Southeast Asia is a sun-dappled, balmy region dotted with tens of thousands of islands, mile upon mile of beaches, home to stylish villa resorts. As a scuba diver, I have spent many happy hours in silent meditation drifting across reefs that explode with fireworks of soft-coral color, a marine sky dashed by flashes of reef fish. The Coral Triangle has the world's greatest marine biodiversity.
Life under COVID has reverted to traditional rhythms, fishing and rice farming. The industrial zones around the region's capital cities hum with factories that are back in action. But millions of travelers remain absent, robbing these tourism-heavy countries of a key source of income. While Southeast Asian nations are in quick step opening to international travel here at the end of the year, recovery is perilously slow.
Locking down borders happened quickly last year. Opening them back up comes in stages. But the resumption of travel takes planning and time, a lot of time, meaning Southeast Asian airlines, airports, hotel chains, convention centers, casinos, restaurants and all the supply chains that support them will remain depressed. The Thai baht, Malaysian ringgit, Indonesian rupiah, Philippines peso and Singapore dollar will face sustained pressure, causing problems for any company trying to service offshore debt.
Thailand has been an early mover, with almost total opening of its borders as of Nov. 1, and no surprise. It got 18% of its entire economy from tourism in 2019, according to Statista, an enormous share. Households that lose an entire fifth of their income would end in penury. Thailand's tourism share plunged to 6.8% in 2020, and I'm surprised it hit that, to be frank.
The travelers haven't returned, even though visitors from 63 nations representing nearly 87% of pre-COVID air arrivals can now enter and travel freely if they are vaccinated. Due to its own COVID outbreak, Thailand was forced to knock back its opening several times, having run a "sandbox" test for quarantine-free arrivals on the resort island of Phuket since July 1. Vaccination rollout has also been slow, with 49% of Thais now fully covered.
Nomura has developed what it calls a TRIPTracker, a formula for Tourism Recovery from Inbound International Passengers. It factors in not only the degree of opening in the Southeast Asian nation but also the degree of restriction in the origin nation of visitors, based on how strict quarantine requirements are when you return back home. South Korea, which has eliminated quarantine for vaccinated returning travelers, scores high, while China, the top source of tourists to many Asian nations including Thailand, scores low, because it requires two to three weeks of quarantine that makes fun discretionary travel impossible.
Despite its almost-full reopening, Thailand will hit only 4.9% of normal travel conditions by the end of this year, based on the TRIPTracker. Singapore fares a little better, back to 6.3% of normal travel numbers by year-end. Malaysia will likely see only 1.9% of normal visitation by the end of this month as it starts a pilot test for vacation travel to the resort island of Langkawi and opens full air travel with Singapore.
Malaysia plans to open to international visitors fully by Jan. 1, the chairman of its National Recovery Council said on Thursday. Muhyiddin Yassin cited the country's high vaccination rate - 77% of the population is fully vaccinated, but the figure is around 95% for eligible adults - and the need to help the tourism sector recover.
The absence of foreign travelers has resulted in a very slow recovery, said Muhyiddin, who stepped down as prime minister in August. The country closed its borders last year to international arrivals. He estimates the country has lost US$21 billion in tourism dollars as a result.
Malaysia appeared to have contained the virus pretty well until this summer. But there was an enormous surge in cases from July through October, peaking at just under 25,000 cases per day in August and making Malaysia's outbreak the most severe in Southeast Asia. The wave takes total infections to 2.5 million and deaths to just under 30,000. Per capita, its 15.1 million citizens have been hit twice as hard as neighbors Indonesia, the Philippines, Singapore and Thailand.
All but Singapore have seen a summertime surge in infection wane. Singapore, back in September, was the first country in Asia to say it would learn to "live with COVID." Having driven vaccination rates to 82% of the population, the city-state has opened its borders with vaccination-free travel to 20 nations, including the United States.
There has been a cost. After keeping cumulative deaths close to single figures since the start of the entire outbreak thanks to its world-class healthcare system, Singapore is now posting double-digit deaths each day on most days since mid-October.
Hong Kong remains locked down
Still, I think Singapore has got its response about right. It is in total contrast to the extreme, punishing quarantine requirements that are trapping residents, myself included, in Hong Kong, as I explained at the start of this week. Hong Kong's pretend leadership, where Beijing calls the shots, now says there won't even be a full opening to mainland China until the middle of next year. That means the crazy, unrealistic "zero-COVID" stance it has imported to stay in lockstep with China will likely remain in place at least until Chinese President Xi Jinping wins a third term as leader, which will likely occur next November. Another year in travel lockdown in Hong Kong, in other words.
Singapore will definitely benefit as businesses move jobs away from Hong Kong and look for other Asian bases. It is not reasonable to expect traveling executives to spend two or three weeks locked in a hotel each and every time they go to visit operations elsewhere in Asia, a sentence they must serve in Hong Kong. And expatriate families are opting to leave entirely rather than suffer a life where a family of four is looking at extra quarantine-and-testing expenses of around US$8,000 on top of any travel costs every time they go to see family abroad and then return to Hong Kong.
There's now a bit of a race between Southeast Asian nations to open back up to foreign travel. Thailand's leadership at first stated that they wanted to see a 70% vaccination rate before they opened the borders. But they scrapped that idea when it proved hard to achieve, and Prime Minister Prayuth Chan-o-cha said the country would forge ahead regardless because it didn't want to be left behind by competing travel destinations in Asia. The United States is one of the 63 nations it now approves.
The Philippines is a laggard in opening back up. Tourism Minister Bernadette Romulo-Puyat says this week that it is ironing out details of a charter flight travel link to South Korea. Koreans top the list of visitor markets into the Philippines, with China and the United States next. For now, all foreign tourists are barred.
The Indonesian island of Bali has arguably suffered more than anywhere else. It relies on tourism for half its economy and has been closed to international travel since April 2020, leaving many residents saying they are destitute and desperate. The island welcomed 6.2 million foreign visitors in 2019. For the first half of this year, it hosted a total of 35.
It's not a ball in Bali
Bali reopened to foreign visitors from 19 nations on Oct. 14, with one crucial detail missing: no airline has arranged any flights. Bali, unlike Thailand or Singapore, still requires a three- or five-day quarantine (for one or two vaccine shots) in your resort hotel when you arrive. That deters most travelers who call to inquire about a trip, hotels say. International travelers must also show they have health coverage of at least US$100,000, have at least US$2,000 in the bank, and hold a paid hotel reservation.
Officials in Thailand and Indonesia have both declared that they want to welcome back "high-quality" tourists, by which they mean high-end big spenders. They have disdained backpackers and budget tourists, who previously beat a path around Southeast Asia.
This may be misguided, tourism-industry insiders say. High-end tourists stay in luxury hotels, often run by foreign chains, and with their private planes and airport limos have a far bigger environmental impact per capita. Budget travelers stay in local budget hotels and spread a far greater share of their "spend" around street-level small and midsize businesses. They tend to travel more widely and stay longer, creating a greater trickle-down effect.
Right now, tourism-linked business owners will take any visitor they can get. It will be well into 2022 and perhaps 2023 before significant numbers of travelers return. Three years is a very long time for a travel-linked business to survive on little to no income. So when international visitors return, it will be a very different Southeast Asia those arrivals see.
We're holding a Veterans Day Sale for our Action Alerts PLUS investment club. Get in on the conversation and get the latest investment ideas and trading strategies. For 48 hours, we're offering 30% off with this special sale. Click here and save $150.
