Digital, Dynamic, Domestic: McKinsey Points Way to Asian Tourism Recovery
Last week, research company McKinsey released a report called Reimagining Tourism: How Vietnam Can Accelerate Travel Recovery. The report is very interesting reading not just for those in Vietnam’s tourism industry, but throughout Southeast Asia where COVID-19 has largely been controlled and where the region’s tourism industry is waiting, increasingly impatiently, for the rest of the world to get its act together.
As we can see from the graphic below, the pandemic had as catastrophic an effect on Vietnam’s inbound tourism industry as it did across the region, with international visitor numbers plummeting from 18.5m in 2019 to 3.5m in 2020. Catastrophic because whilst international visitors only make up a relatively small percentage of Vietnam’s overall tourism figures, with domestic travel dominant, they spend around 10 times more in the country on average than domestic tourists, so tourism revenues were hit hard.
Vietnam’s highly successful, world-leading zero- COVID policy, which has seen the country suffer only 35 deaths, means it is ideally placed to bounce back quickly when tourism recovers, and much of the advice in the McKinsey report also applies to other Southeast Asian nations that have successfully managed the pandemic, including Thailand (91 deaths), Cambodia (4) and Laos (0). McKinsey predicts that, if it follows the right strategy and maintains its low infection rate, Vietnam’s tourism industry can return to 2019 levels as soon as 2024.
The report shares several strategies that Vietnam – and by extension its neighbours – can use to drive tourism recovery, and here are our takeaways from those.
Focus on Domestic & Regional Travel
Vietnam and Thailand in particular have huge domestic tourism industries and, in recent years, there has been a dramatic increase in outbound trips from both countries. This means that, with outbound travel currently impossible, those travellers will travel domestically, increasing the average spend per domestic traveller, and encouraged by an absence of large numbers of foreign tourists and abnormally low accommodation rates – as McKinsey put it, “Shifts in tourism behaviour could result in high-end domestic trips. With borders remaining closed for outbound travel, an increase in domestic luxury trips could occur as travellers reallocate their budgets.” So travel companies need to focus more on domestic travellers and tailor their offerings to them, which will in many cases require a different strategy to marketing to and building itineraries for foreign visitors.
McKinsey also predict that the first international visitors to return will be from neighbouring countries that have managed COVID recovery similarly impressively, such as China, South Korea, Japan, Malaysia and Thailand – all countries who were amongst Vietnam’s top source markets pre-pandemic. So any recovery roadmap for Southeast Asia also needs to focus on attracting visitors from regional neighbours.
Pricing & Packaging
With tourist demographics totally shaken up, and traditional high/low seasons turned on their heads, McKinsey advise travel companies to rethink their traditional pricing strategies in two key ways:
Companies need to think more about bundling services together, to increase revenue and provide better convenience for bookers. We are already seeing hotels in the region offering more creative staycation packages to local travellers, including not just a hotel room but also limousine pickups, spa and gym access, dinner, and even local sightseeing trips, and this kind of creative packaging will be crucial in order to get domestic travellers to travel more, and spend more when they do.
As the report states, “Historical booking patterns and trends normally used as key reference points for price optimisation and yield management may no longer be as relevant.” This means companies will need to use up-to-the-minute data on things such as hotel occupancy and domestic flight numbers, as well as changing pandemic situations at home and abroad, to price their offerings more dynamically in order to maximise yield.
One of the biggest tourism trend in recent years has been the growth of experiential travel, with many tourists – particularly in the luxury and millennial sectors – preferring to spend their money on unique experience over luxury hotels/resorts and the standard tourist itineraries. As McKinsey put it, small local operators are generally a lot more agile than the bigger travel companies when it comes to creating new local experiences, so there is a lot of scope for partnerships; and small local companies with unique local experience offerings should be looking to global platforms such as Tripadvisor, Viator and AirBNBExperiences to boost their reach and revenues.
Also, this trend is not limited to international tourists – domestic travellers are increasingly looking to spend their money on experiences and see their own countries in a new light. Here in Thailand for example there is a big trend for farmstays and homestays, and so operators should be thinking local both in terms of the experiences they offer and who they market them to.
Yes I know, we say this in every blog post, but it’s only because it’s true! And McKinsey agree with us: “The time for digital (really) is now…The pandemic has made the adoption of mobile and digital tools even more essential“. This means not just focusing on online digital booking channels, but also providing more customer touchpoints during the trip (using a mobile app for example, and embracing an omnichannel approach to communication) and also making it easy for customers to change or cancel their trips – such flexibility is likely to be a key driver of customer loyalty in the ‘new normal’.
McKinsey also suggest that governments should be drivers and facilitators of digital transformation, citing the Singapore Tourism Analytics Network (STAN) and the Tourism Exchange Australia (TXA) platforms as good examples of governments connecting travel businesses to technology providers.
To conclude, McKinsey’s report says “Travel players in Vietnam can seek to accelerate the industry’s recovery by capturing emerging growth opportunities domestically as they gradually rebuild international travellers’ confidence.” We believe that applies not just to Vietnam, but to any country that has managed the pandemic successfully and is now able to prepare for tourism recovery – and at eRoam, our technology solution is here to help companies every step of the way. To find out how we can help you digitally transform your business, sell more domestic travel, and easily offer dynamic pricing and packaging online, please get in touch!