Moreover, although Vietnam’s domestic tourism market is larger than Thailand’s, average spending per international traveller in 2019 was US$673, compared to just US$61 per domestic tourist, according to McKinsey data.
A further challenge is that the recovery of Southeast Asia’s hotel industry hinges on strength in demand from the Asia-Pacific region, which accounted for the largest share of international tourist arrivals to Thailand, Indonesia, Singapore and Vietnam in the first four months of the year, according to data from Southeast Asian tourism consultancy Pia Anderson.
“There’s been a lot of rhetoric about the importance of long-haul travel, but the reality is that intra-Asia demand is the main driver of the recovery,” said Hannah Pearson, founder of Pear Anderson.The relatively strong performance of Southeast Asian hotels over the past year and a half is all the more remarkable, especially amid growing concerns about a weaker-than-expected recovery in China.
01:54
Chinese tourists return in droves to Bali, Thailand beaches after three-year absence
Chinese tourists return in droves to Bali, Thailand beaches after three-year absence
Even before Beijing abruptly abandoned its zero-COVID policy in December last year, average occupancy rates in Bangkok and Hanoi had been soaring, reaching 73.8% and 66.9% respectively in November, according to STR data.
Some Southeast Asian hotel markets have fully recovered or are performing better than before the pandemic hit: Luxury hotels in Phuket saw revenue per room sold – a measure of top-line performance in the hospitality industry – rise 114% in the first five months of the year compared to 2019, according to JLL data.
In the more upscale segment of Jakarta’s hotel market, revenue per room surged to 124% of 2019 levels, just above that of luxury hotels in Bali. Even in Vietnam, which has recovered much slower, revenue per room in Ho Chi Minh City reached 86% of 2019 levels.
The surprisingly strong recovery is due to a number of factors. Hotels in Southeast Asia have been relatively successful in tapping new sources of demand to fill the void left by the absence of Chinese tourists. According to Pia Anderson, Malaysian and Russian tourists accounted for almost a quarter of foreign tourists in Thailand in the first four months of the year, with visitor numbers from both countries only slightly below or above 2019 levels.
Equally important, hotel lease periods are so short that operators can adjust prices quickly in response to potential demand and significant increases in hotel operating costs, especially labor costs. According to STR data, average hotel prices in USD in Bangkok and Hanoi have already recovered to 2019 levels by the end of 2022.
“Even without Chinese tourists, most of the hotel industry in Southeast Asia was certainly on the path to recovery,” said Xander Nijnens, head of advisory and asset management for JLL’s Hotels & Hospitality Asia Pacific practice. This has proven to be a boon for the industry, given that Chinese international travel has been slow to recover since the economy reopened.
Chinese tourist arrivals to Thailand in May were at 35.9% of 2019 levels, below the 89.5% average for other source markets, according to a Nomura report released June 28. Additionally, Southeast Asia’s hotel industry faces other challenges, from continued airline capacity constraints to concerns about a sharp global economic downturn that could curb travel demand.
Country-specific risks are also holding back the recovery, especially in investment markets. In Vietnam, a severe capital shortage in the real estate sector and a government anti-corruption campaign have raised investor concerns about the market’s relative immaturity. David Jackson, chief executive officer at Colliers (Vietnam), said Vietnam’s growth potential has never been clearer, but “everyone is on hold right now.”
03:02
Thailand’s environmental challenges resurface as tourists return to Maya Bay
Thailand’s environmental challenges resurface as tourists return to Maya Bay
That’s why it’s no surprise that a strong recovery in Chinese outbound travel in Southeast Asia will be seen. According to a June 28 report from RHB Bank, slowing growth in China means that inbound tourism to Thailand is expected to be lower than expected this year. But a sharp rebound in Chinese tourism in the second half of the year could help support the region’s recovery as it faces global headwinds.
Even before the pandemic, Southeast Asia’s hotel industry had already demonstrated that its performance is not dependent on its most important sending market, but a sustained slowdown in China’s growth will inevitably hit the region’s hospitality sector.
Nicholas Spiro is a partner at Lauressa Advisory.
