Estimates of the impact of the coronavirus on tourism

So the coronavirus is now a global health emergency, according to the WHO. I assume for the next little while, all anyone will talk about in Vietnam is the coronavirus (even with the Australian Open, the Oscars, the Superbowl, and Brexit all happening elsewhere).

Source: Moody’s Credit Outlook (Hawaii Department of Business, Economic Development & Tourism)

As I suspected, the market fell when it opened today. HCMC was down 3.22% and Hanoi fell 2.04%. Not that I am so smart - it was obvious. In fact, I am surprised the market didn’t fall more than that.

As I mentioned yesterday, there are a number of direct effects that could befall Vietnam. Following up on one - Chinese tourists - I found this chart that looked at the change in tourists to Hawaii during the SARS crisis. Interestingly, the hit to Chinese visitors to Hawaii was severe: -34.6%.

I don’t want to extrapolate this figure directly to Vietnam, but let’s just say it would be extremely bad if the magnitude of the decline in visitors was close to this.

As luck would have it, 2019 figures for foreign visitors to Vietnam are out. There were a total of 18m, up 16.2%. So a great year! And Asia was a big part of this, 80% of all visitors and up 19.1% over 2018. Visitors from Oceana (Oz, NZ) actually declined, while growth from European and American visitors was actually kind of low at 6.4% and 7.7%, respectively. Of course, this would be good growth everywhere else, but not in Vietnam. For example, Thailand only saw a 4% increase to 39.8m, a much slower growth (albeit from a higher base) than Vietnam.

If Chinese tourists drop off like they did in Hawaii (and who knows what the actual figure would be), and visitors to every other country were unchanged, then Vietnam would see a decline of 11.7%. And it is very likely that people are going to be spooked and that visitors from other countries will also fall. Let’s say the number of visitors from all other countries fell 10%, and China fell that 34.6%, then overall visitors would decline 18.5%.

Hospitality building for extremely strong growth

If the number of visitors fall anything like this, it is going to really hurt the hospitality industry. Even if it is just flat, which could be great news if the coronavirus continues through the year. The hospitality industry in Vietnam is built for massive growth every year, so any hiccup is going to drive down income significantly. For example, in 9M2019, 1,114 rooms were added to HCMC, according to JLL. That made total supply 20,200. There are another 1,800 rooms to be added by the end of 2021. All of these new rooms need people to occupy them.

To maintain the current 69% occupancy rate in the new rooms added in 9M2019, you need 350,000 visitor nights (365 x 1,114 x 69% x 1.25 - this assumes 1.25 people per room). By visitor nights, I mean the number of nights all visitors stay. The next 1,800 rooms need 550,000 visitor nights. That’s just HCMC.

Source: JLL

Hanoi has about 2,500 new rooms coming by YE2021. The current occupancy is extremely high at 81.2%, but this is definitely going to fall, even if visitors grew quickly. The city would need more than 900,000 new visitor nights (365 x 2,500 x 81.2% x 1.25) to maintain that occupancy.

Let’s do the same for Da Nang. If everything is actually added, there would be 9,479 new rooms. Currently occupancy is 70.5%. If it was maintained, the city would need 3m new visitor nights! Let’s work backwards (which I love to do). Say you want 60% occupancy in 2022 (assuming no new hotels), then you need to 6m room nights out of a total of 10m possible (based on 28,000 total rooms). To fill 6m rooms, you need 7.7m visitor nights, or a 29% growth from 2019 figures. That’s a lot.

Added together, you need about 4.2m visitor nights just for these three cities. That doesn’t include other tourist attractions like Hoi An, Hue or Nha Trang. These probably add another 2m or so. In total, the country needs something like 6m visitor nights. If each visitor stay 4 nights, that means 1.5 million new visitors, and that’s probably pretty conservative. That was easy in 2019 (+2.5m visitors), but is going to be harder if coronavirus sticks around.

Basically, the Vietnamese hospitality business is being built for massive growth, and if we see even slight impact from the coronavirus, it is very unlikely that these rooms are going to be filled. It is probable that many of these hotel projects will be delayed, especially those that are still in the planning stages (those coming in the latter half of 2021).

This will have a knock-on effect to construction, retail, restaurants, tour companies, among a whole range of others. Let’s hope that the Chinese and the world can get all of this worked out shortly.