Asia Pacific hotel sector 2019: Let the good times roll but headwinds prevail
Published on December 10, 2018
The travel industry looks set to close the year on a high note, thanks in part to the insatiable wanderlust and bounce-back in corporate demand. Tourism arrivals to the Asia Pacific region are expected to grow by 6.0% year-on-year in 2018, continuing a steady period of growth witnessed since 2010, as the middle-income population continues to soar across the region.
The growth momentum is expected to spill over into 2019, rising at a pace of circa 4.5% with tourism arrivals in the region reaching record levels. Growth continues to be mainly driven by China and India with the latter set to expand as its Gross Domestic Product per capita improves along with its robust economic growth.
Revenue per available room (RevPAR) growth in the region is closely correlated to that of economic performance in Emerging and Developing Asia. This highlights the importance of intra-regional and domestic tourism to destinations, the latter of which is sometimes overlooked.
According to STR, RevPAR (in US dollar terms) across Asia Pacific improved by a robust 5.7% year to date August 2018, with China, Indonesia, Thailand and Vietnam being the main drivers. Myanmar and Taiwan were the worst performing markets.
On average, in 2019, we expect RevPAR growth to continue to be impacted by foreign currency movements, together with economic performance and consumer confidence in key source markets. As such, our forecast for RevPAR growth in 2019 is circa 3.5% year-on-year.
As in 2018, continued improvements in low cost airlift and accessibility, together with the improving quality of room stock, especially in emerging destinations should continue to provide a platform for those destinations to attract much needed visitation. This will be supported over the longer term by improved infrastructure over the next few years with five major airport expansions scheduled to come on line including Changi T5, Beijing Daxing, Incheon, Bangkok, Hong Kong and Chengdu.
Rail links and public transport improvements are also set to enhance the visitor experience in some destinations such as the newly opened high-speed rail (HSR) links between Hong Kong and Mainland China, and the Brunei and Malaysia link bridge.
Geo-political risks, trade and the impact on foreign currency movements, pipeline absorption and a pickup in investment in the sector are likely to be the key themes. Having said that, we do expect some bounce back in performances in destinations such as Seoul and Osaka, both of which experienced a challenging 2018.
Recent escalation in the trade war and political impasse between the USA and China is likely to weigh to some degree on business and consumer confidence, thereby tempering demand growth especially if this gets even worse over the medium term.
However, intra-Asia travel and growing domestic markets in the larger destinations across Asia, is likely to continue to underpin demand in the region. On that note, a reminder that hoteliers and their marketing teams should be considering spending more of their budgets on their largest source markets, that is Asian and domestic markets.