In summer, thoughts usually turn to a holiday. Southeast Asia has traditionally been a favorite of international tourists, particularly of those from Europe, but in this respect, like so many others, 2020 is different.
With the travel and tourism sector already reeling from the last four months of global lockdowns and the suspension of almost all travel, local and international, it’s hard to see how the travel and tourism sector will recover in the near- to mid-term.
This is an industry that is fundamental to the economic health of Southeast Asia, contributing about 12.1% of the region’s GDP last year and 13.3% of employment, according to World Travel & Tourism Council figures released in April. Online travel, the bedrock of thousands of startups in the region, is now a $34 billion economy and has had an annual growth of 15% in the region since 2015 up until 2019.
The impact of COVID cannot be underestimated. The Asia Pacific region stands to lose approximately 63 million jobs and $1 trillion in GDP, as international tourism plunges by up to 80% this year over 2019. This is by far the worst result for international tourism since 1950 and puts an abrupt end to a 10-year period of sustained growth since the 2009 financial crisis.
While the crisis continues to play out, we believe we will see the sector evolve and change significantly before we can anticipate a full recovery.
Domestic tourism will be the first to bounce back
Domestic travel and tourism, local business travel and budget leisure trips will be the first parts of the industry to recover. Research among global tourists shows that as many as 90% of those ready to travel want to start domestically and that safety concerns play an important role in deciding the next travel destination.
Governments in Vietnam, Singapore, Thailand and Japan are doing their best to encourage this with Asian governments throwing hard cash at encouraging domestic tourism. Singapore is launching a $32.4 million domestic tourism campaign, Japan is offering more than $12 billion in travel subsidies to boost tourism, Thailand has just launched a $641 million scheme to boost domestic tourism through subsidies on accommodation, transport and e-vouchers that can be used for food and other services, and Vietnam has since April been encouraging locals to explore their own country with discounted fares and increased domestic flights.
Before COVID, 29% of guests in Asia Pacific hotels were domestic travelers. Ideally this number will rise significantly. We are already seeing some evidence of local tourism coming back. In China, where the virus first broke out, domestic airline passenger levels have grown steadily, and now sit at 50% of pre-crisis levels. Hotel occupancy rates have also improved since the depths of the crisis and are now back to 60% of last year’s levels.
Domestic travel and tourism will be expected to substitute foreign tourism demand, at least for the time being. For some countries, this will not nearly be enough, especially in terms of generating foreign currency revenues.
Regional tourism to become much more important to the sector
Of all the regions in the world that are familiar with dealing with a pandemic, Southeast Asia has both the experience and the track record of recovery. The importance of regional tourism for the recovery of Southeast Asia’s tourism and travel sector cannot be underestimated. In 2018, ASEAN tourism represented 45.2% of the total number of visitors, China followed on the second place with 12.4% and the European Union on a third place with 8.5%.
Looking ahead, China’s growing importance might surge even further. It was the first country to be affected by the virus but also among the first to recover, and a survey by C9 Hotelworks has stated that 53% of Chinese travelers are planning overseas travel in 2020.
Agreed international standards for COVID-19 testing would accelerate the return of regional tourism and governments have been exploring the idea of “travel bubbles” similar to the one implemented between Singapore and China, whereby visitors from selected countries would not have to follow the 14-day quarantine measures.
Changing traveler demographics
Gen Zs, millennials and budget travelers will be the first to venture out. The young and the non-family segment are more open to resuming travel in the first wave after the crisis. For example in China, on Tomb Sweeping Day, the first holiday following the pandemic, 60% of the people who booked trips were below the age of 30 – a significant increase from 43% in the same period last year.
We anticipate fewer travel groups as people plan to travel mainly with immediate family members. Group and guided-tour packages have dramatically declined in popularity: a McKinsey report shows that only 10% of travelers would be likely to take big group tours for their next trips. Sixty-eight percent regard them as impossible even to consider.
Some suppliers see this as an opportunity to target affluent leisure travelers with so-called “high-roller” packages. The Tourism Authority of Thailand is working with the Ministry of Tourism and Sports on a program to attract wealthier visitors to two regions, Phuket, and Samui and Phangan, for stays of at least a month, after they’ve passed health screenings at home and upon arrival in Thailand.
Acceleration of digitization and automation in the hospitality industry
Technology-driven hospitality automation will be crucial to the industry’s recovery plans.
With social distancing rules likely to remain even after lockdown restrictions are lifted, hotels, tour operators and transport companies will need to find ways to minimize contact between guests and staff.
Contactless technology from digital keys to taps with sensors will be a baseline for many businesses. The possibilities of face recognition will also be explored at scale. Last year, three hotels in Singapore piloted the E-Visitor Authentication (EVA) system, which enables guests to use standalone kiosks to scan their passports through facial recognition technology, instead of waiting for a member of staff to do so.
Hotels will have to follow enhanced safety and hygiene protocols. Automation could involve self-cleaning technology – as revealed in 2019 in Copenhagen’s Hotel Ottilia, that uses ACT CleanCoat self-cleaning technology. This is a transparent and odorless substance that automatically breaks down microbes like bacteria, viruses and airborne mold spores when exposed to sunlight. The challenge will be how do we get automation and digitization at scale and at a cost that the industry and consumers can afford.
History is no guarantee of future success, but we know that international tourism has survived and grown over the last 20 years, surviving challenging world events such as the 9/11 attacks, the SARS outbreak and the 2008 financial crisis. Each time the industry was knocked back, growth eventually resumed an upward trajectory.
The young will go first. Travel will involve nearby destinations. Economy travel will recover more quickly. And outdoor and nature-related destinations will be more popular than congested cities. Like many other sectors and industries, travel too will largely be local and regional in the near future.
Our confidence in the sector remains because Southeast Asia’s travel and tourism sector has all the elements to recover fast, and we have already started to see signs of recovery with local tourism picking up.
Even historically, over 50% of Southeast Asian tourists were from the region and in future this trend will only accelerate and intensify.
This is a region where startups in travel and tech have thrived. Not all of these will survive this crisis – that is the nature of early stage investing. But startups have the advantage over established businesses of being small enough and nimble enough to adapt and change.
Now is the time to look beyond the traditional travel tech sectors and seize the opportunities that more regional travel, changing demographics and younger travelers will bring. This could well be the beginning of new technology, startups and sectors that don’t exist yet.