CASE STUDY:

Update-Covid 19's impacts on Vietnam

Hosptality
25 MARCH 2020
The rapid spread of COVID-19 has caused significant damage to several industries
worldwide, among which, tourism is likely to be one of the hardest hits. The dramatic
decline initially came from the drop in international travellers, starting with Chinese
tourists and followed by a sharp decrease in local demand, which impacted hotels and
restaurants, meetings and event spaces.
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”.

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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

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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.”

Source: https://www.savills.com.vn/insight-and-opinion/savills-news/181229-0/update-covid-19-s-
impacts-on-vietnam-hosptality