This article first appeared in City & Country, The Edge Malaysia Weekly on October 18, 2021 - October 24, 2021

Now that the country’s vaccination rate has reached 90% and interstate travel is allowed for those who are fully vaccinated, things are indeed looking up for the travel and tourism industry.

Zerin Properties managing director and CEO Previndran Singe is optimistic that the sector will see signs of recovery by December. “Domestic tourism will flourish, as we saw when borders were reopened after the first Movement Control Order (MCO) period,” he notes.

As for a full recovery, he expects it to come sooner than expected. “We are looking at end-2022 for a full recovery of the travel and tourism industry,” he says.

Similarly, Knight Frank Malaysia executive director of capital markets James Buckley is optimistic that domestic tourism will see a rebound by 4Q2021. “The International Air Transport Association is forecasting global passenger numbers to recover to 88% of pre-Covid numbers in 2022 and surpass them by 105% in 2023,” he says.

“Here in Malaysia, we expect a recovery in international tourism to start in 2022. Singapore, which is right at our doorstep and made up the largest visitor group with 10 million visits in 2019, should provide a welcome boost to local tourism as borders reopen.”

Buckley says the Malaysia Tourism Promotion Board plays a very important role in the industry’s recovery and should look two years ahead. “It should be looking ahead into 2022 and 2023 and planning great eye-catching promotional activities, particularly targeted at our key visitor markets. There is plenty of pent-up demand from people around the world to travel again after many months of being stuck at home.

“We need to make sure they choose Malaysia, whether they are domestic travellers wanting to make the most of the incredible destinations at our doorstep or international travellers seeing Malaysia as a place to do business or wanting to explore this spectacular country on holiday.”

However, he notes that a wide range of factors could influence the hotel sector’s recovery, such as the pace of vaccine rollout in other countries, the impact of social distancing on capacity, the impact of the pandemic on consumers’ discretionary spending power, the threat of potential variants of concern emerging and lingering doubts among consumers about their safety when travelling.

Malaysian Association of Hotels (MAH) CEO Yap Lip Seng is slightly more cautious but expects to see some recovery in the first half of 2022. “The Langkawi travel bubble had shown good success, with occupancy of hotels high on weekends and leaning towards higher-rated hotels. With that, the industry can look forward to the reopening of domestic tourism destinations, targeting the high number of fully vaccinated adults,” he says.

“With these factors in play, 1Q2022, or by 2Q the latest, will be a good target for the industry to see a recovery in domestic travel, driven by pent-up demand as the key factor.”

Nevertheless, Yap notes that for a full recovery, domestic tourism alone would be insufficient. “We need to take into consideration the reduced spending power of Malaysians in general. Eventually, international arrivals are needed, and with the plans in place, we are looking forward to the return of international tourists by 4Q2022.

“For a full recovery, we also need to take into consideration the entire international travel landscape. Currently, although we see attempts by various countries to normalise international travel, the pickup rate is still low. The worldwide Covid-19 situation has yet to stabilise.”

MAH’s June 2021 Hotel Industry Survey Report states that the industry is anticipating an average occupancy rate of 21% and 28% for 3Q and 4Q2021 respectively, and 35% for 2022, which would indicate another year of losses. “This will remain until international borders reopen,” says Yap.

This year, average occupancy was 21% in January; 17% in February; 27% in March and April, driven by quarantine requirements; and 18% in May. The hotel industry is estimated to have lost more than RM5 billion in revenue in the first half of 2021, according to the report.

In terms of the average daily rate (ADR), the report notes that the industry expects the figure to remain at RM180 to RM190, marking an average drop of 20% to 30% compared with pre-pandemic levels. But it added that the industry did not register sufficient rooms sold to indicate its actual loss in ADR. Meanwhile, midscale to upper-scale luxury hotels saw a drop of at least 50% in ADR, having lost all international markets, which typically have higher spending power.

“Historically, Malaysia’s tourism industry has been highly dependent on intra-Asean travel. This will be an advantage for Malaysia to recover to pre-Covid levels. However, more needs to be done as competition is fierce among Asean destinations,” says Yap.

“With proper planning and strategies, Malaysia could see [a full] recovery by late 2023. But the next six months could be the determining period. If not done right, the recovery could be pushed to 2024.”

According to MAH’s industry survey in the June report, two out of 320 hotels had permanently closed while 91 are temporarily closed. The report said this could lead to a massive drain in talent, raising the larger question of how the industry will recover when the time comes.

“There is no denying that the hotel industry has been badly impacted by the pandemic. However, I do not think more hotels will close permanently as there is now light at the end of the tunnel, with the recovery likely to begin in the fourth quarter of this year,” says Knight Frank’s Buckley.

Zerin Properties’ Previndran opines that while closures will still occur, they won’t be as widespread. “We are reaching the tail end and cost rationalisation in most cases has already taken place. I’m not saying we won’t see closures, but the rate will be lower.”

MAH’s Yap estimates that around 120 hotels have closed temporarily or permanently since the MCO. 

Meanwhile, the survey indicated that almost 28% of the hotels that responded had reduced their manpower by more than half and 51% in one way or another. Of the total, 14% had carried out a retrenchment exercise. 

“It will be quite a challenge to hire new employees when the recovery comes and it will take time to train them,” Buckley notes.

In the short term, domestic tourism will really be the focus, he says. “This will be the first to recover with restrictions on interstate travel lifted. While Malaysians cannot travel abroad so easily, many will be prepared to pay more for a luxury resort experience. So, we think resorts across Malaysia will likely see good business return in the fourth quarter, particularly those with villa concepts.”

He adds that when international travel resumes, foreign travellers may travel less frequently than before but will holiday for longer periods. “As a result, hotels that can offer all-inclusive packages may be popular.”

The design of hotels, especially new ones, may also change, says Buckley. “In a post-Covid world, perhaps the open concept and buffet dining will become outdated, with guests wanting more social distancing and separation between each other. Perhaps creating informal ‘living spaces’, where guests can have drinks, meals or snacks, or just to relax, will be more popular than congregating in the bar or dining room with everyone.

“Alternatively, hotels may need to consider staggering peak dining periods to provide guests with greater social distancing. This, however, could have potential cost implications in terms of staffing.”

Previndran says the main changes the sector will face will be the implementation of standard operating procedures. “Everyone wants a compliant hotel. So how hotels operate will change to ensure that a certain standard is met. Other challenges will, of course, be the same as those prior to the Covid outbreak, such as staffing, not enough flights into Malaysia and cash flow to ramp up.”

JLL Property Services (M) Sdn Bhd country head YY Lau observes that the assets up for sale are generally two- to four-star hotels located in cities, rather than luxury hotels or resorts. “Some of these hotels were already on the market pre-pandemic for various reasons,” she says.

Among the reasons were the owners’ intention to rebalance their portfolio or to construct or reposition, operate and eventually dispose of the asset after the hotel business stabilises, she adds.

Lau notes that some of the hotels for sale are smaller, family-run assets. “With the hospitality sector being the hardest hit during this trying time, the operating environment has admittedly become challenging, which led to more hotel closures and more assets being put up for sale.

“This is substantially more evident among city hotels compared with resort hotels because city hotels, especially those in Greater KL, are heavily reliant on international leisure and business travellers. And with border closures, occupancy rates and room rates have been under pressure.”

According to Lau, the resort hotels, while also adversely impacted, saw better support from domestic tourism when interstate travel was permitted last year. “From a financing perspective, lenders have generally been quite accommodative and are adopting a wait-and-see approach with hotel owners, which again explains why there is still little distress visible in the market,” she adds.

Meanwhile, Lau is optimistic about the sector’s recovery. “We anticipate a significant pent-up demand in the hospitality sector. With the vaccination rate in Malaysia moving on track and the relaxation of lockdown measures, the hotel industry’s recovery trajectory will be a positive one, at least domestically for now,” she says.

Lau opines that early signs of recovery should be seen by the end of this year. “A full recovery, however, however, will be hard to predict as it largely depends on the Covid-19 situation in Malaysia and when international travel restrictions are lifted.”

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