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Travelers return to Southeast Asia but inflation could hurt recovery

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After greater than two years of lockdowns and border controls, Southeast Asia is finally experiencing some semblance of the old days of travel.

Flights are steadily returning to 2019 levels within the region’s major economies, with Singapore, Thailand and Malaysia being the most well-liked destinations this 12 months, in line with the flight data analytics firm Cirium.

In Singapore, which had probably the most inbound flight bookings within the region this 12 months, bookings rose from around 30% of 2019 levels in January to 48% by mid-June. The Philippines also saw a pointy uptick in bookings, from about 20% at first of January, to almost 40% by mid-June, in line with Cirium.

Tourism is a key moneymaker for Southeast Asia, a region which saw international visitors greater than double from 63 million in 2009 to 139 million in 2019, in line with the United Nations World Tourism Organization.

The industry accounts for around 10% of gross domestic product in Vietnam, Singapore and Malaysia and between 20% and 25% of GDP in Thailand, Cambodia and the Philippines, in line with a May 2022 report published by the Asian Development Bank.

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Cirium’s chart on absolutely the variety of flight seats booked in 2022 in Southeast Asia and Nepal.

The pandemic “was probably more devastating in Southeast Asia than the remainder of the world [because] governments kept the borders closed for nearly two years,” said Gary Bowerman, director of the travel research firm Check-in Asia. “There have been even restrictions on domestic travel.”

“If you happen to compare that to North America or Europe, for instance, in each years 2020 and 2021 … they’d some tourism and travel flows,” he said.

Changing travel habits

Most countries in Southeast Asia — including Singapore, Thailand, Indonesia, Malaysia, Vietnam, and the Philippines — have stopped requiring fully vaccinated travelers to take Covid-19 tests before traveling.

After Singapore dropped its pre-travel testing requirement in April, business has been “picking up fast and furious,” said Stanley Foo, founding father of the local tour operator Oriental Travel & Tours. He said travelers are booking longer trips and spending greater than before too.

Before the pandemic, the corporate received around 20 tour bookings per week, mostly for tours lasting three to 4 days. Now, its handling 25 bookings per week, some for trips as much as 10 days long. Average expenditures on customized tours rose from around $2,000 per person before the pandemic to $4,000 to $6,000 today, said Foo.

“It’s due to revenge traveling,” Foo said. “They’ve saved up enough for the past two years.”

Since tourists are spending more time in Singapore, Foo and his team of tour guides are taking clients to places outside the standard tourist itinerary — to the suburbs to look at residents do tai chi and to order coffee at hawker centers “the Singaporean way,” he said.

Joanna Lu of Ascend by Cirium, the corporate’s consultancy arm, said persons are spending more time planning their journeys too. They’re “ensuring they’re covered for unexpected changes,” she said.

Not your usual tourists

Tourists contacting Foo are from everywhere in the world, especially Southeast Asian countries, he said.

That is in stark contrast to his pre-pandemic business, when Chinese nationals were amongst his company’s biggest client groups, said Foo. China continues to “strictly limit” non-essential travel in a foreign country.

With China largely closed, tourism operators in Southeast Asia will goal Japanese, South Korean, and specifically, Indian, tourists to make up for the shortfall of Chinese visitors, said Check-in Asia’s Gary Bowerman.

Sajjad Hussain | Afp | Getty Images

In 2019, visitors from China made up greater than 30% of tourists to some Southeast Asian nations, in line with the Asian Development Bank, a fact which makes China’s prolonged border closure much more painful for the region.

“The traffic decline in China has deepened in April as strict travel restrictions limit air travel in, to and from the country,” said Lu, adding she doesn’t expect the situation to alter soon.

John Grant, chief analyst on the travel data company OAG, said Asia’s travel recovery lags behind other continents’ due to its reliance on international visitors, particularly from China, in addition to the various reopening strategies within the region.

Southeast Asia has about 66% of flight capability — measured by scheduled airline seats — compared with pre-pandemic levels, in line with OAG. Europe and North America are back to around 88% and 90% of pre-pandemic capability respectively, OAG’s data showed.

Cloudy skies ahead

Southeast Asia’s travel recovery faces other global headwinds too: rising costs and rates of interest, inflation and a possible recession.

Jet fuel prices in early June were up 128% from a 12 months ago, in line with the International Air Transport Association. Airlines are increasing fares in consequence, but “no less than to this point it doesn’t appear to have impacted demand since people have two years of pent-up demand,” said Grant.

But that might quickly change if fuel surcharges coincide with inflation eating into travelers’ discretionary spending, he said.

Rising rates of interest will likely devalue emerging economies’ currencies against the U.S. dollar, making imports dearer and reducing how much travelers can spend on non-essentials like holidays, said Bowerman.

Despite these forces, travel insiders say most individuals aren’t canceling their plans just yet.

Expedia’s Asia head of public relations Lavinia Rajaram said Singapore-based travelers are already planning year-end holidays, while others are booking trips for the quieter months of September and October.

Plus, if airlines get their flight capability back to pre-Covid levels, air ticket prices may normalize, Rajaram added.

Foo said he expects to see more conventions and exhibitions being held in Singapore within the second half of the 12 months, where firms may engage agencies like his to conduct side tours for business visitors.

Where are the employees?

Even when Southeast Asia continues to draw streams of tourists, air carriers could have to show them away if they can’t find enough staff to service their flights.

Many staff within the air travel industry left or were laid off through the first two years of the pandemic. The aviation industry had 50% fewer jobs at the tip of 2021 compared with pre-Covid times — from 87.7 million to around 43.8 million — in line with the worldwide air transport association Aviation Advantages Beyond Borders.

Flight cancelations, delays and crowded airports are frustrating the summer travel season in Europe and North America. Low wages have made working at airports and airlines unattractive, and staff in Europe are striking against low pay and poor working conditions.

The travel chaos in other parts of the world that has yet to hit Southeast Asia is a situation officials within the region hope to avert.

Singapore’s Changi Airport Group desires to fill 250 vacancies by year-end, in line with the agency. Singapore Airlines has chosen greater than 800 cabin crew from several thousand applications, which is “three to 4 times more” than it received in pre-Covid days, the airline said in an email to CNBC.

The Malaysian Aviation Commission told CNBC that local airlines are “actively in search of to recruit,” but “demand for air travel stays uncertain as Malaysia progresses into the endemic phase of Covid-19.”

Singapore Airlines said passenger capability averaged around 61% of pre-pandemic levels in the primary quarter and expects an increase to 67% within the second quarter of 2022, the airline said in an announcement in May 2022.

Roslan Rahman | Afp | Getty Images

But there have been signs of cracks. In April, Changi Airport Group needed to retime some flights over a four-day long weekend due to a staffing shortage, in line with local media reports.

Malaysian media reported that about 1 in 10 domestic flights that flew through the Hari Raya Aidilfitri celebratory period in late April and early May were delayed, partly due to an absence of staff.

Mayur Patel, OAG’s regional sales director for Japan and Asia-Pacific, said airlines have been denied additional slots to land or take off because airports didn’t have enough manpower to accommodate the additional flights.

“I feel the plan is to get back to pre-Covid levels but with [the] China uncertainty, this might be … tricky,” said Patel.

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