The first three months of the Covid-19 lockdown were ones of reflection for Alex Csorogi, who is originally from Perth, Australia but a long time resident of Indonesia’s “Island of the Gods”, the holiday hotspot of Bali.
Able to draw down on some of his Australian superannuation savings he could enjoy the absence of traffic on an island that saw visitor numbers drop from six million in 2019 to just over one million the following year.
“I love an excuse to do nothing”, he told Capital.com over a beer in Canggu, an expat area of Bali. “I kind of enjoyed it at first, the lockdown wasn’t that strict here, everyone just got a sink in front of their shop and got on with life”.
But earning more cash was a problem as his main business of supplying high-end food products like iberico ham and caviar to the hotels and restaurants that cater to Bali’s more well-heeled visitors dried up completely.
“Everywhere I used to supply closed down and the earnings from that business disappeared completely - it dropped 100%.”
Holiday rental business “got ugly”
Csorogi and his partner also saw income from their sideline business of renting three properties to tourists drop dramatically. In the good times the economics of renting villas to holidaymakers in Bali are a one-way bet that pays out handsomely.
Typically it is possible to rent a three-bedroom villa for about $15,000 a year upfront, which then goes for $150 - $200 a night on Airbnb. Minus running costs like water and cleaning that means healthy profit margins, but not when tourists are barred from visiting.
“Airbnb almost stopped completely and all the market for longer stays switched over to Facebook. The business got really ugly, everyone became really demanding. Because there was such huge competition, people who used to live in a one bed place could now afford a four-bed villa.”
Csorogi’s experiences are a reflection of the impact global travel bans have had on the tourism dependent economies of Southeast Asia. In the span of a few weeks in early 2020, foreign tourist arrivals slumped. Airports, hotels, bars and restaurants that were once buzzing with life were suddenly left deserted.
Delta variant halts tourism recovery
While 2021 brought hope of a quick revival, the outbreak of the delta variant in June pushed back expectations of a return to normalcy. The United Nations Conference on Trade and Development expects Southeast Asia to be the third most badly hit region in terms of losses in gross domestic product (GDP) from the reduction in tourism in 2021.
A report from the organisation published in June 2021, predicted that Southeast Asia is expected to lose anywhere between 5.6% and 8.4% of its GDP from the reduction in tourism. The collapse in Thai tourism numbers in the 12 months since travel restrictions were imposed illustrates the scale of the problem.
To put that into perspective, according to data from the World Bank, Thailand’s GDP contraction of 6% in 2020 was the worst since the 7.6% contraction in 1998, at the height of the Asian Financial Crisis.
The direct impact of the shrinking economy was that governments had to borrow more. For example, Malaysia was forced to raise its debt ceiling to 65% of GDP from the previous cap of 60%. Thailand had to go even higher to 70% of its GDP from the existing limit of 60% of its GDP. Vietnam is also considering such measures, while over in Indonesia quantitative easing by the central bank looks set to continue until next year.
Besides borrowing more, countries like Thailand and Malaysia have also resorted to injecting life into the economy through fiscal stimulus packages. After approving a package of $58bn in May 2020, Thailand has topped up that with another $11.2bn in March 2021, and two more measures in June and August worth $4.5bn and $1.3bn respectively.
Malaysia set out a $36bn worth of fiscal stimulus measures in June, when the delta variant of Covid-19 was raging across the region.
Asean FX takes a beating
While tourism naturally slumped, even other industries in the region failed to lift the economy. Local lockdowns and movement restrictions disrupted local manufacturing sectors. In Vietnam, several major factories were shut down temporarily in July in a move that had repercussions on global supply chains.
Local currencies have also taken a pounding in 2021, with Thailand leading the pack. Since the beginning of 2021, the Thai baht has slipped 11.21% versus the US dollar, followed by the Philippine peso losing 4.8%, while the Malaysian ringgit has shed 4.72% against the greenback and the Indonesian rupiah 2.6%.
It is no wonder that Thailand has been one of the most aggressive, reopening, almost fully, since 1 November. Others like Vietnam, Malaysia and Indonesia have also started to reopen tourist destinations for visitors.
Reopening comes as a much-needed lifeline for the airlines in the region that have been one of the worst hit by the Covid-19 pandemic.
Asian airlines grounded
The pandemic has pushed flag carriers such as Garuda Indonesia and Philippines Airlines into bankruptcy. Thai Airways has had to massively restructure its debt, while Malaysia’s AirAsia has had to pivot to being a Super App offering everything from fintech services to ride hailing in a bid to generate cash.
A Centre for Asia Pacific Aviation (CAPA) analyst told Capital.com that reopening borders within Southeast Asia is vital to airlines based in that region.
“The Asia-Pacific has lagged regions such as North America and Europe in terms of relaxing inbound travel restrictions. For some Asian airlines that have domestic networks, they have been able to get some revenue from domestic operations while borders have been closed.
“However, for airlines like Cathay Pacific and Singapore Airlines with no domestic operations, the loss of international travel has been particularly felt,” he added.
Tourism to recovery slowly
But just because borders have been reopened for travel does not mean recovery will happen immediately.
“Given that most of the region is only just starting to reopen their borders, and with a more cautious approach as compared to the west, the tourism recovery is likely to gain more meaningful traction only in the second half of 2022,” Krystal Tan, economist at ANZ Research, tells Capital.com.
“Our baseline is for foreign tourist arrivals in Thailand to return to 20% of pre-pandemic levels in 2022. Malaysia’s tourism recovery has the potential to be faster, provided it speeds up its border reopening and especially if it's VTL [vaccinated travel lane] with Singapore is expanded and plans to establish one with Indonesia materialise in early 2022 as suggested,” Tan said.
Tough Chinese quarantine rules
Travel regulations in China, one of the key source markets for tourism in Southeast Asia, remains restrictive. Not only are flights not easily available but government advisory is that outbound travel from China should be avoided.
For inbound or return travel, passengers require pre-departure negative antibody and PCR tests, and will have to be mandatorily quarantined for 14 days in a centralised hotel, one week at home and their health will be monitored for another week. The restrictions make outbound travel even for those keen on it highly cumbersome and unattractive.
“As things stand, a meaningful recovery in Chinese tourists seems more likely only in the second half of 2022,” Tan said.
“Pent up” travel demand
The pace of recovery will depend on government policies and vaccination rates. “The speed of the rebound depends entirely on how quickly governments reduce quarantine periods and other entry restrictions.
“Experience so far shows that when restrictions are relaxed, there is a pent-up demand for travel that causes traffic to recover fairly quickly,” the CAPA analyst said.
The analyst adds that short-haul travel is expected to recover quicker than long-haul travel, a view supported by ANZ Research’s Tan.
“The relative pace of normalisation will depend in part on the country’s reopening policies, and as things stand, Thailand is leading the way. But as the rest of ASEAN reopens, short trips may bounce back faster and Malaysia could benefit the most as ASEAN made up almost 70% of its pre-pandemic arrivals,” she added.
“Confusing” travel rules
The varying levels of restrictions even as Southeast Asian countries reopen will also add to the confusion for tourists. According to the CAPA analyst, airlines should push governments to have “as much uniformity as possible” in entry requirements, documentation and validation of vaccination and testing.
“A confusing array of requirements will dampen the desire for many to travel,” the CAPA analyst said, adding that the risks that border rules could change quickly may also dissuade many leisure travellers.
So far, Thailand, which is one of the region’s most tourism-dependent economies, has been the most liberal with its reopening. From 1 November, quarantine requirements have been waived for fully vaccinated tourists from 63 jurisdictions and fully vaccinated visitors from other countries can travel freely within the 17 “Blue Zone” areas, including the tourist hotspots of Phuket and Bangkok.
Singapore has launched a VTL scheme, which allows two-way quarantine free travel with 16 countries. Indonesia is allowing vaccinated travellers from 19 countries into Bali and Riau Islands, however they will still need to quarantine for three days, down from five days previously.
Vietnam ready to reopen
Malaysia will only reopen its popular beach destination Langkawi to vaccinated foreign tourists without quarantine from 15 November. Kuala Lumpur is part of the VTL with Singapore.
Finally, Vietnam will open up five popular tourist destinations to vaccinated foreign visitors without quarantine, including Phu Quoc, starting 20 November.
Although Thailand is keen to reopen, full recovery of its tourism sector may still take time.
“I think the nightlife in Thailand is what is really in the mind of many foreign tourists. So without reopening of pubs and bars, Thailand might not be an interesting place to go for foreign tourists especially those who won't be traveling with their families,” Bangkok-based Poon Panichpibool, markets strategist at Krung Thai Bank, told Capital.com
“In fact, I think what really turns off foreign tourists might be the low vaccination rate across Thailand which leads to some restrictions when the tourists return to their home countries like some sort of quarantine measures,” Poon added.
Thailand looks to domestic tourists
However, domestic tourists alone can boost the economy of Thailand by 2% of its GDP.
“We think that with the Travel Together programme in place and locals not so concerned about the Covid-19 situation, there could be at least 60 millions Thais travelling domestically with spending about THB4,000 per person per trip. That totals to about THB320bn of total spending from domestic tourism or 2% of GDP,” said Poon.
In Indonesia too, recovery is slow even though Bali has opened up for tourists. Jakarta-based David Sumual, chief economist at Bank Central Asia, recently visited Bali and said that it remains “quiet” primarily due to the quarantine policy for foreign tourists.
“In the near-term, the government can push for more business tourism. As for leisure travellers, I think we can only expect improvements in 2023,” Sumual told Capital.com.
A strategic approach to reopening
The authorities on Bali expect it to take even longer. Dewa Bayu, Head of Tourism Marketing for Badung Regency, the area of Bali containing visitors favourites such as Kuta, Seminyak and Nusa, told Capital.com the island is taking a strategic approach to reopening.
Speaking through a translator at an event to promote small and medium sized businesses on the island, at the Revivo Wellness Resort in Nusa Dua on Sunday, Bayu said it was important to focus on high-end facilities best able to meet enhanced cleanliness protocols.
“This is just the beginning. The expectation is for reopening to happen in 2022 and reaching 2019 tourists levels will happen by 2024.
To do this we must have a quality first approach where we achieve trust with trust by having visitors who come with health insurance and stay at facilities with the highest levels of COVID health protocols. Then we can achieve a return to previous tourist numbers,” Bayu said.
“The Bali dream will never die”
“Domestic tourists needed to be enticed further. While quarantine policy hinders foreign tourists, the mandatory PCR test curbs willingness to travel domestically. Those policies needed to be changed if we want to see any substantial recovery,” he added.
Whatever the timeline for recovery is, Csorogi is confident that tourists will return at some point.
“The Bali dream will never die. It’s a place you can move to and reinvent yourself. People come here for a two-week holiday and end up staying for two months. That won’t change.”
Additional reporting by Andreas Ismar
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