For the most part of 2020, everyone has had to put their travel plans aside. The Covid-19 pandemic has brought travel to a standstill as countries closed their borders and imposed lockdowns in a bid to limit the spread of the virus.
But, until a vaccine is introduced worldwide, borders will remain shut and the tourism sector, on the whole, will remain severely impacted.
“Recovery of the tourism industry will depend on the speed and efficiency of a vaccine,” says Maybank Kim Eng economist Lee Ju Ye. “But even then, relaxation of border controls will likely be slow as it will take at least until the second half of 2021 for herd immunity to be achieved in most developed economies.”
Singapore’s aviation, accommodation and recreation sectors are dependent on tourists for a significant recovery, given its small domestic market. The domestic tourism vouchers of $100 distributed to Singapore citizens might help, but only to a certain extent. “We think that it may take at least three years for visitor arrivals to return to pre-pandemic levels,” Lee adds.
Similarly, Phillip Securities’ senior analyst Terence Chua is also keeping his bearish outlook on the tourism sector as cases are surging in several countries ranging from the US, Europe, South Korea and Japan. He notes that the International Air Transport Association (IATA) does not expect global traffic to rebound before 2024. “We are cautiously optimistic, however, that the current wave of vaccine approvals could be a jab in the arm for the tourism industry,” says Chua.
Meanwhile, cases in Hong Kong are surging, causing Singapore and Hong Kong to delay their much-anticipated “travel bubble”, announced by Transport Minister Ong Ye Kung with some fanfare, to next year, while Hong Kong fights to contain its fourth wave of infection.
Singapore Tourism Board’s (STB) chief executive Keith Tan tells The Edge Singapore: “The immediate impact of the HK-SG air travel bubble (ATB) was expected to be modest, but we had hoped that it would catalyse more ATBs and give our businesses a boost. Our first ATB will be a significant step towards reviving international travel, and we hope it will provide a model for future collaboration with other parts of the world.”
For now, the aviation sector will continue to bear the brunt of the pandemic. To put things in perspective, Changi Airport handled some 1.98 million passengers in December 2019; in October this year, however, it handled just about 32,000 passengers — a decrease of more than 99%.
Although the hospitality sector does depend on tourists for business, it has managed to stay afloat by catering to those serving stay home notices (SHN) or buying staycation packages, and benefiting from tourism vouchers distributed by the government.
Local consumption
As airlines remained grounded, with cross-border travelling still banned, the tourism industry is turning its focus inwards and encouraging locals to support the domestic economy.
To further encourage local consumption, the Singapore government launched the SingapoRediscover vouchers, at $100 each, for eligible citizens to spend on approved hotel stays, attraction tickets and tours. The $320 million scheme was first announced in August by the government.
STB’s CEO Tan says that the decline in international air travel due to Covid-19 has had a significant impact on tourism establishments. “That is why we launched the SingapoRediscovers campaign in July to rally local support for our tourism and lifestyle businesses. We want to show locals that they have not seen everything, done everything or been everywhere in Singapore.”
DBS Group Research sees a light at the end of the tunnel for the hospitality sector. “With vaccine candidates clearing final trials and entering production, mass travel (especially for leisure) is likely to resume in 2021,” says analyst Derek Tan.
“While some portion of future business trips may be permanently disrupted with the adoption of more virtual meetings, we expect that the majority of business meetings requiring travel, including MICE [meetings, incentives, conferences and exhibitions], will restart. Together with the strong pent-up demand for leisure travel, we see a “V-shaped” recovery taking shape as early as 2H21, assuming the mass distribution of Covid-19 vaccines is possible in the first half of 2021,” adds Tan.
But before cross-border travels can resume, the industry will first see the resumption of domestic travelling, especially in countries like China, Australia, US and Europe, where internal flights have already started.
As such, Tan likes Ascott Residential Trust (ART), CDL Hospitality Trust (CDLHT) and Frasers Hospitality Trust (FHT), as they have the potential to post a faster recovery.
“The Singapore market, which contributes some 40% of hospitality S-REITs overall exposure, will likely see weaker metrics in 4Q2020– 1Q2021 before posting a recovery, due to the tapering off in government’s quarantine business, partially offset by limited foreign travel and local staycations. Therefore, we believe it would take hospitality S-REITs to achieve pre-Covid DPUs [distribution per unit] only in two to three years’ time,” adds Tan.
In the meantime, the demand for leisure travel will likely remain robust with pent-up demand from would-be holiday makers, as holiday experiences can never be replaced virtually.
“The catalyst for a return in leisure travel for the masses will likely hinge on the distribution of a vaccine, and we believe the return of mass travel will likely come in 2H2021 onwards. When that happens, we believe it is important to consider how hotels will reposition themselves to capture this upside when it happens,” says Tan.
The Edge Singapore reached out to OUE Commercial REIT (OUE C-REIT), which owns assets such as the Mandarin Orchard Singapore and the Crowne Plaza Changi Airport, both of which have been hurt by the pandemic.
As its hotel properties continue to be supported by alternative sources, such as those serving SHN, workers affected by border shutdowns and air crew, the REIT is embarking on a transformational rebranding exercise to capitalise on the currently weak operating environment.
It will be transforming Mandarin Orchard Singapore to Hilton Singapore Orchard to drive growth in sustainable returns and value. “Besides the addition of new income-generating spaces, the re-branding exercise to Hilton would enable the property to leverage on Hilton’s strong brand recognition to enhance the property’s competitive positioning amongst other upper upscale hotels along Orchard Road,” says a spokesperson for the REIT.
“During the renovation and ramping-up period, unitholders of OUE C-REIT will have income assurance given the downside protection from the minimum rent of $45 million embedded in the hotel master lease arrangement,” it adds.
Luckily for OUE C-REIT, its main revenue contributor continues to be the office segment at 63.8% of 3QFY2020 revenue, which has been more resilient. “With the resumption of leasing activities on the back of the gradual reopening of the economy, we have seen an improvement in committed office occupancy in Singapore to 94.5% as well as continued positive rental reversions,” it says.
Apart from hotels, local attractions also depend highly on tourists. But thanks to the tourism vouchers and promotions held to attract more locals, some attractions are able to survive without tourists coming into the country.
On Dec 14, the government announced that with the pandemic largely under control, Phase Three can begin on Dec 28. The key difference for most people is that dine-in groups of up to eight will be allowed, from a cap of five in Phase Two now. For the tourism sector, the key change is that attractions, which includes the integrated resorts, can increase their operating capacity to 65% from 50%, benefiting the likes of Genting Singapore (GENS), which runs Resorts World Sentosa.
With the impending availability of free vaccines for Singaporeans and long term residents here, it is a literal booster shot for the industry. “This will instil confidence in Singaporeans to visit Resorts World Sentosa again,” says Maybank Kim Eng analyst Yin Shao Yang in his Dec 15 note, where he raised his price target on GENS from 78 cents to 95 cents.
Analysts are generally positive on GENS following its strong quarterly recovery in 3QFY2020 from 2QFY2020. Analysts from CGS-CIMB Research, DBS Group Research and OCBC Investment Research are advising investors to “buy” into GENS, while Maybank Kim Eng and RHB’s analysts are neutral on the casino and theme park operator.
GENS on Nov 14 reported earnings of about $54.5 million in the 3QFY2020, reversing it from the losses of $163.3 million reported in the previous quarter, as local dice-rolling and jackpot-pulling seemingly continued with gusto.
DBS analyst Jason Sun believes that “normality” is not too far away for GENS, which operates Resorts World Sentosa and Universal Studios Singapore.
Even as Genting Singapore awaits further recovery with the return of tourists, CGS-CIMB’s Cezzane See believes its strong balance sheet will tide it through the tough times.
Unfortunately for Straco Corporation, operator of the Singapore Flyer, it is a year to forget. In a Nov 13 business update, Straco announced earnings of $6.5 million for 3QFY2020 ended September, some 65.7% lower than $18.8 million a year ago. Including the previous quarters, which saw the group’s attractions closed during the lockdown period, 9MFY2020 recorded a loss of $197,000 from earnings of $36.3 million the same period a year ago.
“Given the difficulties in bringing the global Covid-19 pandemic under control and in the absence of an effective vaccine, the impact on the tourism industry in the short to medium term will continue to be severe. The establishment of air travel bubbles is unlikely to see the resumption of air travel to near pre-Covid-19 level, amidst border controls and travel restrictions remain in place around the world,” says Straco, as its notes that safe distancing and operating with reduced daily capacity and travel restriction will have an adverse impact on revenue.
