McKinsey: Six Actions to Jump-start Vietnam’s Tourism Recovery

3:04:56 PM | 4/7/2021

McKinsey & Company recently published a report “Reimagining Vietnam’s travel & tourism recovery” in the Future of Vietnam series, which explore topics that will shape Vietnam’s future growth. This article is derived from the report mapping out a way forward for the country’s travel and tourism companies with six actions that Vietnam, and other countries operating in a zero-case-first market approach, can take as they embark on this road to recovery.

1. Focus on domestic travelers

Local demand can be revitalized by focusing on emerging destinations with the joint cooperation of local governments, online travel agencies, attractions, hotels, and airlines. Outdoor tourism that involves sunshine, beaches, mountains, and nature were among the top choices for Vietnamese travelers after the lockdown was lifted in mid-May last year, and airports at the two big travel hubs of Ho Chi Minh City and Hanoi were busy. To further tap into the domestic opportunity, operators will have to focus on affordability while striving to maintain high-quality products and experience.

2. Consider new pricing models to rebuild demand

Rebuilding demand and propelling volume, through discounts and presales, are key tactics during the early stages of recovery, especially for high-end operators that will not be able to tap into international demand for some time. However, the crisis has also forced operators to set aside their existing commercial playbooks. Historical booking patterns and trends normally used as key reference points for price optimization and yield management may no longer be as relevant. In this context of depleted demand, the paradox is that while price cuts are necessary, they could also be dangerous. In this light, companies can also explore opportunities to bundle products—which can offer upselling and cross-selling opportunities—as well as diversify their revenue stream and enhance premium product and pricing.

As demand grows and confidence increases, operators will naturally be inclined to revert to a more dynamic pricing model, based on indicators such as hotel occupancy and domestic-air-travel passenger numbers—and how they grow toward achieving pre-pandemic levels. That will then give companies an opportunity to refine optimal pricing mechanisms, especially around key domestic holidays such as Lunar New Year (Tet).

3. The time for digital (really) is now

Even before the pandemic, consumer reliance on digital for travel-related bookings had been growing. In 2018, online travel activity made up 19 percent of the total tours and activity market size. The pandemic has made the adoption of mobile and digital tools even more essential. Strategic collaborations—such as online travel agencies providing ticket-booking services via instant messaging and social-media platforms—could offer an opportunity for increased market penetration.

At the same time, travel companies should revamp their online touch points and experiences to improve customer experience. This is already starting to happen: the website of the Vietnam National Administration of Tourism (VNAT) has virtual tours for its most popular destinations, and some tour guides have organized real-time online tours for international customers. In addition, a commercial titled, “Why not Vietnam” aired on CNN in October 2020 to drive international traffic to the website, and on the domestic level, a reality show with the same name offered up weekly online travel photo contests to engage viewers.

Furthermore, companies could also think about placing digital tools in new places within the customer journey. They must recognize that factors promoting customer loyalty may have changed; near-term uncertainty may mean, for example, that the ability to cancel a reservation matters more than brand choice or price. Taking this into account, companies could empower customers to build their own itineraries using connected digital tools that make it easier for them to modify or cancel their plans. Solutions and policies that provide choice and control will help build the long-term trust and confidence necessary to get travelers back on the road and in the air.

4. Lay the groundwork for inbound demand

Currently, Vietnam has strict travel restrictions in place and allows only a select number of weekly international flights for travel by experts and diplomats, who are subject to mandatory quarantine on arrival. Vietnam needs to protect the status quo of having near-zero rates of COVID-19 cases and cannot risk opening its borders freely until herd immunity is reached, most likely through mass vaccinations. Thus, it could take some time before inbound foreign tourism returns at scale. In the meantime, there might be some opportunity to pursue more gradual and less risky measures. For instance, there have been discussions about establishing travel bubbles to allow travel between other countries with zero or near-zero transmissions, such as Australia, China, and Singapore.

To capture early outbound demand, travel players could benefit from tracking the development of travel bubbles. This is especially relevant for Vietnam, as the majority of tourists to Vietnam are from nearby regions with strong economic ties and relatively low transmission rates.

In this context, travel companies will need to be flexible and nimble to capture early international-travel demand—and should be prepared to implement strict health and safety protocols that fulfill the stipulations of both domestic and destination security policies. That said, betting on travel bubbles cannot in itself be a strategy in the short term, as international arrivals are expected to remain low in 2021, and foreign demand will not return to 2019 levels before 2025.

5. Reinvent the traveler’s experience beyond accommodation—and ‘redistribute’ tourism investments toward unconventional and more diverse destinations

Tourism spending is shifting away from accommodation to activities—a trend that holds true for Vietnam. Instead of spending on luxury accommodations, travelers are saving money for destination experiences. Many adventure activities, such as cave discovery, highland hiking, isolated island stays, water sports, and food festivals have become the main reason for travelers to visit a destination in the first place.

Local operators can leverage increasingly popular online players to connect directly with customers and provide these options. Tourism companies could shift their efforts away from building resorts and selling sightseeing tickets to designing exceptional activities and leverage these platforms to take advantage of travel-experience trends.

6. Reimagine government’s role in tourism

In the short term, government and industry associations need to ensure the survival of operators. The government can experiment with new and sustainable financing options such as hotel revenue pooling, in which a subset of hotels operating at higher occupancy rates share revenue with others. This would allow hotels to optimize variable costs and reduce the need for government stimulus plans.

In the midterm, government-backed digital and analytic transformation is necessary, especially to level the playing field for small and medium-sized enterprises. Encouraging and helping local operators adjust to the demand for online travel services is critical to help them stay competitive. Government can play a vital role as a matchmaker, connecting suppliers to distributors and intermediaries to create packages attractive to a specific segment of tourists, and then use tourist engagement to provide further analytical insights to travel intermediaries.

Finally, Vietnam has a solid opportunity to boost its stature as an adventure destination. Governments and industry associations can leverage the overall momentum of the country, as well as the expected return of international travel, to boost demand. Similarly, investments are also expected to shift away from mega development projects, such as Phu Quoc and Nha Trang, toward small- and medium-scale projects and cities that offer specialized offerings like sports tourism, medical tourism, and even agricultural tourism.

Margaux Constantin and Matthieu Francois

Source: Vietnam Business Forum