Digital transformation will continue to accelerate rapidly across Southeast Asia, with online bookings more than doubling between 2022 and 2025

It’s no secret that the pandemic hit different regions and their travel sectors in different ways, and there’s no common rulebook on how to recover from such a damaging travel hiatus. According to PhocusWright’s latest travel research report Southeast Asia Travel Market Report 2021-2025, despite being slow to reopen compared to the West, Southeast Asia has shown promise and robust growth over the last few months, leading many to believe that the region is en route to reaching pre-pandemic levels of tourism soon… with some caveats. 

A combined 2022 arrivals forecast of around 30 million for the four nations of Thailand, Singapore, Malaysia and Indonesia may be small in comparison to the traffic experienced in 2019, however, those numbers still provide a foundation to build on in the coming years and on the road to recovery.

Thailand and Singapore commenced a restricted reboot of international travel in the final quarter of 2021, but only in the second quarter of 2022 did unhindered travel return regionwide. PhocusWright’s report points out that inbound and outbound travel are gaining momentum, while domestic tourism continues to underpin the air travel revival in Thailand, Malaysia and Indonesia.

Unsurprisingly, Singapore’s global air connectivity is regaining scale and will be enhanced as the key Northeast Asian markets of Japan, South Korea, Hong Kong and Taiwan, and hopefully China, ramp up international flight services. Additionally, hotel pipelines are strong and domestic tourism activity remains buoyant in Thailand, Indonesia and Malaysia. 

During a recent Singapore Tourism Board press conference, it was pointed out that Singapore is well on the road to recovery. International visitor arrivals totalled 6.3m in 2022 and tourism receipts are estimated to reach S$13.8b to $14.3b (50-52% of 2019). For 2023, STB is projecting between 12m and 14m visitors, bringing in an estimated $18b-$21b tourism receipts. According to Keith Tan (CEO, Singapore Tourism Board), “This is almost double the 2022 numbers and is of course subject to headwinds as well as the pace of China’s reopening and health situation.”

The Southeast Asia Travel Market Report also summarises 5 things to expect in the Southeast Asia travel market by 2025:

• Gross bookings in Southeast Asia will reach 94% of the record 2019 level.
• Digital transformation will continue to accelerate rapidly across Southeast Asia, with online bookings more than doubling between 2022 and 2025.
• Eager to embrace all forms of mobile commerce, the region will see mobile gross bookings double its 2019 numbers.
• Highly anticipated new rail services in Indonesia and Thailand will drive ridership growth, with OTAs forecast to be the key beneficiary of expanded mobile ticketing.
• Uncertainty about the return of Chinese tourists will continue to hurt Thailand most in Southeast Asia.

Southeast Asia’s unique brand of tech adoption

While digital transformation has been credited as one of the major factors of businesses and industries surviving the pandemic, a high usage rate, collective familiarity and an affinity for future tech could give travel recovery in the Southeast Asian region the boost that it needs. 

A recent report by Meta and Bain & Company called ‘Southeast Asia’s digital consumers: A new stage of evolution’ outlines that on a global scale, Southeast Asia has a higher penetration of e-Wallets, cryptocurrency and NFTs (non-fungible tokens) compared to most other markets such as China, Japan, the EU, and even the US.  In fact, 7 in 10 respondents from this region have experienced metaverse-related tech in the past several months.

In terms of speed of future tech adoption, markets in Indonesia, Philippines, and Vietnam are quicker to adopt than their regional peers.

That’s not to say that other nations aren’t thriving in their own ways, though. In 2021, data from Meta and Bain & Company’s SYNC Southeast Asia report highlighted that Malaysia boasted the highest percentage of digital consumers (88% or 22 million people) in the Southeast Asian region, whereby 90% of consumers were expected to be digital by the end of the same year.

According to the poll, Malaysia digital spending per person was up 47% compared to 2020, with overall e-commerce sales set to further increase by 1.3 times by 2026. 

For instance, Malaysian consumers are not only spending more online, but there is also continued accelerated adoption of online platforms, with 46% of surveyees using online platforms as their primary purchase channels. Also, social media continues to be the dominant channel for discovery in Malaysia, with video content tripling in popularity compared to previous years.

If we were to use Malaysia as a microcosm of Southeast Asia and derive digital adoption trends from the data collected, it becomes quite evident that the region has its signature relationship with all-things digital. 

Creating demand and drawing investments

This comfort around new tech hasn’t gone unnoticed by investors either, with fintech in the region receiving more investments, while healthtech and edtech are still nascent. According to Meta and Bain & Company’s research, most of the money seems to be flowing in and around two countries – Singapore and Indonesia, both of which account for the majority of private equity and venture capital investment deal value in Southeast Asia. Collectively, the two countries make up almost 80% of the share as of H1 2022.

Responding to the data collected in the SYNC Southeast Asia report, Magnus Ekbom (Co-founder and Chief Strategy Officer, Lazada Group) said, “The current economic slowdown is not a reversed-demand shock, but a supply shock that is hitting the economy. In general, businesses are still optimistic about the future. Southeast Asia will see 10 fantastic years going forward. The region’s foundations are more robust than even optimists believed would play out.”

Reliance on strong domestic markets

In a recent interview with WiT, Caesar Indra (President, Traveloka) elaborated on the strength of local tourism and Southeast Asia’s domestic markets. That’s Traveloka’s sweet spot – in all the markets it operates in (with the exception of Singapore with its small domestic base), it has a strong domestic market. “This gave us an advantage during the pandemic when travel became local, it helped us recover faster. We leveraged our business based on our domestic mindset and built stronger relationships with hotels and airlines.”

Calling Traveloka a key market player is an understatement. While its growth as a travel platform is remarkable, the company’s ability to remain agile and focus on domestic markets is what keeps it going pound-for-pound with other international players such as Klook, Trip.com, Hopper and Thailand-based Agoda – all of whom are hungry for a slice of tourist traffic.

That’s why it’s good to note that there’s plenty to go around – Google’s e-CONOMY SEA report pegs the region’s digital market at $200b this year and could grow to $1 trillion by 2030 – but it’s fragmented and complicated and Indra believes the ones who localise best and deepest will have the edge.

Speaking of having an edge, if we were to think on a big picture scale – according to the latest SYNC Southeast Asia report, the region’s projected real GDP growth and annual inflation rate from 2022 to 2023 are forecast to perform better than other markets such as the US and the EU. This statement can be expanded to mean a few things:

• Amidst global challenges and uncertainties, Southeast Asia is expected to be less impacted than its peers.
• The region’s working population is set to grow by 23 million people by 2030.
• Household incomes are expected to rise, with 51 million new high and upper-middle class households forecast to emerge.
• Southeast Asia is becoming more competitive in terms of export growth and as an investment destination compared with other locations such as China.
• Overall, consumption per capita in Southeast Asia is set to rise far quicker than GDP per capita throughout the forecast period to 2030.

So, how does all this tie back to digital transformation and tech adoption? 

The recovery of many industries in the region including travel, hospitality and tourism, is bolstered by the fact that consumers and travellers in the region are taking a multichannel approach to interacting with planning, booking, and commerce. 

Despite slower growth year-on-year, Southeast Asia’s eCommerce gross market value is still expected to continue rising from US$129 billion in 2022 to US$280 billion in 2027. The number of digital consumers in the region is also projected to grow from 370 million in 2022 to 402 million by 2027.

Working around China and uncertainty

Circling back to PhocusWright’s Southeast Asia Travel Market Report 2021-2025, it’s no wonder that uncertainty around China’s outbound traffic will continue to keep most of the Southeast Asian region guessing – with Thailand taking the brunt of the lack of tourism from the newly reopened nation. In 2019, Thailand was the No. 1 most-visited destination by Chinese travelers, welcoming around 11 million Chinese tourists — over a quarter of the country’s overseas arrivals. 

According to the United Nations World Tourism Organization (UNWTO), before the pandemic, China was the world’s largest outbound travel market by departure numbers and spending. In 2019 alone, Chinese travelers took 154.6 million trips abroad and spent nearly $255 billion. Trip.com Group data showed that outbound flight bookings from China increased 254% in late December, one day after it was announced that travel restrictions would be eased on January 8. So far, the most popular destinations are Singapore, South Korea, Hong Kong, Japan and Thailand.

Given Thailand’s dependence on markets such as China and Russia for its 40m arrivals (pre-pandemic), Indra says, “It needs to find new sources of travellers. We are working with tourism boards across Southeast Asia to bring them travellers from Southeast Asia – the intra-South-east Asian market.”

Key decision-makers in Singapore seem to be echoing the same sentiment, with Keith Tan saying he’s optimistic about what China holds for its tourism prospects in 2023.  He also confessed to being surprised by China’s almost-too-sudden decision to lift travel restrictions. “Initially, we thought China would only open up later in 2023. So, anything earlier than that, which is what we’re seeing now is a plus for us. So now we’re working very closely … to plan for systematic and safe reopening of our borders with China so that we don’t get overwhelmed as well”.

According to Juliana Kua, assistant CEO, international group, in 2019, China contributed 3.6m visitors to Singapore, the number one market. Its pace of recovery will depend on how quickly air capacity returns – as of January 2023, there were 38 weekly flights between Singapore and China, which is less than 10% of pre-Covid capacity – as well as how the Chinese government manages outbound travel which it has signalled it will do in a “calibrated, careful manner”.

All in all, Southeast Asia’s road to recovery is fragmented and unequal, but based on the aforementioned data, those traits also seem to be upsides as the region prepares for growth above and beyond pre-pandemic years. 

Strong tech adoption, continuous rapid digital transformation, and robust domestic markets have the chance of collectively pushing Southeast Asia forward in 2023 and beyond.