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Hotels & Hospitality Group | July 2017 Vietnam Spotlight on the Accommodation & Tourism Industry CHINA Sapa Hanoi Halong HAINAN ISLAND Yangon Hue THAILAND Foreword Danang Hoi An Vietnam has undergone an astonishing 30 years of development. The World Bank's outlook for the Vietnamese economy remains highly positive, with average GDP growth of around 6% forecast CAMBODIA annually until 2020, whilst Oxford Economics forecast that by Nha Trang Dalat 2020 Vietnam’s economy will be growing faster than China, Indonesia, Malaysia, Philippines, Singapore and Thailand. GULF OF Phan Thiet THAILAND Economic and political reforms have spurred rapid growth, previously high inflation is now under control with the average Ho Chi Minh City inflation rate in 2014 – 2016 standing at 2.5% and the exchange Phu Quoc rate being stable over recent years. These factors continue to transform the country, with the middle class expected to grow by 18% from 2016 – 2020, providing one of many catalysts for the rapidly growing tourism industry. Vietnam's wealthiest are also set to get much richer. In fact, the dramatic growth of "Ultra High Net Worth Individuals" in Asia (which is typically regarded as someone with a net worth of above USD 30 million) is set to be reinforced by stellar growth rates in Vietnam, which is expected to see its ultra-wealthy population rise by the highest rate of growth in the world. Hanoi Vietnam’s rapid economic development has been led by Capital of Vietnam an industrial renaissance, particularly as multi-national manufacturers look to diverse their operations across developing Asia in a so-called ‘China + 1’ strategy. The political stability, pro- business environment and ‘golden age’ demographics which see 2 25% of the population being between 10 and 24 years of age has km attracted a range of investors from neighbouring Asian’s nations including South Korea, Japan, Taiwan and Singapore. Land310,070 Area In terms of Vietnam’s accommodation demand, there were over ten million international arrivals into the country in 2016, a 26% increase on the year prior. This is the first time Vietnam welcomed over ten million foreign visitors, reflecting the country’s growing status as a business destination and tourist 94.4 million hotspot, this is set to double by 2020. Resident Population in 2016 The industrial renaissance has driven corporate demand for hotels across the country, whilst visa exemptions, the introduction of new direct air routes and improved marketing efforts have boosted the country’s appeal to leisure travellers. Like much of Southeast Asia, leisure demand has been driven by USD Mainland Chinese tourists which hit a record last year in terms of million arrivals growth. 2016 205.3Norminal GDP 2 Vietnam recently announced it would renew its 15-day visa exemption policy for citizens of Germany, France, Britain, Italy and Spain until the end of June 2018, whilst the majority Forecast International Arrivals of Asian nations are already visa exempt and some other European countries are also exempt. 20,000,000 The first five months of 2017 saw the country welcome over five million international travellers according to the Vietnam National Administration of Tourism (VNAT), increasing 26% 10,012,735 over the same period last year. The country appears on track to 11,500,000 meet its annual target this year of 11.5 million foreign visitors. We cannot discount the mammoth growth of domestic tourism 6,014,032 and what it also means for the country's hospitality sector - complimenting foreign arrivals. In 2015, Vietnam recorded 57 million domestic visitors which was an astonishing 48% growth on the previous year. The domestic tourism stimulus program, themed “Vietnamese travel in Vietnam – Each journey to love the fatherland more” was launched in 2014 and has heavily 2011 2016 2017F 2020F contributed to the increase of locals travelling domestically. Many local tourism organisations and operators supported the program by boosting advertising and marketing activities. In addition, Vietnam Airlines, Vietjet Air and JetStar Pacific joined the program, offering discounts to various destinations which has underpinned the tremendous growth in airlift recognised over the past two years. Vietnam's growing tourism and thriving economy have promoted the hotel and resort market with foreign investors from across the region showing significant interest in Vietnam over the past 18 months - the country has become one of the most talked about markets in Asia Pacific. After the recent rebranding of Hoi An’s The Nam Hai, which is now under Four Seasons management, an ever increasing range of resort locations are expected to gain greater attention from international hotel operators, whilst investors continue to circle for deals. Largest Source Markets (2016) Highest Growth Source Markets (2016) 2,696,848 67.5% y-o-y 51.4% y-o-y 1,543,883 51.4% y-o-y 38.7% y-o-y 740,592 38.7% y-o-y 10.3% y-o-y 3 Infrastructure Investment Vietnam’s rapid economic development has been underpinned by significant infrastructure and transport spending. In a country famous for its motorbike usage, automobile sales have surged in recent years, as wealth has grown and tariffs on cars have been reduced. Car sales reached 304,427 in 2016, a 24% increase on the previous year. Recognising this demand, the 2020 Transport Master Plan is targeting to construct 2,000 km of highways, including the much anticipated North-South highway linking Ho Chi Minh City and Hanoi, which is envisaged to complete in approximately three years. Further, the addition of numerous over-passes in both Hanoi and HCMC is accommodating the ever increasing number of vehicles on the roads. Mirroring the activity occurring on ground, Vietnam's skies are Infrastructure Spending seeing brisk transformation. Majority state-owned Vietnam Airlines was the second airline in the world to be operating as a % of GDP both the Boeing 787 Dreamliner and the Airbus A350-900. China % Whilst VietJet Air has transformed the low cost carrier scene 6.8 in Vietnam, the group which operates both domestically Vietnam 5.8 % and internationally alongside competitors including JetStar, placed an order for 100 Boeing jets in 2016 as it targets to India 5.5 % operate 200 aircraft by 2023. Indonesia 2.6 % The precipitous growth rate in demand for air travel is unlikely Myanmar % to slow. AirAsia boss Tony Fernandes is said to be planning 2.5 the launch of AirAsia Vietnam to tap into the increasing Singapore % spending power. To cope with this growth the government 2.3 is investing heavily on its airport infrastructure in both the Philippines 2.3 % financial hubs of Hanoi and Ho Chi Minh City, as well as in Malaysia coastal resort areas and provincial cities across the country. 1.8 % Thailand 1.6 % 4 Source: Asia Development Bank 5 Road Rail & Metro Hanoi’s opening of the Noi Bai–Lao Cai expressway in 2014 has A high-speed railway between Ho Chi Minh City and Hanoi is drastically improved connectivity and reduced travel times being considered in a bid to significantly reduce travel times and between Hanoi and Lao Cai. The road is part of the Kunming – provide an alternative to flying. There are also plans to update Hai Phong Transport Corridor linking Vietnam with China, that the country’s existing railway system to increase travelling speeds also includes the recently completed Hanoi – Hai Phong Highway to 80-90 km/h from the existing 60-70 km/h. which has reduced the travel time between the capital and the Enhancing the already popular Ho Chi Minh City – Phan Thiet strategically important port city from 2.5 hours to 1.5 hours. Mui Ne route, a new five-star service was launched in March 2017 Further expressways have been built providing direct connectivity which will increase domestic and international arrivals to the between the major industrial zones of Bac Ninh and Thai Nguyen. coastal destination. These investments will continue to dramatically enhance the With a total of eight lines, construction is now underway for industrial landscape and potential of northern Vietnam, as well Hanoi’s first metro system, of which six lines are expected to be as potentially facilitating overland travel for Mainland Chinese fully operational by 2030. Upon its commission, the pilot Nhon- tourists into Vietnam. Hanoi line is expected to transport around 157,000 passengers a In Ho Chi Minh City, an upgrading and widening of National day, reaching full capacity of up to 750,000. Highway 22 has been proposed. A new expressway running Ho Chi Minh City’s first metro system is also underway, with two parallel to the Highway has also been recommended. Once of the eight planned lines scheduled for completion in three completed, the expressway, together with National Highway years. Metro Line 1 will connect Ben Thanh Market and Suoi Tien 22 and belt roads No.3 and 4 will better connect Vietnam with Theme Park, linking Districts 1 and 9. Metro Line 2 will connect Thailand and Cambodia. Districts 1, 3, 10 and 12 as well as Tan Binh and Tan Phu Districts. Also on the outskirts of Ho Chi Minh City, the new HCMC – Long Thanh – Dau Giay Highway has dramatically reduced travel times to Phan Thiet Mui Ne – a journey know to often take 5 – 6 hours can now be completed in less than 4 years. A further extension of this highway has been proposed which will further reduce travel time. Air Expansion plans are underway for a “Noi Bai 2” airport in Hanoi accommodate greater tourism demand in the Hai Phong region, which will allow for 35 million passengers a year by 2030 and renowned for its proximity to Ha Long Bay.