The widespread transmission of Covid-19 has triggered massive lockdowns and travel restrictions on a global scale, sending the travel and hotel sectors into virtual hibernation mode throughout the first half of 2020.
After enjoying impressive tourist growth in previous years, in first half of 2020, Vietnam has recorded drops of 56 per cent and 50 per cent year on year for international arrivals and domestic-travelers trips, respectively.
By the end of March 2020, Vietnam government suspended all international flights to the country to prevent the spread of Covid-19, therefore, foreign arrivals tumbled by 99 per cent year on year in the second quarter alone.
The pandemic has disrupted numerous travel plans worldwide, resulting in weaker hotel performance across the country. Average RevPAR in the first half of 2020 went down significantly by 56 per cent and 64 per cent year on year for Hanoi and Ho Chi Minh City, respectively. RevPAR in Vietnam in general dropped by a similar magnitude of 55 per cent year on year during this period.
Occupancy rates reached the lowest point in April, when nationwide social isolation was imposed, then slowly recovered in May and June when local tourists started to hit the road again.
However, as Ho Chi Minh City and Hanoi’s four and five-star hotel markets strongly rely on foreign guests, occupancy rates improved just by small amount of 1 – 1.5 percentage point each month. The full recovery, mainly subject to global containment of the pandemic, will be more unpredictable.
Domestic tourism will lead the recovery and compensate for the loss from international tourists in 2020. The market saw some signs of revival by June, marked by a 2.3-fold rise in the number of domestic traveler trips against May.
While cross-border trips are impossible, local residents have flocked to various tourist destinations in Vietnam instead, providing the tourism sector with a much- needed boost. In fact, travel interest to drive-to locations such as Sapa, Ha Long in the North of Vietnam or Vung Tau, Phan Thiet, Da Lat in the South increased significantly in the summer months.
After going nearly 100 straight days without community cases, the country confronted a resurgence from a fresh cluster originated from Danang hospitals with even first-ever deaths confirmed.
In the face of more complex developments, tourism demand may be significantly dampened and domestic tourists certainly becomes more hesitant to travel than ever. Demand from international tourists will also take longer to return, from both the continuing of flights suspension as well as reluctance to travel when the virus is not fully contained in foreign countries.
The performance in the third quarter of 2020 will not see much improvement from the previous quarter as Vietnam has faced a second wave of Covid-19 since late July and some parts of the country have already imposed social isolation practices to prevent the spread.
Nguyen Trong Thuc, Associate Director of CBRE Hotels Vietnam, commented: “The hotel industry in 2020 – 2021 is expected to be in defensive mode with intermittent fluctuations in performance until a vaccine or widely available treatment for Covid-19 can be developed.”
Long-term outlook for Vietnam’s hospitality sector remains healthy
While Covid-19 will have far-reaching and dramatic implications on the hotel landscape of tomorrow, the long-term outlook for Vietnam’s hotel sector remains positive, thanks to expected improvement in infrastructure, favorable visa policies and the political will to turn tourism into a key industry.
Vietnam has been praised by the international community for its decisive and effective efforts in the containment of Covid-19, which would help the country to enhance its image on the global tourism scene as one of the safest travel destinations once the pandemic is over.
Regarding the investment landscape, there are some opportunistic investors looking for distressed assets at a big discount. However, the market so far hasn’t seen many distressed assets in the 4 and 5-star segment. There will be more opportunities in the lower segments though, as well as from hotel chain owners seeking to divest some assets that are considered less strategic.