25 Feb 2020
Tourism has been among the sectors worst affected by the COVID-19 pandemic. The impact on growth has been particularly severe in economies such as Thailand, Hong Kong and Singapore, due to their outsized dependence on foreign tourists.
The development of vaccines is a game-changer.
Of course, plenty of challenges remain - including limited vaccine supplies, uneven vaccine distribution, the emergence of new virus strains, as well as uncertainty surrounding the duration and extent of vaccine protection and effectiveness. Health protocols and a still dynamic global virus situation continue to pose impediments.
"The prospect of borders reopening and international travel resuming on a material scale has become more promising.”
Although plans for vaccine passports – proof that a person has been vaccinated – are gaining traction in individual nations, it remains unclear how or when an international accreditation system will be implemented and that implies a full-fledged recovery in global tourism remains some way off.
Still, the prospect of borders reopening and international travel resuming on a material scale has become more promising. The speed and extent of the rebound will differ across economies though.
Vaccinations to pick up the pace
Each government’s reopening policy will be an important consideration and this in turn will likely be dependent on the pace of domestic vaccination. Pending clear and strong evidence that vaccines are effective not only for disease prevention but also in significantly reducing virus transmission, governments are unlikely to feel confident about lifting border restrictions until widespread vaccine coverage is achieved domestically. Mandatory quarantine requirements, in particular, pose one of the biggest barriers to the tourism recovery.
While vaccination drives are underway in Asia, most economies will only gain traction in the second half of 2021, partly due to vaccine delivery schedules. Within Asia, Singapore has made the fastest progress and may achieve herd immunity by the last quarter of 2021. Mainland China is planning to inoculate 40 per cent of its population by the end of June 2021. South Korea and Hong Kong are also targeting herd immunity in 2021 but for most other economies in the region, widespread vaccine coverage looks likely only in 2022 at the earliest.
All else being equal, this suggests border controls in most of the region will be lifted only cautiously over this year.
That said, it is possible that vaccinations in tourist hubs will be speeded up to facilitate an earlier but targeted reopening. For instance, Thailand plans to vaccinate around 70 per cent of the local population in Phuket so the resort island can fully reopen to vaccinated foreign tourists by 1 July 2021. Phuket has a population of 400-500,000 (~7 per cent of the population) but its airport accounted for roughly one-sixth of Thailand’s foreign arrivals pre-pandemic. A successful vaccination pilot scheme will accelerate the tourism recovery and could be replicated elsewhere.
The destination economy’s decision to reopen its borders to tourists will only be one side of the equation. Quarantine requirements for returning travellers also matter and this is where the vaccine rollouts in tourism source markets and their international travel policy will come into play.
Israel, UK, United Arab Emirates, US, Europe, Canada and Singapore are among the front-runners in the vaccination race, which will in turn set the stage for them to lift restrictions earlier than others, including for international travel. It is therefore possible tourist flows from these economies will start to resume on a meaningful scale in the latter half of 2021 – these markets collectively account for between 4 and 44 per cent of pre-pandemic tourist arrivals across Asia.
Notably, the latest guidelines from the Center for Disease Control and Prevention (CDC) in the US have cleared those fully vaccinated to travel internationally with no quarantine requirements upon returning to the country. Meanwhile, the UK is proposing a traffic light system for the resumption of non-essential international travel, whereby travellers arriving from destinations in the green list will not be subjected to quarantine requirements.
But for many Asian economies, the pace of the return from visitors from mainland China will be particularly important. However, a “zero-tolerance policy” for COVID-19 cases suggests mainland China may be slow in reopening its borders. A large domestic tourism market also tilts the balance towards erring on the side of caution when it comes to normalising mass international tourism flows quickly. Notably, while China has launched a digital vaccine passport, it remains unclear if the current requirement for a 14-day quarantine for international arrivals will be waived.
In lieu of a broad reopening, “travel bubble” agreements, whereby economies open their borders to each other with no quarantine measures, offer another route for non-essential international travel to resume. The most notable example is the Trans-Tasman travel bubble that will allow for leisure and quarantine-free travel between Australia and New Zealand.
Although attempts to establish travel bubbles in Asia failed to take off in 2020, there has been renewed momentum on this front more recently. For instance, Taiwan and Palau launched on 1 April quarantine-free travel arrangements that have been billed as Asia’s first travel bubble. Taiwan is also reportedly in talks with Singapore, Japan, South Korea and Vietnam about establishing similar arrangements.
Meanwhile, the Hong Kong and Singapore governments are finalising details of a potential restart to their travel bubble, which was suspended at the eleventh hour in November 2020 following a virus resurgence in Hong Kong. The Australian and Singapore governments also appear close to agreeing on a bilateral quarantine-free travel bubble.
As travel bubbles come into play, economies that manage to implement arrangements with their key sources of tourist arrivals are likely to recover faster. For Hong Kong, Singapore, South Korea, Thailand, Taiwan and Vietnam, securing a travel bubble with mainland China – their top source of foreign visitors – will be important to their tourism sector recovery prospects. For Malaysia, the reopening of borders with Singapore will be crucial, given that the latter accounts for 39 per cent of its foreign visitors.
The success of such travel arrangements will in turn hinge on a range of factors including both parties’ domestic COVID-19 situation, reciprocal benefits, vaccination rates, and mutual recognition of vaccine certificates as the discussions for quarantine-free travel lanes are shifting towards including vaccination as a criterion.
Krystal Tan is an Economist and Sanjay Mathur is Chief Economist for Southeast Asia and India at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
25 Feb 2020
12 Nov 2019