Hotels: A market-sizing exercise
/The hotel market in Vietnam is going through a phase of exuberance, but for good reason. There were 15.5 million visitors to the country in 2018, doubling the number from just 3 years ago.
SOURCE: THAI TOURISM WEBSITE
And the country wants many more tourists. It has a target of 20 million in 2020. That would represent 13.6% compound annual growth rate (CAGR).
All of these visitors will need hotel rooms, and there is a lot of building activity to accommodate them. According to STR, Vietnam has 781 hotels with 93,261 rooms currently and 124 hotels with 38,683 rooms in the pipeline.
There are a few questions that I thought were important to answer:
First, how long is this growth of tourists going to last? Second, is this too much supply in the short term (2020)? Long term, how much supply will there need to be? How much is it going to cost to build all these hotels? And what could be the potential return at different times and for different hotels?
Let’s take it step by step.
Can Vietnam reach 20 million visitors by 2020?
AN AGGRESSIVE SCENARIO: TOURISTS REACH 35M IN 2025 - PREPRESENTING 12% GROWTH; SOURCE: VIETNAMESE GOVERNMENT, VIETECON.COM ESTIMATES
A CONSERVATIVE SCENARIO: TOURISTS REACH 30M IN 2025 - REPRESENTING 10% GROWTH SOURCE: VIETNAMESE GOVERNMENT, VIETECON.COM ESTIMATES
The first question is to ask how many visitors will Vietnam have in 2020 and 2025. We know the government is expecting 20 million, but that is a pretty fast growth rate (13.6% for two consecutive years). Looking at historical growth rates, 13.6% is actually somewhat low. From 2010 to 2018, foreign tourists grew 15.4% annually. Looking at Thailand, which is a good comparison, it took 7 years to get to 15m but then only 2 more to get to 22m. Visitors reached bit over 35m in 2017 and were on trend to exceed that in 2018 (28.5m visited in the first 9 months of 2019).
A CONSERVATIVE SCENARIO: TOURISTS REACH 30M IN 2025 - REPRESENTING 10% GROWTH SOURCE: VIETNAMESE GOVERNMENT, VIETECON.COM ESTIMATES
So, it appears that making it to 20 million by 2020 is very doable. Especially since strong economic growth should drive business visitors as well.
But what about 2025?
But now to the question of 2025. It is much harder to say what will happen through 2025. The government is committed to bringing in more tourists. It wants the investment (there is a lot of foreign investment in the tourism sector), plus it is a big job creator, and much of it isn’t so skilled. Because of all of this, government support should be there.
Then if we look at Thailand again, the country did 12% annual growth from 2010 to 2017, growing from 16m visitors to 35m. At this point, it seems like we could take 2 different data points and look at the impact of either of them. The first would be that foreign tourists would grow from 15m in 2018 to 30m in 2025, representing a 10% CAGR. The higher estimate of 35m would represent an 11.8% growth rate.
As a check, I also looked at the potential flights available (I did a blog piece about airplane capacity, scroll down to see it). It seems pretty clear that if the airlines add as much capacity as they have said they will, there will be plenty of seats. And we think something like 100m passengers is doable by 2025, which would include just a portion of these international visitors (not all of which come by plane). Plus, the government is targeting 13% annual growth into 2030 to reach 280m passengers. There would be plenty of space if we do reach 35m international visitors in 2025.
So tomorrow, we will build off these figures to see how many hotels the countries can handle.