Southeast Asia, part 1: How low-cost options, mobile reliance are driving travel transformation

Despite its relatively small geographic size, Southeast Asia is one of the world’s most diverse regions, and with 650 million people, its population is larger than North America.

Generally defined as the 10 member states of the Association of Southeast Asian Nations - Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Laos, Myanmar, Cambodia and Vietnam - Southeast Asia has a wide range of languages, religions, cultures and economic development.

But the overall picture is one of growth.

At a meeting of the ASEAN economic ministers in August 2018, the association reported that if the region were a single country, it would be the world’s fourth-largest economy by 2030.

One reason for this upward trajectory: a very young population that’s giving the region a huge labor force, estimated to be second only to China and India. As of 2017, more than half of the region’s residents were between the ages of 20 and 54, with another 34.5% below 20.

These figures are, in part, the reason travel and tourism predictions for the region are generally positive, forecasting increases in both intra-ASEAN travel and international visitation.

According to GlobalData’s March 2019 report, Tourism Destination Market Insights: ASEAN, the region is one of the fastest-growing destination regions in the world.

The report predicts a compound annual growth rate of visitors of 4.72% between 2018 and 2022, from 129.2 million to 155.4 million people.

“As disposable incomes rise, solo travelers, families and couples are all attracted to the ASEAN region for its beauty, range of activities and friendly locals. Backpacking, medical and wellness travel and food tourism will be some important trends for the countries to embrace in order to increase their appeal further,” says Laura Beaton, travel and tourism analyst at GlobalData.

Throughout October, we're examining the travel landscape in Southeast Asia, beginning with an overview of market characteristics and followed by a look at the startup scene, regional brands and emerging issues.

Background

A report published Thursday from Google, Temasek and Bain & Company, “E-conomy SEA 2019,” highlights the value and continued growth of the internet economy in Southeast Asia’s six largest markets - Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam - and its impact on travel.

The report says online travel in the region grew to $34.4 billion in 2019, up from $19.4 billion in 2015, and it’s predicted to more than double to $78 billion by 2025.

That means online travel, one of five sectors analyzed, currently represents one-third of the total internet economy in the region, which has now crossed $100 billion in value. The other sectors are online media, ride-hailing, e-commerce and digital financial services.

Of the six markets studied, Indonesia has the largest online travel market, currently worth $10.2 billion and estimated to grow to $25 billion by 2025. Second is Thailand, now at $7.2 billion but on track to reach $20 billion by 2025.

Mobile, not just first, but only

According to Phocuswright analyst Chetan Kapoor, despite the region’s diversity in many characteristics, there is one consistent theme.

“One thing unifying them is when it comes to online, they are so overwhelmingly mobile driven, anything and everything to do with it,” he says.

The Google study underscores that point.

According to the report, “Just over a decade ago, four in five Southeast Asians had no internet connectivity and limited access to the internet. Today, Southeast Asians are the most engaged mobile internet users in the world. There are 360 million internet users in the region and 90% of them connect to the internet primarily through their mobile phones.”

They are doing so for many hours each day. In its Digital in 2019 report, We Are Social and Hootsuite list Thailand as first, the Philippines second and Indonesia fourth in the world for time spent per day using mobile internet.

That high mobile adoption is impacting how consumers in this region research and book travel. 

“The young population and the smartphone penetration is increasing, so younger people who are tech savvy are moving to book travel online,” says Phocuswright analyst Coney Dongre.

“It’s increasing rapidly. Indonesia is one of the fastest online travel markets in the world. And it’s not small; it’s the fourth most populous nation in the world, so the share of millennials is more and them taking up online travel is a huge trend in the region.”

For many of these young consumers coming online, “super apps” such as Go-Jek and Grab are becoming their platforms for all interactions and e-commerce.

Grab began with a focus on ride-hailing and has now expanded to dozens of services including food delivery, financial services, on-demand video and, as of April of this year, hotel booking through partnerships with Agoda and Booking.com. Shortly after that announcement, Go-Jek launched hotel booking called Go-Travel in partnership with Tiket.com. 

“Mobility-based super apps have certainly changed the way people in Southeast Asia move around, order food and pay for local services, but it’s too early to say whether customers are actually booking travel through apps such as Grab,” says Yeoh Siew Hoon, founder of WebInTravel.

“But it is clear these super apps are where the customers are, and travel marketplaces have to make themselves available where the customers are. In this regard, it’s not that different from other markets - travelers now have a plethora of choices of where to book, and apps that have high-frequency usage, such as messaging or ride-hailing or payments, have the advantage.”

The Google report echoes this idea that super apps are a strategy to win the consumer engagement battle: “Companies are switching their focus from acquiring new customers to driving engagement. Their goal is to convince users to stay on their platforms for longer, in the belief that purchases will follow. ... This has ignited more intense competition, while providing users with more choices and lower prices.”

Budget brands

For both air travel and accommodations, budget brands are critical parts of the growth story for the travel industry.

...these super apps are where the customers are, and travel marketplaces have to make themselves available where the customers are.

Yeoh Siew Hoon - WebInTravel

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“Southeast Asia was the launchpad for low-cost carriers in Asia - Air Asia, LionAir - so Asians in that context are pretty adept to researching travel online, particularly flights,” Kapoor says.

“And airline providers command a fair share of travelers’ attention because of the way they operate - they want to minimize their distribution costs.”

According to the Centre for Aviation, seat capacity in Southeast Asia has more than doubled in the past decade, from about 200 million seats in 2008 to nearly 530 million in 2018, and most of that is attributed to low-cost carriers. These airlines now control at least 50% of the capacity in the five main markets - Indonesia, Thailand, Vietnam, Malyasia and the Philippines - driving a surge in domestic and regional travel. 

IATA says Indonesia and Thailand are two of the fastest-growing aviation markets in the world. By 2030, Indonesia is expected to rank fourth in the world. 

On the accommodations side, budget hotels across the region are experiencing massive growth, led by Singapore-based RedDoorz and India-based OYO Hotels & Homes, which are standardizing operations and adding digital marketing for small, locally owned properties.

According to the Google report, “Queries for selected budget hotel brands soared in 2019, up more than nine times compared to 2015.

“These companies offer reliable accommodation at a fraction of the price of international hotel brands, aimed at youth and cost-conscious travelers from within and outside of Southeast Asia,” the report states.

In fact, according to consultancy Horwath HTL’s 2018 Asia Pacific Chains & Hotels Report, only Singapore - the most westernized destination in Southeast Asia - has a majority (55%) of rooms operating as part of chain brands. Most other markets are substantially less, including Thailand (6.6%), Indonesia (6.5%) and Vietnam (1.7%).

Vacation rentals are also growing in popularity in the region, with queries for “leading vacation rental brands [up] more than threefold in 2019 compared to 2015,” according to Google.

The report say: “As a pioneer of vacation rental services, Airbnb is an exemplification of the entire category. Online aggregators Agoda, Expedia and Traveloka, however, have been building their own suite of rental accommodations to challenge the leader.

"With clearer and more supportive regulations on short-term property rentals, these services could facilitate the development of the tourism sector across the region.”