Malaysian tourism lures domestic travellers to ease some of the COVID pain

Redang Island, Malaysia. Photo courtesy of John Mah.

For Malaysia’s tourism sector, 2020 was meant to be a golden year.

Hotels, airlines, and travel startups were planning to surf a wave of 30 million foreign tourist arrivals this year as the government went on an advertising blitzkrieg, promoting the “Visit Malaysia 2020” campaign abroad. 

Instead, 2020 has turned out to be a damp squib.

Attempts to curb the COVID-19 pandemic led to the closure of international borders, which are not likely to open before the year-end. Moreover, movement control orders (MCOs) in the country restricted domestic travel for most of the year.   

The result was a 68.2 per cent year-on-year fall in foreign tourist arrivals to 4.25 million in the first half of 2020, data from Tourism Malaysia showed. Tourist expenditure, meanwhile, plunged 69.8 per cent from a year ago to RM12.5 billion ($3 billion).

Besides AirAsia Bhd and casino operator Genting Bhd, both of which sank into the red in H1 2020, a host of startups, too, are struggling to cope amid the travel curbs.

Cost-cutting and virtual tours

Venture capital firm Gobi Partners, an investor in Malaysian travel platform Tripfez and the Middle East online travel agency Holidayme, is advising its portfolio firms to cut costs and retrench to survive this winter.

“We guide them [travel startups] to cut operating costs such that it is manageable by all employees. We require them to terminate redundant staff,” the VC’s managing director (Malaysia) Jamaludin Bujang told DealStreetAsia, adding that Gobi Partners is also helping them raise money.

Meanwhile, travel tech startup LokaLocal has launched virtual reality tours of 128 popular attractions and hotels in the country, besides organising online classes, and webinars on tourism.

LokaLocal is looking to raise funds to tap new opportunities in Virtual Reality and has reached out to its investor, South Korea venture capital firm BonAngels Venture Partners, for networking opportunities, said co-founder Rachael Lum to DealStreetAsia. “They have been helping us look for potential partners to further our Virtual Reality service,” Lum added.

She admitted, however, that VR is no replacement for the real experience. “We don’t see virtual tours as an alternative to physical travel experiences; it simply opens up possibilities when it comes to destination marketing.”

Betting on domestic demand

While firms like LokaLocal are tapping new revenue streams, they are also focusing on domestic travel, which seems to be the only alternative until foreign tourists start arriving again. “Bookings have started coming back, mainly from expats living in Malaysia and locals,” said Lum. Foreign travellers comprised 80% of the pre-COVID customer base of LokaLocal.

Travel tech startup Tourplus, too, said it will focus on internal tourism for the rest of 2020 and 2021. “We are enhancing our business to target domestic travellers, offering location-based travel information through our app that allows them to find places of interest, food, things to do as well as prepare a travel plan (itinerary),” its founder and CEO Rickson Goh told DealStreetAsia.

The enhanced app will include a digital directory for merchants to list their shops and products. It will also have an option for travellers to write reviews. “Our investments continue to focus on building technology to capture more local travel data that allow businesses to understand new tourist behaviour,” he added.

Goh said his five-year-old firm is currently sustainable and is closing a seed round. “Our current investors [US VC firm] SOSV and [the Australia-based] Artesian will invest in this round,” he said, without divulging further details.

The Malaysian government, too, is lending a hand to the hospitality sector.

In June, it eased interstate travel restrictions and allowed most tourist spots and restaurants to reopen. Interstate short trips gained traction in Malaysia, after the outbreak was brought under control in July and August. “Malaysians are very fond of short get-aways, just to relax for the weekend or to visit relatives,” said Lilian See, head of research at the fund management company Eastspring Malaysia.

The government also announced several incentives including individual tax relief of up to RM1,000, deferment of tax payment for tour agencies, hotels, and other tourism players, and exemption of tourism tax, in June.

The measures are bearing fruit, according to Southeast Asia’s biggest travel startup Traveloka, which is backed by US travel giant Expedia, Chinese online retailer JD.Com, and Singapore state wealth fund GIC.

“Domestic tourism demand, especially staycation demand for four- and five-star hotels and resorts has increased up to 50 per cent [in June-September] especially in popular destinations such as Port Dickson, Malacca, and Cameron highlands,” Traveloka Accommodation (SEA), head of marketing, Varun Rai told DealStreetAsia. “Villas and apartments are getting higher demand compared to pre-COVID period,” he added.

Ditto for theme parks operated by conglomerate Sunway Group, which reopened in July. “Pent up demand for domestic tourism has been encouraging,” Sunway Malls & Theme Parks CEO HC Chan told DealStreetAsia. The group operates seven hotels across Malaysia.

The average occupancy rate in the country improved from 12 per cent in June to around 39 per cent in September, according to Yap Lip Seng, CEO of the Malaysian Association of Hotels, which represents 900 hotels in the country.

This has propped the incomes of many who depend on the sector for livelihood.

For instance, John Mah, who teaches diving in popular tourist destinations Redang Island and Tioman Island, said he became busy every weekend since mid-June. “Resorts on these islands are fully-booked during most of the weekends,” he said. “I’m much busier than pre-COVID-19 time. Maybe because everyone can only have their holidays within Malaysia.”

Not sustainable for long

This domestic demand-led revival, however, has come at a cost — heavy discounting and promotions.

Traveloka, for instance, has made several adjustments for post-COVID tourism, with special offers and discount coupons. Likewise, Sunway said it has partnered with AirAsia to launch special deals for its hotels and theme parks.

The incentives are necessary as domestic travellers don’t spend as much as foreign tourists.

Domestic travellers cannot offset the loss of revenue from foreign tourists, said Tourplus’s Goh. “Domestic customers’ spending behaviour is different from foreigners, hence revenue will be lost from a few segments, such as transportation, souvenir stores, and visitor centres, among others,” he added.

That explains why, despite rising occupancy, average room rates in the country are only 50-70 per cent of pre-COVID levels, according to data from Malaysian Association of Hotels. The hotel industry of Malaysia has a 55% dependency percentage on domestic tourists and 45% on international tourists. Generally, a domestic traveller has lower spending power compared to an international one,” said Yap. “Domestic tourism at the moment is driven by pent up demand, as well as the financial ease brought by the government’s loan moratoriums. Both are expected to end very soon,” he warned.

While domestic tourism cannot offset the loss from the absence of international tourists, it is still important for industry players to weather the ongoing crisis. It is also important in reviving international travel when the crisis is behind us.

“The positioning of Malaysia as a safe country for future visitors could start with domestic tourism,” said Traveloka’s Varun Rai. “This could be a draw for future travellers to choose Malaysia when the pandemic is over and borders are open to foreign visitors.”

Future outlook

While 2020 is far from the golden year that the tourism industry envisioned, all is not lost.

“The pandemic has impacted companies in the tourism sector with varying degrees but we have to take a long-term view that the market will eventually recover, perhaps by next year and as such, we are already planning on how to grab the opportunity when that arises,” said Gobi patners’ Jamaludin.

The pandemic challenged founders’ skills in managing their companies and gave an opportunity to assess their adaptability, creativity, and resourcefulness especially in making tough decisions, he said.

“The crisis is a good time to create or accelerate initiatives for us to optimise our strengths and emerge as an even stronger player,” Sunway Malls & Theme Parks CEO HC Chan said.

Sunway is investing in health and safety training and fittings, he added. “Once green lanes and international borders are open, a key consideration for tourists is the safety of the destination. Sunway has invested RM30 million in fittings and health training to ensure that we play a part in assuring tourists that Malaysia is one of the safest destinations to travel to.”

Hotel aggregator and owner OYO, too, has launched a comprehensive hygiene protocol and stepped up vigilance measures at its properties. These measures include minimal touch check-in and check-out systems, hygiene and safety training for staff, strict enforcement of social distancing norms etc, said Tan Ming Luk, OYO’s country head for Malaysia and Singapore.

OYO has also invested in revamping technology with improvements in its app for contactless check-in. “We will survive this crisis and emerge stronger,” he said, when asked if OYO needs to raise more funds from investors. “What we currently have on the balance sheet is sufficient for the long term.

Yet, there are still hurdles to be cleared before recovery sets in.

There are still risks, said Eastspring Malaysia’s head of research Lilian See, including the possibility of COVID-19 pandemic remaining in the community, and the possibility of new pandemics. “Prolonged risks of infection will delay the recovery of airlines and hospitality players.  We may see these players struggle to stay afloat, which means less choices for consumers in the future,” she said.

“Tourism is only expected to fully recover in four years, so until then the road to recovery is likely to be long for anyone in the travel industry,” LokaLocal’s Lum said.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.