Smartphone penetration and foundational shifts from outbound to domestic tourism are sending NE Asia in interesting directions during this travel recovery phase

We recently covered digital transformation in Southeast Asia and how a surge of offline – online in travel and hospitality is helping the region go beyond its pre-pandemic tourism numbers. Unsurprisingly, the same digitalisation – alongside a mindset change amongst domestic travel players – is helping NE Asia prepare for a rebound in 2023 with the rebuilding of air connectivity across Asia Pacific markets.

Northeast Asia’s travel industry comprises four key regional markets – South Korea, Hong Kong, Taiwan and Macau. While the region has been making steady progress on the road to recovery, global economic headwinds, high inflation, volatile jet fuel prices and the fallout from Russia’s invasion of Ukraine are still major concerns. 

On one hand, weak currencies could impact spending power for outbound travelers. Regional factors, such as North Korean foreign policy and China’s relations with Taiwan, loom large. It’s no secret that each market is hoping that the ending of China’s hardline COVID policy will nurture a robust travel bounce-back.

COVID restrictions creating animosity 

Speaking of China, while Southeast Asia is ready to benefit from outbound traffic coming out of the newly reopened country, the travel sentiment seems to be slightly complicated in Northeast Asia. For example, South Korea and Japan were some of the top choices for Chinese travellers, but stringent COVID restrictions imposed by both countries may have caused them to fall out of favor with Chinese nationals.

Speaking to CNBC, Shaun Rein, managing director of China Market Research Group said Chinese travelers are now headed to Singapore and Thailand because “both countries are welcoming us.” Of the top destinations Chinese nationals searched for after the border reopening announcement, those are the only two that haven’t imposed restrictions on Chinese travelers.

Trip.com data shows search interest in China for Thailand and Singapore grew by 176% and 93%, respectively, after the reopening of borders was announced. According to Rein, Chinese travelers are “very angry” at South Korea — and “even angrier” at Japan — over travel rules that they believe single them out.

Here’s a quick recap of the back-and-forth that has taken place between these countries:

• Both South Korea and Japan announced they will not increase flights from China and will limit where flights can land, while South Korea also announced plans to limit short-term visas to Chinese travelers. 
• Visitors from China must take pre- and post-departure Covid PCR tests too. 
• Coincidentally, the Chinese Embassy in Korea recently announced that “in accordance with Chinese domestic instructions,” it would stop issuing short-term visas to Korean nationals.

Rein says it’ll take months for the anger to dissipate. “There’s going to be massive revenge travel outside to Korea to Japan — if those two countries treat Chinese properly.”

Climate chaos

And then there’s the most unpredictable factor of all – the weather. Recently, countries across Northeast Asia reported  freezing weather with temperatures falling to their lowest in at least a decade, with snowfall hampering travel. In the third week of January 2023, the South Korean capital issued a “cold wave” warning – a measure that’s triggered when temperatures are below -15 degrees Celsius for two consecutive days. 

Similar climate issues have been reported in Japan. Parts of central and northern Japan have been battling temperatures at their lowest in a decade coupled with heavy snowfall. This has affected air travel, trains and roads, with drivers stuck in snow for hours and the authorities warning people in affected areas to stay put and stay indoors.

This region is projected to achieve $11.2B in mobile gross bookings by 2025

According to Phocuswright’s latest travel research report Northeast Asia Travel Market Report 2021-2025, South Korea is the region’s largest travel market, accounting for 53% of gross bookings in 2021. Hong Kong and Taiwan were closely matched in the second and third spots. 

The distribution of online bookings is weighted even further in South Korea’s favor. Its tech-agile travelers accounted for almost two thirds of online gross bookings. This reflects a diversity in booking of hotels, air, rail and car rental for domestic travel in South Korea in 2021 and limited outbound travel while other markets were stagnant. Some distance behind was Taiwan, which took the second spot for online gross bookings.

The pandemic witnessed a dramatic surge in the popularity of smartphones to search and book travel, with the mobile share of online gross bookings peaking in 2021. Although this may moderate slightly, an upswing in travel activity will see mobile booking volumes take off. Mobile gross bookings in 2023 will comfortably surpass 2019 levels. A projected $11.2 billion in 2025 would be more than double the 2019 record.

The mobile travel realm is especially competitive in South Korea. Homegrown online travel brands like Good Choice, Yanolja, MyRealTrip and Tidesquare invested astutely in technology during the pandemic to capture domestic bookings and prepare for international travel to start heating up from 2021 onwards. Acquisition activity has also been aggressive, enabling online players to add new product and service capabilities to their mobile apps and platforms.

During WiT Seoul last year, we wrote about how most experts who attended the event agreed that South Korean travel brands have no option but to expand beyond South Korea. Yanolja is the highest profile of all – it’s been acquiring the past three years and now faces the challenge of integration as well as changing the perception of it being a global brand versus a South Korean company.

Jongyoon Kim, CEO of Yanola and Yanolja Cloud, sees the biggest opportunity for Yanolja in the longtail segment – unencumbered by legacy systems, he sees these smaller players, empowered by data, being a major driver of growth.

Capitalising on shifting trends in NE Asia

Speaking about South Korean tourism during WiT Seoul, Min Yoon, CEO of Tidesquare, said all OTAs saw shifts in domestic vs overseas sales. “From that, consolidation took place – before this, there hadn’t been much M&A activity in South Korea but domestic players, flush with cash, were able to acquire.” He also observed that pre-pandemic, each OTA had dedicated business areas, but “now it seems they are all crossing the line from one area to the other, selling air, accommodation, and tours and activities at the same time. M&As have enabled and accelerated this. This is also happening with the traditional giant, Hana Tour, as well as big tech players such as Kakao and Naver.”

Donggun Lee, CEO and founder of MyRealTrip, thinks that in terms of travel trends, immediate travel recovery would centre on short-distance destinations. “Overseas travel to short-distance destinations such as Japan, Vietnam, and Thailand are recovering first due to high oil prices and exchange rates.”

Another sector of growth is long stays, he said. “Due to the growth of remote work during the pandemic, a trend of extended travel periods and a combination of work and travelling is emerging.”

Japan’s change is on the horizon

However, the most surprising rebound story, or lack thereof, seems to belong to Japan. Arguably the most anticipated reopening in Asia besides China, Japan has been sluggish to bounce back to pre-pandemic life. While it remains a top destination for many travellers around the world, let alone the region, Japan’s own residents seemed to be less enthusiastic when its border fully reopened in October 2022.

Nevertheless, Jeremy Bek, general manager, global country management department, travel business, Rakuten, Inc, said that since the official announcement of Japan’s full reopening was made on September 22, the OTA has seen 3,100% increase in bookings from Hong Kong, 1,077% from Korea, 545% from Taiwan and 106% from the US. 

Kei Shibata, co-founder and CEO, Venture Republic, echoes Bek’s data as he believes Japan’s inbound numbers may get pretty close to pre-pandemic levels this year, even without Chinese visitors which make up 37% of arrivals to Japan. The two corridors in North Asia to watch, he said, are the inbound rush into Japan and the outbound flow from South Korea. He also admitted that the low yen was making Japan even more attractive for travellers, especially from North America – as reported in this article from WiT Seoul. 

One market that Shibata says is overlooked and that Japan should consider tapping into is the India market, which “is one of the most attractive markets in the world right now”. “Our biggest surprise at Trip101 is that this year, India became our second largest user base in the world, after the US.”

According to the PhocusWright travel report, Northeast Asia’s travel recovery began late and remains a work in progress after protracted disruptions since spring 2020. While severe travel restrictions and the lack of Chinese visitors have been challenging for the region, the downturn is not expected to last. Looking forward, there is optimism regarding the return of Chinese visitors, and renewed air connectivity across Asia Pacific markets will help fuel inbound traffic from other markets as well. Annual growth should continue to accelerate in 2023, as travel activity returns to normal; revenue is expected to surpass 2019 levels in 2023, ahead of many other APAC markets.

Portions of this article are courtesy of PhocusWright