number of large
    shopping malls, including offerings from Central, Robinson, Ocean
    and Jungceylon, opened in 2006, is the largest and most
    sophisticated retail centre in Phuket. Additional shopping malls are
    under construction particularly in the centre of the island.

    There has been very little progress in regard to a convention centre
    for Phuket and such a facility appears to be a long way off.

Competition

Laguna Phuket Hotels

The additions to the competitive set in 2007 were the full renovation
and opening of the Indigo Pearl on Nai Yang beach from a 4-star to a
5-star hotel and the Sala Phuket Resort & Spa on Mai Khao beach. In
2008, the additions to the competitive set were the extension to the
Twin Palms Phuket Resort, the Marriott Courtyard at Surin Beach, the Six
Senses Destination Spa and the Anantara Phuket Resort on Mai Khao beach.
Other new competitors in the high end market which are expected to open
within the next 3 years are as follows:

-   Six Senses Hideaway at Yao Noi (formerly known as Evason Hidaway)

-   Phuket Marriot Resort and Spa at Kamala Cove

-   Cape Sienna

-   Hyatt Regency Phuket Resort and Spa on Nai Yang beach

-   Renaissance Phuket Resort & Spa on Mai Khao beach

-   The Yamu at Cape Yamu (to be managed by GHM)

-   Outrigger West Sands project in Mai Khao (condomiums and beach front
    residences)

-   Jumeirah Private Island Resort

-   Shangri-La on Bangtao beach

-   Raffles Hotel in Phang Nga

-   Taj Exotica on Koh Lone

-   Park Hyatt

-   Four Seasons on Rawai beach

-   Phuket Pavillions expansion

-   Centara Grand Beach Resort

-   Grand Mercure at Karon beach

-   Capella Phuket

-   Kempinski Phuket

-   The Regent Phuket Cape Panwa

    All of these projects will be serious competitors to the Laguna
    Phuket hotels when they come on stream although this will be well
    into 2010 and beyond.

    3.2.2 Banyan Tree Bangkok

  The budgeting process and sales and marketing tactics for the Banyan
  Tree Bangkok are very similar to those outlined above for Laguna
  Phuket. The targeted markets are more directed at the business
  traveler and meeting and incentive groups although the leisure market
  has become increasingly important in recent years.

  Reservations are mainly made through the reservation sales office in
  Bangkok, accounting for approximately 80 percent of total room nights.

  Geographic Origin

  Asia 54 percent, mainly from Japan, Hong Kong, Singapore, Taiwan,
  Korea, Thailand and China

  Europe 26 percent, mainly from United Kingdom, Germany and Scandinavia

  Australia/ New Zealand 8 percent

  America 8 percent

  Other 4 percent

Competition and Bangkok situation

The global economic slowdown and the anti government protests together with a number of newly built hotels will lead to an oversupply in downtown Bangkok in 2009 with approximately 2,700 rooms from 10 hotels expected to be put into the market in the second half of 2009 of which 44 percent of them are five star.

 Based on current projections, CBRE expects about 29,400 hotel rooms in the central business districts by the end of 2009. At the end of 2010, it is estimated that there would be 30,900 hotel rooms. However, some hotels may delay or accelerate construction depending on market conditions. Nevertheless, the growth in international hotel operators will be positive for Bangkok both raising the quality of the total hotel supply and harnessing the marketing power of the international operators to attract visitors to Thailand.

3.2.3 Property

In Property, given the current economic conditions there has been a slow
down in new property developments during 2008 and the main competitors
remain very much the same as the prior year with few quality
developments entering the market. The significant developments that will
provide strong competition to Laguna Phuket property are:

-   Shangri-La Pool Villas in Bangtao

-   West Sands project in Mai Khao

-   Phase II of Royal Phuket Marina

-   Andara

    Otherwise the vast majority of developments are either:

-   smaller and very high end; or

-   lower end developments and do not compete with Laguna Property.

    The high end developments that compete with the Banyan Tree (and to
    a lesser extent the Dusit Thani Pool Villas) would be considered to
    be:

-   Cape Yamu

-   Jumeriah Private Island (Barama Bay)

-   Trisara phase C

-   Shangri-La Pool Villas

-   Royal Phuket Marina Villas

    In regard to quality condominium projects that will compete with the
    new Laguna Phuket condominiums, only the following are considered to
    be competition based on quality and style which Laguna Phuket should
    at least be able to replicate/exceed:

-   Andara

-   Palm Beach Club

-   Royal Phuket Marina Aquaminiums

-   Pearl of Naithorn

-   The Chava in Surin

-   Layan Gardens

3.2.4 Pricing Strategy

The Laguna Phuket hotels continue to work well together on price structuring. The discussions inevitably follow the normal course of competitors, and the Company will need to maintain vigilance as it goes forward to ensure maximum average room rates. 

The following chart shows the average room rate movements over the past seven years:

Laguna Phuket hotels

  ----------------- ------- ------- ------- ------- ------- ------- -------
                    2002    2003    2004    2005    2006    2007    2008

  Average Room Rate 6,831   5,748   6,036   5,126   6,478   6,952   7,314
  (Baht)                                                            

  Average Exchange  43.1    41.6    40.4    40.2    37.7    34.5    33.4
  Rate Baht : US$                                                   

  Average Room Rate 159     138     149     128     172     202     219
  (US$)                                                             
  ----------------- ------- ------- ------- ------- ------- ------- -------

  In the Property sector, for 2009, the Company expects to achieve the
  following prices for the various products. The pricing strategy will
  be to gradually increase the price of homes steadily but to maintain
  the sales pace.

3.2.5 Three Year Outlook

  After the 1997 economic crisis the Company has weathered the terrorist
  attacks on the USA and Bali, the Iraq War, the SARS crisis and Bird
  Flu and the Company is now fully recovered from the damage, both
  physical and market-related, of the Tsunami which hit Phuket on 26
  December 2004. Now we are facing what is likely to be one of the worst
  crises in recent years resulting from the global economic recession
  which will have a negative impact on our business.

  The continued investment into luxury hotels and resorts in Phuket
  signifies the island’s development into a world-class resort
  destination. As many as 15 major international operators including
  Shangri-La, Kempinski, Four Seasons, Jumeirah, Park Hyatt and others
  are set to debut in Phuket over the coming years, and the necessary
  infrastructure, such as marinas and golf courses, is being developed
  to support these hotels.

  In the short-term, global economic conditions and the domestic
  political situation will serve to suppress tourism in Phuket and
  Bangkok, and this will certainly affect the performance of the hotel
  and property sales divisions. However, given Phuket island’s enduring
  appeal, its value proposition, and its standing among global resort
  markets, it is expected that any downturn will be limited.
  Historically, political disturbances in Thailand have served to defer
  demand for hospitality and property in Phuket, but not cancel it. As
  such, we are still confident about the long-term prospects of Phuket
  in general and in particular Laguna Phuket.

  3.2.6 Rights and Constraints in Business

 

 BOI Privileges – None

Other Privileges – None

  Constraints in Business – None