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Troy Griffiths, deputy managing director at Savills Vietnam.

In most countries three- and four-star hotels are usually patronised by domestic tourists, and Vietnam is the same. In this golden age of domestic tourism for Vietnam then we can see that these are generally performing well. At present they’re somewhat affected by the international low season, however domestic travellers continue strongly.

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Infrastructure throughout Vietnam is developing at rapid pace with a multitude of 2nd tier cities now touting international capacity. This in turn pulls forward competitiveness and capacity, so for the short to medium term we believe hospitality and particularly the low mid star level are well positioned to take advantage of the boom in tourism. Local budget level is exposed the greatest to competition as capital levels are lower and therefore more easily accessed.

While the local budget hotel industry is still fragmented with very low application of technology, what are the potentials for hospitality startups and technology firms to tap into the industry here?

There is enormous potential in Vietnam for start-ups across all industries. The small and medium business environment is thriving, attracting seed money and capital relatively easily. Hospitality was already under pressure from running outdated business models and has had to adapt and change much more than many other asset classes.

In the era of Proptech and Industry 4.0, then booking platforms, word of mouth and social media all work to both disrupt and benefit hotels. Whilst AirBnB has totally disrupted and removed market share, at the same time Booking, Agoda and other platforms allow greater reach.

According to “The Technology Application to Tourism in the period of 2018-2020 oriented to 2025” developing technology will be a focus to improve Vietnam Tourism in the upcoming years. Mobile apps will be invested to improve tourism information and experiences, particularly such as virtual tour guide, translation. According to Travelport Digital – a mobile engagement platform for travel brands, 35 per cent of users downloaded a travel app to their smartphones to search for flights/accommodation, 27 per cent of them downloaded to book flights/accommodation, and 19 per cent keep them updated with travel notifications.

How will technologies change the domestic hospitality sector in the coming time, especially when globally renowned start-ups like RedDoorz or OYO have arrived in Vietnam, wishing to expand their operation and grasp opportunities in the local immature hospitality market?

Whilst these startups are foreign, as they enter then there is strong potential for intellectual property and value transfer to Vietnam. Really just think about any domestic hotel 10 years ago. At that stage there was very little experience, however after cooperating across many business models then that intellectual property and practice has now been transferred. Globally the hospitality sector has been ravaged by disruptors at every business level. These include AirBnB, fine dining restaurants, transport, tours and so on. Once the all-inclusive domain of hotels, these services are now breaking apart the hotel model.

There are already many home-grown providers in this space and there will be more to come. Accessing foreign knowledge helps the industry learn and mature effectively. Some of the Vietnamese start-ups are now operating in this space and have received very good support, think of Luxstay, Mytour, Vntrip, Ivivu and Vietnambooking.

International operators like OYO have sturdy practice templates that standardise quality. Since the hotels and place owners act as the franchisee, they’re bound to operate in line with the pre-determined standards. They have tapped into younger market segments through providing an affordable, instantly accessible service. For example, OYO uses innovative technology and provides reliability by ensuring every room has a minimum of aircon, a television, free Wi-Fi, clean linen, complimentary breakfast, hygienic washrooms and a toiletries kit.

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What advantages could these startups bring to their hotel partners in Vietnam when joining their global hotel network? How could those hotels change their occupancy when attached with these global brands?

Operating margins are very shallow at the budget levels and so efficient operations are critical, however the ability to increase revenue through greater occupancy and market share is also very important. International operators and booking sites offer this advantage and together the global brands offer loyal customers. There are many examples of intensely loyal customers following their brands. Whilst brand loyalty is now suffering some erosion as citizens are constantly bombarded with choice, it is still a strong driver of repeat bookings.

What challenges will Vietnam need to overcome in order to attract more international partners as well as add more value to its tourism industry?

Vietnam is in a very good situation and will lead APAC (PATA 2019) in compound annual growth rate (CAGR) growth at 14 per cent per annum to 2023.

Each country has its own unique challenges and opportunities. The recent boom in tourism is generally good for Vietnam, however, has developed rapidly and principally around a low value add or short tail of added services. Tourism is a wonderful contributor to GDP, mostly as it is sustainable and environmentally aware.

However, tourism can also include many people and services with their contributions, thus reaching a large cross section of the population. The issue is that Vietnamese tourism has successfully attracted the modest cost traveller. The Vietnam Tourism GDP multiplier is 1.6 (The World Bank 2019) whereas for the rest of SEA is 2.4 and globally up to 3.3.

In order to get a greater return and a longer tail, then tourism development needs to move up the value chain. To achieve this investment in infrastructure, human capital and assets will be required. Partners will be needed.