Vietnam Tourism Report Q1 2009

Full-Year Growth To Slow Figures released by the Vietnam National Administration of Tourism (VNAT) showed that tourist arrivals slowed significantly in the third quarter of the year. According to latest figures, tourist arrivals in the 10 months to October totalled 3.59 million, representing an increase of only 3.5% y-o-y. Arrivals in October itself were low, at 296,742, an increase of only 3.6% y-o-y. This is a significant drop from recent rates of growth. This arrivals data is well below recent rates of growth. In 2007 visitor arrivals totalled 4.1mn, having grown by 16.0% y-o-y. Such rates had been maintained into Q108, when arrivals grew by 15.7% y-o-y, before slowing to 6.6% in Q208 and declining yet further towards October.

This data bears out our concern that Vietnam will suffer from the global economic downturn, both in terms of regional and international arrivals. We had hoped that particularly low arrivals growth in August reflected the diversion effect of the Olympic Games in China, with tourists choosing to go to China rather than Vietnam to take advantage of the event. However, low levels of growth in October indicate that the sector as a whole is stagnating. In this context, regional tourism will continue to provide valuable support for the industry. Over the first ten months of the year regional arrivals posted the highest levels of growth.

The Philippines grew by 46.1% y-o-y, followed by Singapore, Malaysia and Thailand, with growth of 19.3%, 16.5% and 14.5% y-o-y respectively. By contrast, arrivals from the US and the UK grew by only 4.6% and 0.1% y-o-y respectively. However, with Asian economies also suffering heavily from the global economic downturn, we expect regional arrivals to slow somewhat into 2009. As such, we have downgraded our full-year 2008 arrivals forecast to 3.9 million and our 2009 forecast to 4.1 million.

Investment Boost For Airports The government is pressing ahead with programmes to upgrade and expand the country’s air infrastructure network. Cam Ranh airport, located in the popular southern coastal region of the country, is to be developed and become an international airport, with assistance from foreign consultants. In addition, the airport on the resort island of Phu Quoc is also to be upgraded, reflecting the popularity of the island and the amount of passenger traffic through the terminal. The aim is to equip the airport to handle passenger capability of 2.5 million by 2020, and 7 million by 2030.

Hotel Occupancy Rates Fall In a further sign of slowing sector growth, a report released by property services firm Savills Vietnam in late 2008 indicated that hotel occupancy and price rates are beginning to fall. This was particularly noticeable towards the upper end of the scale, with 4 and 5 star hotels in Hanoi posting drops of 4.4% and 4.8% for average occupancy and room rates respectively. Room occupancy was between 60-70%, representing a significant dip from levels of near 90% in previous years. This indicates that worsening credit conditions are making high-class hotels too expensive for some consumers, encouraging a shift towards medium range and lower end hotels. As a result, high-end hotels are being forced to reduce room rates in an effort to attract more visitors, with the average room rate for a 5 star Hanoi hotel falling to US$145, from US$158 in the 2007 survey.