No
one doubts the impact of Covid-19 will be felt in every sector, from airlines
to hotels and startups. A report from Velocity Ventures, a VC fund based in
Singapore, for example, anticipates a drop in funding of 25% for startups in
South-east Asia. But all are keeping an eye on when recovery will kick in.

At GlobalData, director of Automotive and Travel & Tourism
Consulting, Animesh Kumar, observed that tourism-dependent countries in Asia would
bear the brunt of the impact as China outbound numbers drop dramatically.

According to GlobalData, China accounted
for about 12% (159 million) of global outbound travel in 2019. Chinese outbound
also had the second highest spending in last year, amounting to approximately US$275bn.

“In Vietnam, tourism… contributes 6-7% of
the GDP. Due to the impact of coronavirus, Vietnam tourism industry can witness
a decline of US$3-7b. The scenario is similar in other key tourist destinations
in South-east Asia as countries like Thailand, Malaysia and Singapore are
expected to lose US$3-6bn in tourism-related revenues,” explained Kumar.

Velocity Ventures, a private Venture
Capital fund, based in Singapore, which has also issued a report, “Covid-19:
Impact & Outlook On The Travel and Hospitality Industry in South-east
Asia”, echoes similar sentiments, pegging Chinese tourism as up to 10.5% of
Cambodia’s GDP, 5.9% of Thailand’s GDP and 3.4% in Vietnam. 

Velocity Ventures’ report also assessed the
SARS outbreak in 2003 as a potential indicator of what the landscape could look
like, once the dust begins to settle. In 2003, ASEAN saw international arrivals
drop by 5.4m, a decline of 13.2% YOY. Singapore saw a 30% decline in tourist
arrivals in Q2, 2003, while Thailand’s tourist arrivals dropped by 46%-55%.

Despite the plummet, the report also stated
that recovery was swift, with arrivals growing by 31.1% the following year in
2004. Short-haul flights were the first to recover, followed by long-haul. It
argued that post-SARS, outbreaks (like bird flu, swine flu and MERS) had a
diminishing level of impact on international arrivals, as countries were better
prepared each time around.

Tourism spending inevitably experienced
wobbles too, the report added. Sudden drops in international tourism receipts
align with various virus outbreaks and financial crises that occurred between
1995-2017. However, the ASEAN tourism and hospitality industry still saw a
compound annual growth rate of 7.1%.

It aligns with Singapore
Tourism Board
’s predictions that the Covid-19 outbreak would be comparable
or worse than SARS, but that it is “better prepared and more resilient.” STB has
declared plans to assemble a Tourism Recovery Action Task Force (TRAC) to map
out recovery strategies, pulling together Singapore’s private and public
tourism sectors.

The world is still watching and waiting for
Covid-19 to reach its peak, which can then act as the ‘starting point’ for
global recovery. Currently, Velocity Ventures predicts that this might be
around April or May 2020.

It also anticipates post-peak recovery will
be roughly similar if not shorter than SARS, which took four to five months.
The report estimates a full economic recovery in five to nine months
(post-peak).

However, it has yet to be seen whether the drastic measures taken by international governments to contain the virus will have paid off. The effectiveness of containment measures will only be well understood by end-February, which will inevitably impact recovery timeframes.

VC
funding in South-east Asia could drop by 25% short-term

Velocity Ventures forecasts that private
equity and VC funding would dry up in South-east Asia by as much as 25% in the
short-term, pushing startups to rely on their own cash flow for one or two
quarters.

It predicts that any B2B startups servicing
large travel and hospitality corporates might struggle, as corporate priorities
shift away from investment during the crisis. “Corporates will be focused on
business continuity plans, cost management issues as well as supply chain
impact resolution, and therefore engaging start-ups might not be as much of a
priority in the short-term,” said Nicholas Cocks, CEO, Velocity Ventures.

The report recommends that startups manage
their marketing expenses and other costs carefully. It also suggests that
startups with “weaker balance sheets” could face consolidation.

Nevertheless, the most agile startups may
be able to discover new business opportunities and adapt accordingly. It could
embrace the market’s reduced appetite for investment as a chance to continue
developing their existing products or to consider looking at developing new
ones.

Said Patrick Imbardelli, chairman, Velocity
Ventures, “In challenging times, disruption and new ideas often emerge. This
will create opportunities for start-ups to explore new ideas and develop
alternative channels and business opportunities.”

Recovery
can be swift, if we are brave

While the world waits with bated breath to
see how far the virus will spread, there is still space for optimism as the
industry prepares itself to bounce back. Whilst the industry takes every
precaution to quell any fears, it
must also be brave
in how it works to prepare itself for the future.

Velocity Ventures regards Covid-19 as “less
severe and likely to also have a shorter recovery [period] than SARS, due to
more rapid & transparent information flow, and swift, drastic global
measures.” It suggests recovery could potentially be as soon as July to August
2020.

The need for travel won’t dissipate either
and it predicts that travel numbers will bounce back relatively swiftly. “I do
anticipate that there will also be a build-up of pent-up demand (from both
business and leisure travellers) that will generate growth after the outbreak
ends and travel patterns normalise,” said Imbardelli.

It is up to every player in the industry to
prepare itself for that comeback, so that recovery can be swift and the
region’s growth trajectory can continue to increase.

For example, Singapore Tourism Board has stated its aim to position the tourism sector for a strong recovery so that it will be “quick off the blocks”, by working to maintain or even grow Singapore’s brand equity, while supporting local players’ ability to develop new capabilities during the downturn.

Lead image: Getty Images