Report Summary

Q108 Arrivals Surge

Figures released by the Vietnam National Administration of Tourism (VNAT) show that tourist arrivals increased dramatically in the first quarter of 2008. In total, visitors in Q108 reached 1.29mn, representing a 15.7 y-o-y increase. Visitors in March 2008 totalled 424,954. While this represented a month-on-month decline from February 2008, we attribute this more to a statistical decline following a high number of tourist arrivals during the Lunar New Year in February rather than to a slowdown in the booming tourism industry. Indeed, a mark of Vietnam’s success in attracting visitors specifically during the Lunar New Year was the unusually high proportion of visitors from within the Asia-Pacific region. In Q108 arrivals from China comprised by far the greatest amount of tourists entering Vietnam, totalling 216,857 over the quarter, an impressive 60.2% y-o-y increase. By way of comparison, visitors from South Korea comprised the next largest group, with 141,431 visitors in Q108, actually a slight y-o-y decline. Other visits from within the region also increased; arrivals from Hong Kong increased 32.5% y-o-y to 1,658, while visitors from Thailand rose 34.5% y-o-y to 52,543. Of particular note were arrivals from the US, which increased 7.9% y-o-y to 133,019, the third most important source of tourists. Given that the US economy continued to slow in Q108, we view it as a positive signal that tourism flows remained relatively strong. While this may indicate that Vietnam’s tourism industry may not be as significantly impacted by the US slowdown as we had feared, we would caution that the time-lag between booking holidays and arrival may mean that the impact is felt more towards the middle of the year.

Domestic Tourism Boost

As well as the industry’s early resilience to the US downturn, we expect domestic tourism to act as a mitigating factor in any potential slowdown of US arrivals. As such, the traditional two-day holiday at the end of April, this year falling on 30 April and 1 May, should have boosted domestic tourism statistics for both months, boding well for Q208 figures. Early indications suggest that domestic travel on these dates was well above normal figures, with bus companies in the south estimating that departures were twice the normal level at this period. As usual, movement was particularly marked from north to south, with the majority of domestic tourists either heading to the Mekong Delta or to the central cities of Hue and Da Nang. Domestic tourism was boosted by regional efforts to attract tourists, particularly in the form of locally-organised festivals.

Hotel Rates Rise

Despite the government’s long-standing aim to increase room capacity in the country, room supply still remains well below demand, notwithstanding the flood of private hotel investment. In particular, room rates rose by an estimated 40% y-o-y in 2007, with particular increases seen in high-profile tourist destinations such as the southern island of Phu Quoc. The government estimates that Hanoi in particular requires an extra 13,000 rooms by 2011 in order to meet demand. As yet rising room prices do not appear to have dented the market’s attractiveness. However, with the industry increasingly reliant on domestic arrivals to fuel growth, higher rates could have a drag effect on industry growth in the medium term.