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Dampening Outlook For Singapore Tourism?
Perspective | 04 September 2014
By: Ong Qiuying
Articles (131) Profile

The disappearance of flight MH370 and the instability in the region, with political unrest in Thailand, anti-Chinese riots in Vietnam, further compounded by the downing of MH17, has fuelled negativity in air travel demand. How has it impacted Singapore?

The Singapore Tourism Board (STB) reported a 2.8 percent fall in international visitor arrivals for the first half of 2014, with total visitor arrivals coming in at 7.5 million, down from 1H13’s 7.7 million. Visitor arrivals have been on the decline since January this year, after increasing most of last year and reporting a 4.2 percent year-on-year increase in January 2014.

Notably, the largest decline in visitor arrivals to the island state was led by the Chinese, which saw a whopping 29.8 percent drop in visitor arrivals for the half-year period.

Besides the macro factors, the chief culprit appears to be effects of China’s first-ever tourism law introduced in October 2013. The new rule, which prohibits travel agencies from luring tourists with cheaply-priced programmes and then getting illegitimate gains by arranging shopping or services that require additional fees, has negatively impacted Southeast Asian itineraries as prices of tour packages to the region went up.

Further dampening China’s travel demand to Singapore is the appreciation of the Sing dollar against the Renminbi, which has gone up approximately 4.2 percent in 1H14.

Not surprisingly, spending by Chinese visitors dipped marginally by 1 percent to $800 million in the first quarter of 2014 even though Singapore’s tourism receipts were up 5 percent year-on-year to $6 billion.

Stretching into the second quarter of the year, the sluggish spending during the Great Singapore Sale also had many wondering if a fall in tourist arrivals could put a possible dent in tourism receipts and impact the businesses here.

Just A Near Term Weakness?

While it seems that the weakness in travel demand from China is likely to persist in the near-term, it is not a completely gloomy picture for Singapore’s tourism industry.

As data from the STB shows, Singapore continues to attract visitors from all over the world despite China’s lacklustre numbers. Significantly, the total number of visitors from the Southeast Asia region formed the bulk of tourist arrivals in 1H14 and inched up 2.7 percent year-on-year over the same period last year. Similarly, West Asia and Europe also recorded overall increases in tourist arrivals.

Making up 5.3 percent of Singapore’s gross domestic product at $19.1 billion in 2013, the direct contribution of travel and tourism to Singapore’s gross domestic product is estimated to rise 5.8 percent in 2014, according to the World Travel and Tourism Council.  Over the longer term, this amount is forecasted to rise an average of 3.4 percent per annum to $28.3 billion in the next ten years.

Let’s take a closer look at two of the main sectors directly influenced by the tourism industry.

1. Hospitality
Asia has been one of the fastest growing regions in the world since the global financial crisis. With the opening up of emerging economies in Southeast Asia, Singapore’s pro-business environment has become a promising gateway between the developed and developing nations.

With more focus on the Asian region, the little red dot is an increasingly popular business events location for MICE (Meetings, Incentives, Conferences and Exhibitions), given the number of large convention venues and strong global connectivity.

In 2013, Singapore was the venue to 12 World Congresses and several key global conventions. The state hosted 3.5 million business visitors, up 3 percent from 2012 and these visitors spent an estimated $5.5 billion in tourism receipts.

Separately, the integrated resorts were also a boost to the tourism scene as STB noted 1Q14’s growth in tourism receipts was driven by sightseeing, entertainment and gaming, which was up 19 percent year-on-year to $1.6 billion.

The opening of the 55,000-capacity Sports Hub this year will also be a game-changer given it is the only stadium in the world suitable for hosting football, athletics, rugby, cricket and even concerts. With a pipeline of major events lined up, it is expected to attract sports fans around the region, boding well for tourist numbers.

Riding on this trend are the operators of hotels and convention centers. In a 1Q14 report, Chesterton Singapore projected hotel occupancies to rise from 80 percent to 91 percent from 2014 to 2018 respectively, underpinned by an expected increase in tourist numbers. Expecting an imbalance in the demand and supply of hotel rooms here, Chesterton noted that the likely “room crunch” would boost room rates for the hoteliers.

2. Commerce
With a declining number in tourist arrivals, businesses in the commerce sector, particularly retailers and service providers, face a double whammy in view of rising overheads due to increasing rents and labour crunch. What’s more, the tourist dollar is further stretched with the two integrated resorts providing alternative entertainment and gaming options.

Nonetheless, the STB, together with Changi Airport Group, the two integrated resorts and other travel partners are collaborating in a $1 million marketing drive to reignite the flow of Chinese tourists to Singapore and promoting Singapore as a standalone destination to mitigate the slowdown in Chinese tourist arrivals.

Notably, Changi Airport Group has also sought to strengthen the airport’s “hub status”, committing $100 million through various initiatives to lower costs for airlines and boost passenger traffic via destination marketing campaigns.

The government’s efforts to create defining landmarks in Singapore as well as efforts and initiatives to drive up tourism, helped to position Singapore as an attractive place of interest for business and leisure travellers. Furthermore, when looking into the tourism industry, it is important to remember the seasonality of tourism behaviours. The second half of the calendar year could see more upside for tourism-related sectors given that travelling and discretionary spending typically increase during this time of the year.

Qiuying oversees the construction and real estate investment trusts sectors at Shares Investment.

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