Cover Story: Tourism in tatters

TheEdge Thu, May 28, 2020 02:00pm - 3 years View Original


LIKE most tour and travel agencies, Uzaidi Udanis’ Eyes Holiday Sdn Bhd has been severely affected by the ongoing Movement Control Order implemented by the government to curb the spread of coronavirus in the country since March 18. Uzaidi, whose agency deals exclusively with inbound tours from China, saw business slide as early as January when China stopped tour groups from leaving the country.

But he is gradually seeing an increasing number of enquiries from individual travellers who are keen on eco-tourism and adventure tours as China eases its travel restrictions.

“We do not know when the borders will reopen [for international travel] as we need to survive and our overheads are mounting,” he laments. With no near-term recovery in sight, Uzaidi has teamed up with several of his peers to find out whether Pos Malaysia Bhd would like to use their tour vans as delivery vans.

The year started on a bright note with optimism that Visit Malaysia Year 2020 (VMY2020) would turn this year into one of the best for Malaysia’s tourism. The Covid-19 pandemic changed that. Now, hospitality businesses are fighting to survive.

VMY2020 was supposed to bring 30 million tourists to our shores and they were expected to spend a total of RM100 billion. Covid-19 has shattered all hopes of achieving this, let alone the numbers chalked up two decades ago, as the tourism industry has ground to a halt in the past two months.

Recovery is expected to take time. Hotel operators are bracing themselves for record-low average occupancy while the cost of tours and travel is expected to increase. Millions worldwide have had their salaries cut or lost their jobs, curtailing discretionary spending.

The World Tourism Organization (UNWTO), in a May 7 report, estimates that international tourist numbers could fall by as much as 60% to 80% this year.

In the first quarter of 2020, there were 67 million fewer international tourists, which translates into a loss of US$80 billion (RM347.7 billion) in tourism receipts.

Tourism, Arts and Culture Minister Datuk Seri Nancy Shukri, who cancelled VMY2020 soon after assuming her post, is eyeing domestic travellers to get Malaysia’s tourism sector back on track. But will reliance on the domestic market be enough to make up for losses from foreign tourism receipts?

 

Will domestic tourism save the day?

“Covid-19 has delivered a severe blow to economic activities. The travel and hospitality industry is the worst-hit sector,” Maybank Kim Eng senior economist Dr Chua Hak Bin tells The Edge. He says the MCO and border restrictions could significantly reduce foreign exchange (forex) earnings from tourism.

This will have a bearing on the country’s gross domestic product (GDP) growth. “Tourism accounts for 6.1% of GDP. The collapse in tourism by as much as 50% this year could subtract 3 percentage points from GDP,” Chua estimates.

Azrul Azwar Ahmad Tajudin, chief economist at Johor Corp, estimates that Malaysia’s tourism sector could lose, on average, 60% to 70% of business this year, with a severe drop or even zero income for many players in various segments. “This could shave between 2.5% and 3.5% off Malaysia’s overall GDP.”

Bank Negara Malaysia has forecast GDP growth for 2020 to contract 2% year on year, or at best, to grow 0.5%. First-quarter GDP growth came in at 0.7% y-o-y and economists are expecting the second quarter to see a “deep contraction”. GDP grew 4.3% y-o-y in 2019.

“Domestic tourism has a crucial role to play in ensuring the road to recovery for Malaysia’s tourism industry,” Azrul says.

“Internal tourism consumption comprises both inbound tourism expenditure by foreign tourists (51.4% in 2019) and domestic tourism expenditure by local tourists (48.6% in 2019). The Covid-19 crisis and its resulting “new normal” are compelling us to rely even more on domestic contributions to fill the void left by virtually absent foreign tourists,” he adds.

Tourism receipts are the third highest contributor to Malaysia’s forex earnings, after manufacturing and commodities.

Azrul foresees consumers and businesses “unleashing some of their pent-up demand” after being “hunkered down at home for months”.

“Still, there is only so much domestic tourism can do to plug the shortfalls from a plunge in foreign tourist arrivals and foreign tourist dollars.”

Datuk Seri Dr Victor Wee, professor of School of Hospitality, Tourism and Culinary Arts at Taylor’s University, agrees.

He notes that in 2018, Malaysia received RM84.1 billion in international tourism receipts, while the value of domestic tourism expenditure was estimated at RM92.5 billion. This shows that domestic tourism would have to double its value to replace not only the shortfall in tourism receipts from domestic tourists but the loss from international tourists. “This is not attainable in the short run,” he says.

Nevertheless, this is offset by the fact that fewer Malaysians will be travelling abroad for the time being, owing to global travel bans, strict quarantine protocols and lack of confidence in air travel.

Maybank Kim Eng’s Chua says with the drop in the number of Malaysians travelling abroad, whose spending make up a huge amount in forex, “the net impact on forex earnings will therefore be small from the MCO and border controls”.

According to the Department of Statistics, outbound tourism expenditure — spending by Malaysia’s residents while abroad — stood at RM41.3 billion in 2018.

 

When should the now-cancelled Visit Malaysia Year be held?

All three tourism experts believe the outlook for the country’s tourism sector will depend on how the virus is contained, if and when there is a cure, and when governments around the world lift their border controls.

“This has turned out to be a watershed year for the industry. Without serious adjustments in the industry post-Covid-19, it will be difficult to get back to pre-coronavirus tourism numbers,” says Wee, who was formerly the secretary-general of the Ministry of Tourism and chairman of the Tourism Promotion Board of Malaysia.

“People do not want to return from a vacation only to discover that they have contracted the virus during their trip,” he adds.

Last week, the International Air Transport Association (IATA) said when the recovery begins, it is expected to be led by domestic travel.

However, the airline grouping notes that the damage to air travel extends into the medium term, with long-haul or international travel being the most severely impacted. It does not expect global passenger demand to return to 2019 levels until 2023.

The UNWTO Panel of Experts survey also shows domestic travel demand recovering faster than international demand. It says some are expecting to see signs of recovery by the final quarter of this year but mostly in 2021.

The international tourism body also outlined three possible recovery scenarios based on the gradual reopening of international borders and easing of travel restrictions in early July, early September and early December. In each of the scenario, the impact is expected to be -58%, -70% and -78% — the later the borders are opened, the bigger the plunge in business (see chart).

The estimated impact: 850 million to 1.1 billion fewer international tourists, loss of between US$910 billion and US$1.2 trillion in revenue and loss of 100 million to 120 million in direct tourism jobs.

Back home, Maybank Kim Eng’s Chua says border controls will likely be the last of any progressive relaxation of measures, even after the pandemic curve is flattened.

He adds that in terms of jobs, there are about 56,000 people employed in hospitality. Potential job losses in the sector could be as high as 10,000 to 15,000, given how severely air travel and tourism have been impacted.

Assuming a vaccine is widely available by mid-2021, coupled with the possibility that some countries may still have quarantine requirements and travel restrictions, which will be an impediment to any tourism recovery, Chua thinks that VMY may need to be postponed to 2022 as travellers will be reluctant to fly for fear of catching the virus.

Azrul concurs, saying, “Tentatively, the earliest the next VMY should be held is in 2022, the year when the return of global GDP to normal, pre-coronavirus levels is anticipated, hence a more meaningful recovery in global demand for goods and services in many industries including travel and tourism.”

However, Wee says there are other considerations to be made before deciding on VMY. “We can hardly think of having VMY without evaluating and understanding the impact of Covid-19 on the tourism and travel industry and the adjustments it would have to make as a result. We need to put aside the idea of mounting big-budget nationwide tourism campaigns because they may not yield the outcome and tourist receipts that we desire.

“Of the three VMY campaigns that we undertook in the past, only VMY2007/08 was really successful in terms of arrivals and tourist receipt. VMY2014 was affected by the twin tragedies of MH370 and MH17, and VMY2020 by the Covid-19 outbreak.”

Wee says the industry needs to return to the basic building blocks to see how it can strengthen and upgrade itself after being seriously hit by the Covid-19 outbreak and lockdown. “Travel agents and tour bus operators have had no business for months and face financial pressure on their businesses,” he notes.

Going forward, he expects pent-up demand from people ready to travel once restrictions are lifted, which could lead to higher airfares. “However, travel operators will be prepared to cut prices to attract more customers, but this may be at the expense of quality.

“Thus, the tourist and travel industry requires strong assistance for business sustainability and recovery from the damage. The entire industry must adjust to the new normal before it can open for business on a big scale.”

In the meantime, with consumer confidence in air travel still shaken and concerns over the lack of job security, salary cuts and loss of jobs, it remains to be seen whether there will be a lift in spending on domestic holidays.

 

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