• 10 December 2018
Vietnam: When The Novelty Wears Off, It’s Time To Invest

Vietnam: When The Novelty Wears Off, It’s Time To Invest

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How many times have you been told that Vietnam is a hot, new, up-and-coming, must-see destination? I know even we mentioned something exactly like that just three months ago – but does the latest data suggest we might be wrong? After all, the average arrivals growth rate has been in decline since 2010, while the actual number of arrivals themselves dropped 14% in Q1 of 2015 compared to Q1 2014. Accountants might also point out that RevPAR and ADR for hotels in Hanoi and Ho Chi Minh City are in last and second-last place respectively on the regional league table.

Trends and Transition

In our view, the numbers and their underlying trends do say we’re wrong – but in a good way. Back in 2009, Vietnam was beginning to implement economic reforms, and the country welcomed around 3.8 million visitors. It definitely was up-and-coming. By last year, however, arrivals had more than doubled to 7.9 million as foreign investment in infrastructure improved connectivity and more foreign branded properties opened their doors. The tourism growth rate might be in decline, but that’s only because when you steadily add a million visitors every year, the percentage increase growth falls as the baseline gets higher. Rest assured the trend that matters is heading in the right direction.

Even the latest 14% drop has its silver lining. The missing visitors are mainly Chinese, temporarily deterred by squabbles over the South China Sea, and Russians who are currently broke. By either coincidence or design, the Vietnamese government’s response to this shortfall has been to finally do what IATA and countless potential visitors have been urging, and extend the list of nationalities who no longer require visas for short holiday visits. This may well signal the entry of Vietnam into the next phase of its tourism development.

Repeat Business

Undiscovered gems usually go mainstream eventually, and one of the key factors behind this switch is the proportion of repeat visitors. Thailand received 800,000 visitors from the UK alone last year, of which only 35% were first-timers. Vietnam falls well short of those proportions at the moment, but research shows that three things in particular can make visitors come back time and again.

The first key is service quality. This makes sense – once you’ve visited a city and seen the key sights, you won’t come back unless the hospitality experience makes it worth your while. Fortunately, as Western branded hotels increase their Vietnamese market presence, higher service standards and conformity are introduced and become the norm. Other services adding value to the visitor experience include restaurants, casinos, leisure facilities and of course shopping – all of which encourage repeat visits, and all of which are increasingly available.

The second key is length of stay. There is a positive correlation between the number of days the average visitor spends in a county and their likelihood of making a repeat visit, so allowing easier access to Western tourists is a move which grants entry to people who typically stay longer since they’ve travelled further. Vietnam Airlines, with 33 new Boeing 787 and Airbus A350 long haul aircraft on order, looks set to provide a further boost. Regional rivals Thai Airways and Malaysia Airlines both face financial difficulties, so by 2020, when Ho Chi Minh City’s huge, new Long Thanh Airport is operational, the carrier aims to be South East Asia’s second largest.

The final key is the novelty aspect. Developing destinations often appear exciting and mysterious; people like to go just to say they’ve been. Unfortunately, people tend to visit those kind of destinations just the once; there is negative correlation between novelty and repeat business. Changing perceptions will therefore be important for Vietnam as it sheds its novelty status, but the government is already playing its part in marketing campaigns overseas to accomplish this.

All the signs point to Vietnam’s tourist industry continuing to grow, and the details behind the trends say the country is on track to make that transition to attracting those crucial repeat visitors. With prices per room in recent key transactions among the lowest in the region, one of the best investment options might well be Vietnam, right now.

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