Focusing on domestic travelers, considering new pricing models, and creating travel bubbles are some of the few points the Vietnam tourism sector needs to consider to speed up its recovery, according to research.
Tourism contributes a significant share to Vietnam’s GDP, and the fact that the country is tourism-dependent makes it more than a priority.
Globally, before the COVID-19 pandemic, travel and tourism had become one of the most important sectors in the world economy — accounting for 10% of the GDP, more than 320 million jobs, and was worth almost $9 trillion, nearly three times larger than agriculture.
According to the United Nations World Tourism Organization, this pandemic, the first of its scale in a new era of interconnectedness, has put 100 million jobs at risk. Reopening tourism-related businesses and managing their recovery in a way that is safe, attractive for tourists, and economically viable will require coordination at a level not seen before.
Furthermore, re-setting and rebuilding tourism to be more sustainable as the industry can't simply return to business as usual, there’s no going back to ‘normal’.
At present, Vietnam’s tourism sector relies heavily on inbound travelers, which plunged in 2020. In fact, in October of last year, international flights dropped 80% from the same period a year earlier. Hotels, in turn, filled only 30% of their rooms.
According to the latest piece of the McKinsey & Company’s Future of Vietnam series, which explore topics that will shape the country’s future growth, Vietnam can jumpstart its recovery sooner.
Despite the promising digits brought in by domestic tourists, Vietnam remains dependent on international markets, representing around $12 billion in spending.
In the same data provided by the consulting firm, Vietnam’s strong economic ties with Japan, China, South Korea, and Taiwan, and its huge percentage of Vietnam’s foreign tourism spending could lead to a relatively fast tourism-industry recovery compared with other key tourist destinations in Europe and North America. Additionally, to make the most of these ties, Vietnam has been pursuing a zero-case-first-strategy since the start of the pandemic.
Basically, the zero-case-first-strategy means the country only accepts travelers from countries where COVID-19 contraction rates are low, which means traveler's confidence level is relatively high. It focuses on accelerating the demand recovery and exploring more active revenue-management strategies.
Furthermore, McKinsey & Company suggests, “by implementing the zero-case-first approach and taking into account Vietnam’s currently resilient local economy and proactive government campaigns, Vietnam’s tourism sector could recover to pre-crisis levels in 2024.”
Tourism paradigm shifts
Driven by the return of domestic travel and if the country can maintain a low infection rate, its tourism sector can recover sooner but for that to happen, McKinsey & Company’s analysis urges certain paradigms in the way travel companies plan the recovery to change.
One of which is the shift in tourism behavior that could lead to high-end domestic trips. With borders remaining closed for international excursions, an increase in domestic luxury trips could occur as travelers reallocate their budgets.
However, domestic tourists are not big spenders, or don’t spend that much within their home country, compared to foreign tourists coming to Vietnam. Hence, this type of travel cannot completely fill the gap created by the lack of international visitors.
One other consideration is to cut the rate, to make it more affordable for the locals. Price cuts could be used to stimulate demand but aren’t sustainable in the long run. Travel agencies are offering discounts in the immediate aftermath of the crisis in order to compete for business and pull locals to travel. But because of the price dilution, this may not be a lasting solution.
Another point made by the firm in the “Reimagining tourism: How Vietnam can accelerate travel recovery” report is international travel bubbles have to be explored but with caution.
Vietnam, at the moment, implements strict travel restrictions and allows only a select number of weekly international flights for experts and diplomats, who are subject to mandatory quarantine on arrival. Having near-zero rates of COVID-19 cases, the county cannot risk opening its borders freely until herd immunity is reached.
As a result, it could take some time for inbound foreign tourism to return at scale.
In the meantime, “there might be some opportunity to pursue more gradual and less risky measures. For instance, there have been discussions about establishing travel bubbles to allow travel between other countries with zero or near-zero transmissions, such as Australia, China, and Singapore,” the report reads.
As a heads up, travel companies should be prepared for two scenarios: one in which travel bubbles open up for inflows of international tourists, and the other in which domestic tourism remains the main driver of value.
“Vietnamese tourism administrators have an exciting opportunity to reimagine their roles and lead the sector through recovery and beyond — first, by boosting domestic demand to make up for lost income from international travelers, and second, by promoting Vietnam’s image as a country that has managed the pandemic fairly well.”
In conclusion, governments and industry leaders can leverage the overall momentum of the country, as well as the expected return of international travel, to boost demand.
If Vietnam remains to be the “country that has managed the pandemic fairly well”, everything will slowly go back to how it used to be… while providing a lot safer and more convenient approaches.