Tourism In Vietnam: A Step In The Right Direction

Blogs - Vietnam: Dec. 29, 2014

First, let me get the negative out of the way. This is going to be a brutal winter for Vietnam’s tourism businesses. The drop in value of the ruble is going to completely stop the flow of the fastest growing market of inbound arrivals. Investors and businesses were adding new supply to the market in anticipation of the Russian market nearly doubling this year and instead everyone will be fighting for the few who actually came. At the same time, the Chinese market has not rebounded from the anti-Chinese riots and arrivals are still less than last year. If you are thinking of investing in Vietnam tourism, this spring will represent the perfect buy-low opportunity.

So with that out of the way, let’s try to focus on some positive news, especially since this is the holiday season. It is not often I read about a Vietnam Ministry of Culture, Sports and Tourism proposal and feel they have any understanding of what they are doing; but this month they surprised me. The governmental department has proposed to give inbound travelers from India visa exemptions. Now granted, Vietnam should eliminate or at least ease the visa process for all travelers. Also, this is just a proposal and has not come into law. But the proposal is a rare example of understanding the future rather than a reaction to the past. It’s also a positive step in diversifying away from a dependence on Chinese tourists and a creating new demand for Vietnam’s two major cities which have been losing ground to coastal tourism.

Why India is Important?

At first glance, India’s outbound market is not all that significant;it’s only 17% the size of China’s. In fact, VNAT does not even list the country in its statistics so it is difficult to say how many Indian’s come to Vietnam each year.

india passport

Two interesting factors combine to make India a market to target. Obviously the first is the size of India’s population (2nd largest in the World). But India has been the second largest population for some time. Even though the country comprises 17.5% of the world’s population,Indiansstill only took 1.5% of the world’s annual international trips last year.

That is about to change. Like China before, India’s per capita GDP has made impressive gains over the last decade, but it is expected to grow even faster in the next decade as the country continues to urbanize. This is important because we know two things

  • 1. It is not the size of the population that matters when it comes to outbound tourism, it is the size of the middle class population that has disposable income.
  • 2. People begin traveling internationally at an income of about $1,500 USD per month.

So right now India’s population is not traveling in large numbers because a significant majority of them don’t have the disposable income (the GDP per capita is about $1,500 a year). As the average income increases over the next decade, a meaningful amount of people will have disposable income for the first time and they will begin traveling. Like China, the growth rate will be exponential rather than linear as the median income approaches the magic number.

What Does that Mean for Vietnam?

Another thing we know about tourism is that the first international trip is usually very close to home and easy for a first time international traveler to navigate. Vietnam is in a unique geographical position to take advantage of both the Chinese and India market. Last year TLR Development Advisory created an Asian population center of gravity map that took into account the major population centers in Asia and graphed a center line based on the weighted populations of various cities.

As you can see, the line went straight through Vietnam. In other words, Vietnam is at the center of India and China’s immense populations, denoting it should draw substantial number of tourists from each country.

asia population

Does Vietnam have what Indian tourists want? That is a more difficult question. There are currently direct flights from India to Vietnam by Jet Airways and Vietnam Airlines since November 2014 along with other foreign airlines as Thai Airways, Singapore Airlines, Malaysia Airlines and Air Asia, so it´s expected that more airlines will include this route soon. But making steps to reduce barriers to first time international travelers is incredibly important so the visa waiver is a critical step. It is also avital step in reducing dependency on Chinese tourists, which as we’ve seen, will be used as an economic weapon by Chinese leaders.