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Travel industry’s multiple threats

The latest results for Cambodia’s travel sector this week showed the Kingdom is still in the midst of an impressive recovery, but there are signs recent threats to the industry may be starting to take their toll.
With the knock-on effects from the Japanese tsunami, clashes on the border with Thailand, unrest in the Middle East and high oil prices, can Cambodia’s tourism sector end this year as well as it started?

In the shorter term, events on the border, in Japan and the Middle East have certainly slowed growth from the impressive 18 percent annualised rise in visitors recorded in January – total arrivals were up 13.9 percent for the first quarter. Most notable was the huge drop in Thai tourists, down 34 percent overall in the January-March period compared to last year as Thailand fell from sixth position in January to outside the top 10 in March in terms of tourist numbers to Cambodia. The drop in Japanese visitors was not as dramatic but there was a 6.6 percent fall on arrivals in March, the month in which the disaster hit the northeast of the country.

Although the Middle East is far less important a market for Cambodia in comparison to Thailand and Japan, the knock-on effects from turmoil in the region may be more profound in the longer term when the price of oil is factored in. Representing just 0.3 percent of all arrivals to the Kingdom, formerly promising growth in Middle Eastern visitors fell from nearly 21 percent in January to negative 0.8 percent in March.

Cambodia is likely to suffer more though from the recent rise in oil prices that have been fuelled by unrest in the Middle East – jet fuel is up a staggering 40 percent compared to the same time last year.

In recent weeks the result has been a flurry of rising fuel surcharges within the airline industry which has raised the cost of reaching Cambodia. Vietnam Airlines and Dragon Air have both increased fares this month, as Korean Air and Asiana did in April. Thai Airways has already raised its ticket prices three times this year and the national flag carrier Royal Angkor Air announced to agents last week it will raise its fuel surcharge for the first time following its mid-2009 launch.

“To cope with this (rising fuel prices), not only [has] Cambodia Angkor Air … made effort to optimise our productivity, we have also been carrying out many cost-saving solutions to partially cover the loss of our performance,” the airline said in an announcement to tour operators.

CAA is set to raise prices by US$2 per one-way fare between Siem Reap and Phnom Penh and $5 on international routes. Meanwhile, Air Asia reintroduced a fuel surcharge on Tuesday for the first time since November 2008, meaning flights from Kuala Lumpur to Cambodia on the budget carrier have risen $4 per one-way flight, or roughly just over 3 percent.

Analysts have pointed out that high fuel prices hardly dented passenger loads before the economic crisis, but then generally speaking major economies including the United States and United Kingdom were performing well then. They are not at the moment which coupled with other psychologically threats to the airline industry – including the recent killing of Osama Bin Laden – means travellers will be less inclined to fly.

With the rise in fuel prices outstripping the recovery and subsequent increase in disposable incomes in many countries, surely Cambodia’s tourism sector is facing a slowdown in growth as a result. The question is: How bad will it be?



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