Tourism returns to normal? And deflation?

Found some interesting items today that I wanted to quickly write-up as I work on two larger items.

Source: VN Express

Can domestic tourism take the baton…

First, it looks like domestic flights are back to normal or will be by mid-June, when Bamboo goes to 120 flights a day (up from 80 flights a day, which started today). Vietnam Airlines even said they were above last year’s passenger figures.

And then there’s this:

Some hotels have reached 80-90 per cent capacity and others are completely full, which is a positive sign for domestic tourism, she said.

I would assume that this is just a few number of hotels, and that overall occupancy rates are still quite low. There is probably pent-up demand for airline flights (people going to see family or business meetings that can finally take place). In addition, not all flights were running (and won’t until June 15), so the ones that are open, were busier.

But it seems like domestic tourism is taking on some of the burden of declining international visitors, which is positive.

From the same article, I found this interesting:

Committee's members said that even when international tourism resumes, the destinations would be limited to a certain number of islands in the country, including Phú Quốc in Kiên Giang Province, while public health measures are enforced to ensure the safety of both tourists and local residents.

The committee is the National Steering Committee for COVID-19 Prevention and Control. If they do this, it would be a weird turn of events: special islands that are only for tourists and workers. Sounds like the Shanghai International Settlement or something.

But in the meantime, I don’t see many foreigners showing up, given a 14-day quarantine. So there is no choice but to focus on domestic tourism. Plus, it is very unclear what will happen to foreigners that arrive - right now they get quarantined. This article about what happens if they come and get sick within that 14-day period doesn’t comfort me too much - it looks like they may be on their own. It’s very confusing.

Deflation already here?

One of the reasons why people can travel domestically now is that (if they had a job) they probably saved a lot of money during lockdown. I know I did.

So lots of savings, but companies still wanted to make sales, so there were a lot of discounts. Anything to push their inventory through the system.

Because of that, there is concern that prices overall have fallen. Why is that bad? Well, think of it this way: if you know that something is going to be 10% cheaper in 6 months, you will just wait and buy it then, if you can. It is a vicious cycle with people not buying things because they know it will cost less in the future then waiting even more, and then seeing more discounts.

Not only does demand suffer, deflation also makes debt more expensive as lower wages follow falling prices. Debt burdens become more onerous.

Anyway, May CPI figures came out for HCMC, and they were down 1.38% YTD and 0.33% month-over-month. CPI was up yoy. Some of this is probably because of lower oil prices (they are up almost 100% since their low in April, but are still down for the year). Transport prices fell 2.29% m-o-m, while fuel (among other things) fell 0.97%.

This is something that we need to watch closely. Deflation is hard to break out of, and it can be devastating to an economy. Remember that deflation was a big part of the great depression.