On March 6, World Tourism Organization (UNWTO) revised its 2020 prospects for international tourist arrivals to reflect a decline of 1% to 3%, compared to the projected positive growth of 3% to 4% before the outbreak.

According to Mauro Gasparotti, Director of Savills Hotels Asia Pacific, “This is the first time international arrival numbers are expected to drop after ten consecutive years of growth. Following the evolution of the outbreak as well as corresponding controls and prevention measures, such as air traffic restrictions and country lockdowns, the decline is anticipated to be even greater than expected”. The initial drop of arrivals to Southeast Asian countries was primarily due to the high reliance on Chinese travelers, who were the first category to be impacted by the situation.

Mr. Gasparotti further commented, “Vietnam is facing the same situation, with China and Korea representing the most significant tourism source markets, accounting for 56% of international arrivals in Vietnam in 2019. In addition, in the past two weeks the outbreak has worsened in Europe and Americas, which together, accounted for 17% of tourist arrivals in Vietnam in 2019”. The Government has promptly restricted access to foreign visitors as a precautionary measure in order to contain the spread of the virus. “This would be a great help in minimising the exposure to potential sources of infection even if the entire tourism sector is impacted dramatically” Mr. Gasparotti commented.

Vietnam, like everywhere else in the world, witnessed a significant reduction in tourist numbers during the first two months of the year. Based on the latest report of Vietnam National Administration of Tourism, the number of foreign visitors in February was down 37.7% compared to the previous month and down 21.8% over the same period in 2019. A further decline is expected in the coming months.

Mauro Gasparotti added, “Local demand has also been dramatically affected as many are now more hesitant to travel to airports, train and bus stations and even restaurants and entertainment areas”. Local demand largely depends on the ability of Vietnamese Government to contain the spread of the virus and ensure safety across the country. If the outbreak was well contained, local travelers would be the first category to recover”.

Unsurprisingly, global hotel occupancies experienced a sharp drop following the steep decline in both local and international travelers. With varying degrees of impact on tourism, it is not surprising that China, South Korea and Italy are the worst-affected countries. Unquestionably, factors including air travel, visa policies and preventive measures have a direct and immediate impact on the hospitality industry of each country.

According to STR, a global provider of data on hotel performance, all destinations across Asia Pacific reported significant drops in hotel occupancies in February compared to the same period in 2019 and Vietnam experienced one of the largest drops worldwide. Mauro Gasparoti commented, “If we look at recent data, Vietnam experienced an occupancy drop of approximately 26% in February compared to same period last year. Central cities such as HCMC and Hanoi, despite the slowdown, were still able to manage their performance at acceptable occupancy of 48% (HCMC) and even higher, at 60% (Hanoi). However, due to the new ban on international travelers and rising concerns domestically, occupancy in the first three weeks of March dropped dramatically to a single digit in many destinations within Vietnam. Among coastal destinations, Danang and Hoi An are the most affected areas due to a strong reliance on foreign guests as well as a significant number of new hotel openings in 2019. Numerous properties have occupancy below 10% and are considering temporary closures. The situation is similar in Cam Ranh, albeit owing to Russian groups and local travelers, some properties in the area are still able to operate. Phu Quoc’s occupancy was just below 40% in February, an acceptable level, however, the upcoming suspension of new flights is likely to lead to a further large drop. In March, central cities received several cancellations, resulting in single-digit occupancy for HCMC and slightly higher levels for Hanoi, as a result of existing corporate contracts with companies such as Samsung, providing some hotels with a stable base of business. On a positive note, resorts that rely on local clientele and are reachable by car from large cities have been less affected and still able to perform better than the market average. Interestingly, by 21 March 2020, 145 hotels and resorts in Vietnam have voluntarily registered as quarantine areas for Covid-19, subsequently, not only helping properties retain the operation during this low demand period but also providing meaningful support to Local Authorities. Serviced Apartments are still running at a higher occupancy compared to Hotels due to the nature of the clientele and a longer-term business model. The outlook for the next couple of months is not positive with a vast number of cancellations already received”.

Thus far, Vietnam has been successful in controlling the outbreak, thanks to the prompt actions by the Government.

On possible recovery, Mr. Gasparotti mentioned: “Hospitality is always highly vulnerable to negative events, as seen in global events such as the September 11 attacks, Global Financial Crisis, SARS or specific country events such as the Japan Earthquake – Tsunami, Bali Bombing in 2002, etc. Typically, recovery is sharp and often takes place within a six-month period. As indicated by the STR data, at the time of SARS outbreak in 2003, occupancy in Asia Pacific recovered fully in two to three months following the WHO announcement that the situation has been contained. As COVID-19 is a much larger scale outbreak, and will have a pronounced economic impact, local travellers are expected to recover within a short timeframe whilst international visitors are anticipated to show a slower but steady recovery. In terms of international arrivals, the first category expected to return are business travellers (especially in main gateway cities), followed by FIT and MICE, and finally international groups. A total rebound should not take longer than six months following the announcement that the pandemic is contained.”

To conclude the conversation, Gasparotti said, “Vietnam hospitality has been affected and this will likely continue into the foreseeable future. However, whilst the expectation is that the entire year of 2020 will be impacted, as previously witnessed, at the first light of recovery, the hospitality industry is likely to see the fastest and strongest turnout when compared to other sectors. Vietnam’s high reliance on local travelers (82.5% of arrivals in 2019) and the Chinese and Korean markets could turn out to be an advantage, as these groups are expected to be some of the first who are able to travel again. We should all be positive and look to the long term. From a different perspective, investment in commercial and hospitality projects, especially within the Hotel & Resort industry, is usually made with long term goals in mind. Therefore, short-term difficulties and market fluctuations are challenges which to screen and select investors who have real management experience and the strong financial capabilities to succeed in Vietnam’s hospitality - a potential market which has caught the attention of both domestic and foreign investors.”