Asia’s Tourism: Boon and Bane

SINGAPORE – Recession in major economies around the world has hit Southeast Asia's pivotal tourism industry, but increased domestic and regional travel by cash-squeezed travelers based in Asia means some countries will be hurt less than others.

Governments around the region are cutting forecasts for income as both long-haul tourists and business travelers get increasingly cost-conscious. That is a problem because tourism accounts for a hefty 6% or more of most economies in Southeast Asia.

Still, some low-cost countries with attractive tourist spots and large homegrown populations should lose out less.

"People may find it increasingly attractive to travel within the region, and countries like Malaysia and Indonesia will benefit from that," said CIMB-GK economist Song Seng Wun.

Changing travel habits could also prove a boon for the region's budget carriers such as Tiger Airways, AirAsia Bhd. and Jetstar, as well as low-priced hotels.

"We are already seeing a trading down by businesses, which is benefiting us," said Mark Lankester, chief executive officer of Tune Hotels, a low-cost provider of accommodation owned by the founders of AirAsia.

Demand for rooms from business and leisure travelers at the company's two hotels in Malaysia is strong and the company hasn't delayed plans to open 100 hotels by 2011, including in Bali, Phuket and Jakarta.

"We feel confident we will be able to maintain the high occupancy rates that we currently do in the new hotels," Mr. Lankester said. The occupancy rate for both hotels is about 80%, the company said.

Indonesia's Tourism Society expects the country to suffer from the economic slowdown. It forecasts foreign tourist arrivals of 6.1 million to 6.2 million this year, below the government's target of seven million though still above 2007's total of 5.5 million arrivals. The government, meanwhile, is still targeting eight million arrivals in 2009.

Malaysia, where tourism contributes 7% of gross domestic product, will also suffer given that neighboring Singapore, the source of half of the country's international visitors, is in recession.

"The outlook for 2009 remains unclear at this stage. At best it will remain close to the 2008 figure," said Ngiam Foon, president of the Malaysian Association of Tour and Travel Agents.

For this year, Malaysia now expects to receive 22.5 million tourists who should spend an estimated 55 billion ringgit ($15.2 billion), up from 20.9 million visitors who spent 46 billion ringgit in 2007.

But analysts said there could be an increase in domestic vacations as more residents choose to travel locally rather than overseas.

The Philippine government has warned, too, that it isn't likely to meet tourism revenue targets for this year.

Last year, a record 3.1 million tourists visited the Philippines, contributing around 3% of the country's GDP. Philippine Tourism Secretary Ace Durano forecast that 2008 arrivals will probably increase 5% to 6% instead of the targeted 8% to 10%.

"With some mature markets in recession and the possible contagion going into next year, we know international travel will soften, so what we're trying to do now is ensure that total demand – combined local and international – will still be up to support the ongoing expansion in the local tourism industry," he said.

Some said the pessimism on regional tourism is overdone and that failure to reach ambitious 2008 targets is less worrisome than it looks.

"When the targets for 2008 and 2009 were set, they were based on numbers achieved in 2007, which was a very strong year for Asian economies and the travel industry," said Alvin Liew, an economist with Standard Chartered.

And weak regional currencies should help some travelers worried about their budgets. As of Monday, for example, the rupiah was down 24% against the U.S. dollar this year while the ringgit had slid 9% and the peso 16%.

The government of Singapore, a key financial center and a stopover for travelers going elsewhere, has warned that arrivals and income from tourism will fall short of this year's targets of 10.8 million people and 15.5 billion Singapore dollars (US$10.2 billion) In October, visitors to the country fell 8% from a year earlier, to 843,000.

That has already prompted hotel chains to slash rates by as much as 30%, according to local press reports. Singapore's hotels recorded about S$178 million in room revenue in October, down 0.3% from a year earlier and the first drop in almost three years.

Tourism in Thailand, which in 2007 had 14.8 million visitors, naturally is getting seriously impacted by political unrest that for the past week severed Bangkok's busy air links with the world.

While the city's two airports are now expected to be functioning normally by Friday , the way hundreds of thousands of people have been stranded or inconvenienced by the shutdowns will have a lingering impact on tourist numbers. Dozens of countries have issued warnings to avoid traveling to Thailand.

Indian tourism, too, faces a downturn after the terror attacks in the commercial capital of Mumbai.