Restrictions, lack of inbound travel have limited Southeast Asia’s hotel performance

Southeast Asia sits at the lower end of recovery compared to other STR-defined subcontinents, exceeding only the gains of Northeastern Asia in terms of occupancy and average daily rate (ADR) in 2022. This was due to strict and long-lasting COVID mitigation strategies and the region’s reliance on international travel, particularly from China, which has been slower to resume international flight capacity.

According to OAG data, Southeast Asia was still missing 35% of flight seat capacity during the last week of January 2023 (compared to the same week in 2019). While that was better than the 50% gap of six months prior, it shows both the time it takes to get air infrastructure in place and the importance of flights to the region’s tourism industry. Prior to 2020, China had close to 30 airlines offering many routes into Thailand with more than 17 million seats, and reenabling that capacity will take time. While carriers such as Spring Airlines and Juneyao Air are increasing Shanghai routes into north Thailand, many international airlines are waiting for the approval from Chinese authorities for more routes.

Southeast Asia finished the year with an occupancy level of 53.8%. While this was 15.6 percentage points ahead of 2021, the region remained 14.5 percentage points behind 2019 levels. ADR performance was stronger at $97.71, up 58% year over year and just 6% behind 2019.

The situation showed substantial improvements during the year as countries lifted restrictions and reopened borders. Occupancy continued to recover throughout the year, reaching 96% of 2019 levels in December. The region began to exceed 2019 ADR in September and was 12% ahead of the pre-pandemic comparable in December.

Indonesia and Singapore led the way in terms of recovery of revenue per available room (RevPAR), in many ways thanks to occupancy recovery outpacing the rest of the region. Indonesia was supported by the lifting of COVID restrictions and the resumption of leisure, business, and group travel. Apart from Bali, which relies more on inbound travel, the country stood out first in 2021 with a more progressive stance in terms of restrictions. This enabled decent demand levels led by a strong domestic travel engine, ensuring weekday business remained far higher than that of all other Southeast Asia markets. Rapidly rising CPI driven by increased fuel costs presents some risk looking forward as prices are on the rise.

Singapore saw occupancy come in at 70.7% in 2022 – 14.4 percentage points behind 2019 levels and marginally behind 2021. While recovery has been stronger than other countries in the region, there’s reason to be cautiously optimistic as the nation-state is one of the most exposed APAC countries from a macroeconomic perspective. Furthermore, the 2023 MICE calendar is not as strong as it was in 2022, particularly over H2 2023, which could limit year-over-year demand growth. Alongside MICE, China’s return remains another key headwind for 2023 demand prospects. Outside of China, airlift is improving, and international inbound is returning.

The major recovery story for Singapore was in ADR, which in 2022 sat just 1.3% behind 2019 levels, with rapid growth starting in the second quarter as the market fully reopened. A successful MICE boost and a strong influx of international travelers could finally replace the limited domestic ‘staycation’ business that does not suffice to support hotels. This rapid rate growth has already softened and is expected to moderate further, as occupancy hasn’t increased rapidly enough to support long-term, high-rate growth trends. Additionally, new supply should slightly temper rates as well as the country is projected for 10 hotels accounting for 3,272 rooms to open this year. STR’s latest forecast for the region (November 2022) suggests supply will increase 2.3% in 2023.

While Malaysia has seen both domestic and inbound business progress, it’s important to remember that overall numbers for the subregion are blended and held back by Laos, Myanmar and Cambodia, where international travel has not picked up at the same degree as elsewhere. While Vietnam was able to capture some demand growth, particularly in resorts toward the end of 2022 and over the Lunar New Year, there is still a larger gap as occupancy at the national level came in at a subdued 35.7%, dragged down by the first half of the year.

Country focus: Thailand

Thailand sits at the lower end of the pack for RevPAR recovery due to weaker occupancy, which was 21.9 percentage points below the pre-pandemic comparable. After a full reopening and end to travel-related COVID restrictions on 1 October 2022, Thailand hotel performance started to bounce back. As the country ramped up for high season, performance in December came in substantially ahead of the previous year and just 3.7 percentage points behind 2019 levels. This was partly driven by the lack of inbound travelers from China – Thailand’s top source market.

Cha Am & Hua Hin Area, a popular travel destination for Bangkok residents, saw the strongest occupancy recovery for the year, reaching 80% of 2019 levels. Leisure destinations such as Koh Phangan and Phuket closed the year in the strongest occupancy position. While cities such as Chiang Mai and Bangkok remain behind 2019 for December, both markets saw continuous improvement throughout the year, particularly as peak season progresses

When looking at room rates, it was a more positive story for Thailand. ADR for the year came in at THB3,568, up 1.3% over 2019 and 42.5% year over year. The country recovered across the second half of the year, achieving a 20% premium for the fourth quarter compared to Q4 2019. Pattaya Area and Phuket saw the strongest performance for 2022 compared to 2019, while Chiang Mai and Bangkok just missed out on recovery. For Bangkok, one potential challenge is that rate growth has reached new historic heights, adding to a strong pipeline underway, cost increases and profit margins under pressure.

As we look ahead, key source markets reopening, such as China and Japan, present an upside for Thailand, and eased restrictions are likely to attract long-haul European and North America demand as well. We also expect the continued increase of India as source market, a trend visible pre-Covid with new air routes introduced. This could, apart from spreading the inbound risk profile, also provide an opportunity to disrupt the traditionally strong seasonality seen in Thai resorts.