Explained: Why the Ukraine conflict spells trouble for tourism in Thailand and Vietnam

A lack of Russian tourists has dashed hopes of a swift recovery for the countries' tourism industries.

Phuket is a popular Thai tourist destination for Russian tourists.

In pre-pandemic times, most foreign visitors to Phan Thiet, a city in southern Vietnam that is affectionately known as "Little Moscow," were Russian. Not too far away in Nha Trang, the capital of Khanh Hoa province, restaurant menus are translated in Russian and Mandarin. At beachside resorts, Russian food dominates the buffets. Tour agencies have popped up to cater only to Russians. This is partly a result of history. The Soviet Union was one of communist Vietnam's only friends in the 1980s, when the country was an international pariah. About 50 kilometers (31 miles) from Nha Trang city lies Cam Ranh Bay, where Soviets controlled one of their most important naval bases in the region.

As Vietnam was set to reopen its ailing tourism sector this month, after almost two years of closure due to the pandemic, tourism authorities had expected Russians to make up a far larger share of visitors than in normal times. On December 26, Khanh Hoa province welcomed the first group of Russian tourists back since March 2020, when Vietnam closed its borders. But the Russian invasion of Ukraine, which is now in its fourth week, has soured expectations of a substantial recovery for Southeast Asia's tourism sector this year.

A 'huge blow' to islands favored by Russian tourists

It is a "huge blow" to places such as Khanh Hoa province and Phu Quoc, a southern island, "which are the favorite destinations for Russian visitors," said Nguyen Khac Giang, an analyst at the Victoria University of Wellington. More debatable is how it impacts Vietnam's national tourism industry, he added.

In 2019, before the pandemic struck, Russians accounted for just 3.5 per cent of all foreign visitors to the country. On the other hand, their spendthrift habits make Russians far more valuable to local tourism markets than their numbers suggest. They spent an average of $1,600 (€1,455) per stay, whereas the average foreign visitor forked out just $900, according to a survey by Vietnam's National Administration of Tourism in 2019.

It's a similar story for Thailand. In 2019, Russians accounted for just 4 per cent of all visitors to the country in 2019. But they made up a far larger share of tourists in hotspots like Phuket, and the Thai authorities were banking on Russians being willing travelers in 2022. After authorities launched the "sandbox" schemes in July, in which vaccinated foreign travelers do not have to undergo quarantine, Thailand has had more tourists from Russia than any other country, the South China Morning Post recently reported. In Thailand's sandbox schemes, the share of Russian visitors increased from 2.8 per cent in September 2021 to 17.7 per cent in January 2022, said Hannah Pearson, a founding partner of Kuala Lumpur-based tourism consultancy Pear Anderson.

Russian tourists unable to spend due to sanctions

Because of international sanctions imposed on Russian banks and companies, there have been reports of Russian tourists unable to use their credit cards while in Southeast Asia. Local media have also reported on stranded Russian and Ukrainian tourists in Thailand, and the Tourism Authority of Thailand has had to take action, liaising with airlines and asking hotels to offer low-cost accommodation.

The number of Russian tourists arriving into Phuket's airport has fallen by about 80 per cent since the beginning of March, Bhummikitti Raktaengam, the president of the Phuket Tourist Association, told local media this week. "These uncertainties may make tourism stakeholders in the region nervous about welcoming Russian tourists, worried whether payments will go through — and tourism boards will certainly be thinking twice about targeting the Russian outbound market in the near future," Pearson said.

In 2019, Russians accounted for just 1.7 per cent of all tourists who visited the Association of Southeast Asian Nations region, according to the bloc's database. Ukrainians accounted for just 0.04 per cent of all visitors. But the region's tourism authorities had expected Russians to make up a far greater share of international visitors this year, chiefly because the Chinese government is set to maintain its "zero-COVID" policy, which severely limits outward travel and enforces lengthy quarantine rules upon returning, throughout 2022. In 2019, the Chinese were by far the largest share of foreign visitors to the region.

Vietnam and Thailand were reportedly expecting to welcome about 1.8 million Russian tourists this year, a goal that now appears very unlikely and could hamper economic recovery efforts for the decimated sector. Pre-pandemic, tourism accounted for about 12 per cent of the region's GDP, and a fifth of Thailand's workforce was employed in the industry. About 74 per cent of investment projects approved in Cambodia in 2019 went into the tourism sector, according to central bank statistics. But international visitor arrivals fell by 82 per cent in 2020 and 98 per cent in 2021, compared with 2019 levels, as a result of the pandemic and bans on inward travel. The region's governments had expected 2022 to be the year of recovery. Much of this region is now open to fully-vaccinated visitors.

Impact on 'all airlines, markets and regions'

Besides losing Russian visitors,the war in Ukraine is expected to have far-reaching implications. "The Ukraine conflict is impacting all airlines, all markets and all regions," said Brendan Sobie, an independent analyst and founder of Singapore-based firm Sobie Aviation. Southeast Asian airlines have relatively little exposure to the Russian market, he said, noting that the region's airlines will not be massively impacted by bans of many international flights from passing over Russian airspace.

Nonetheless, they will suffer indirectly. Russia is the world's largest exporter of oil, and second-largest exporter of crude oil. Its war on Ukraine has resulted in oil and gas prices spiking across the world. As a result, airlines are raising their costs. AirAsia Malaysia has already said it will reimpose fuel surcharges, a fee waived since 2015. Days later, Malaysia Airlines said it would also do so from March 23 on certain routes. More expensive flights could also reduce the number of international travelers in Southeast Asia, analysts say. So, too, could economic downturns and rampaging inflation elsewhere in the world.

Because of the economic consequences of the war in Ukraine, Goldman Sachs revised its growth forecasts for the eurozone down to 2.5 per cent this year, compared with a previous estimate of 3.9 per cent, while it reckons that the U.S. economy may only grow by 1.7 per cent this year. How much of an impact all of this has on Southeast Asia's attempts to kick-start tourism remains to be seen, but optimism on the part of the region's tourism authorities appears to be souring, and this is on top of the expected shortfall of Chinese visitors to the region this year.