The return of international travel is on the horizon, with RevPAR increase across Asia to match the anticipated growth in travel - but will take more to succeed than just a reopening date of markets.
Q4 2021 has emerged as the turning point for international travel after 18 months of lockdowns and other unprecedented movement restrictions as a result of COVID-19.
Recent weeks have witnessed significant shifts in a range of permissions for long-haul travel with the United States (US), United Kingdom (UK), Europe, Singapore and Australia relaxing travel restrictions for fully vaccinated travelers.
The extent of this, however, remains wide, varying from country to country, suggesting the world is no closer to coming up with a cohesive strategy for re-opening of borders.
Whilst the initial uptake for these new permissions is expected to consist of returning expatriates, priority business or personal travel (as the travel community becomes more aware of, and comfortable with, the conditions now linked to international travel in this new phase of recovery), this will likely extend to C-Suite business travel, and eventually leisure.
Australia has eased its border restrictions for the first time since the onset of the COVID-19 pandemic, allowing vaccinated travellers to travel without a permit or quarantine upon arrival
Despite more clarity in relation to the countries that are open for quarantine-free visitations, determining when travel will return to pre-COVID levels for a specific region, country or destination relies on many more factors than an announced re-opening date.
Early models of quarantine-free travel via “travel lanes” or “sandbox” systems have provided a positive – if albeit limited – return to international travel and have primarily served individuals returning to a country for an extended stay or relocation.
To see a significant shift towards the international travel as we once knew, there must be freedom of choice and an element of spontaneity. This is only likely to occur via the combination of critical parts; including airline capacity and flight availability/cost, a globally coordinated and cohesive strategy that is well communicated, reasonable health test protocols and, perhaps most significantly, government permissions for citizens to travel without restriction.
“To see a significant shift towards the international travel as we once knew, there must be freedom of choice and an element of spontaneity.”
To this end, when seeking to determine the likely recovery date for a particular country or market’s tourism industry, one must consider the primary source markets. If there is a solid base provided by domestic demand, such as Australia, Mainland China or Indonesia, we will continue to see prolonged terms of positive market performance in 2022.
For those destinations that have pivoted towards a reliance on Mainland China, any recovery will unfortunately remain some time away as the country continues with its zero-COVID strategy and effectively remains closed to inbound/outbound travel. This is unlikely to change until the government there announces a major shift it this strategy.
As such, it might be a good time to reevaluate the recoveries of some South East Asian and Pacific destinations that have come to rely on consistent, high volume visitation figures from Mainland China, such as Thailand, Vietnam and, to some extent, Singapore.
Holiday destinations relying on high volume visitation from Mainland China, such as Vietnam, may need to re-strategise as Mainland China remains closed to outbound travel
Ironically, despite being the first continent to have suffered the effects of COVID-19, it appears Asia will be last to emerge. Population vaccination rates across the Asia region remain as diverse as the countries that make up its collective.
The recognised threshold of achieving full vaccination for 80% of the adult population will continue to be relied upon as the safe trigger point for lifting restrictions and allowing cross-border travel; however, given the size of individual country populations and issues with vaccine access and disbursement, it appears that frequent short-haul visitations between regional countries may remain 12-to-18 months away.
Despite these various considerations specifically related to travel, the state of both the global economy and the flow-down effects to regional markets will remain the core driver of a return to consistent international travel. The global movement and supply of goods and inflation will be key areas of concern as we enter 2022, along with the cost and availability of power in multiple major markets.
As the world emerges from an economically debilitating two years, the appetite and ability for international travel may be reduced by more immediate financial challenges closer to home.
“The state of both the global economy and the flow-down effects to regional markets will remain the core driver of a return to consistent international travel.”
On this note, the question remains, will RevPAR take flight in 2022? Here's our take:
- Travel across Asia will increase to at least 65% of pre-COVID levels by Q4 2022. We anticipate a slightly slower pick up as the number of flights remain limited, and the focus remains on wealthier, fully vaccinated long-haul source markets. Sporadic outbreaks and lockdowns will continue.
- This will extend to 90% in 2023, with travel hitting or exceeding pre-COVID levels in 2024 and 2025. An aligned approach to travel requirements by airlines and governments will spur growth and confidence, with long-haul and short-haul flights returning to capacity.
- RevPAR increase across Asia to match anticipated growth in travel, underpinned by room occupancy leaps, and as quarantine room rates are phased out. Countries will refocus their target markets, as they have done before, pivoting from one source market to the other as reciprocal lanes open.
- We anticipate RevPAR to reach 65% of pre-COVID levels by the end of 2022, with this improving to 85% by the end of 2023, and a full recovery by the end of 2024.
- Leisure destinations and long-haul destinations will recover first. This will provide a boost to average length of stay and spend.
- Urban to follow, with short-haul and lastly MICE and groups closely behind, tempered only by airlift.
- China inbound/outbound (international) travel to recover last given the current zero-COVID strategy still being adopted by the government there.
On the topic of valuations – it is not as simple as earnings boost will likely push values upwards. Increases in headline inflation, interest rates and bond yields, will likely push yields outwards in the near term.
As such any increase in value is likely to be pulled back by increases in yields – result not much more from where we currently are. This is unless earnings really accelerate in the short-term pulling the recovery forward, with growth outstripping the inflationary pressures, resulting in that coveted sustained uplift in value.
Our caveat – as has been demonstrated over the last almost two years – is that a lot can change in a snap! Nevertheless, more and more governments are prepared to forge ahead, accepting there will be risks in doing so – a la Singapore. It looks like there’s a glimmer of light at the end of the tunnel.
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