How will spending patterns look this year based on the way South-east Asian consumers spent their money in 2023?
In the first half of 2023, we saw consumers returning to normal shopping habits and spending more after the lockdowns and restrictions were lifted. However, in the second half, this trend slowed down, which affected spending on non-essential items such as apparel and household goods. Spending on food, both dining out and groceries, remained important for consumers, as they adjusted their priorities due to higher food prices.

We see 2024 as a year of recalibration, as consumers adjust their spending habits, prioritising travel and dining out, although data shows varying levels of interest across different markets.

Mass market consumers could also spend a higher portion of their wallet on essentials, which have seen bigger relative price increments in many markets. We anticipate that consumers will continue to prioritise spending on essentials such as food while spending on non-essential items, especially larger purchases like furniture and electronics, may remain subdued.

Consumers continue to prioritise experiences over material goods post-pandemic. This preference for experience-based spending is evident in the strong consumer interest shown in Taylor Swift’s The Eras Tour and Coldplay’s Music Of The Spheres world tour, two of the biggest acts that toured Singapore this year.

Now, where does travel fit into their spending plans this year?
Travel will continue to be a priority for consumers in South-east Asia. However, we see the affordability of destinations and airfares playing a significant role in their choice of destination and the focus of their travel spend.

According to data from the Mastercard Economics Institute, Singaporean travellers are favouring North-east Asian destinations like Japan and South Korea even more than before. This trend is likely due to the strength of the Singapore dollar and improved flight connections to these destinations.

In contrast, Malaysian travellers are opting for closer and more budget-friendly destinations such as Thailand. The weaker Malaysian ringgit prompts travellers to seek a balance between lower airfares and affordable destinations.

For Indonesian consumers, in the first quarter of this year, we saw a rise in the share of wallet allocated to travel. This surge was driven by middle- and high-income individuals who had accumulated significant savings during the pandemic and chose to spend on revenge travel. Outbound travel has now almost fully recovered to 2019 levels, with departures from Indonesia to South Korea, Japan, Hong Kong, Malaysia, Thailand, and Vietnam already higher than pre-pandemic levels, while more costly destinations such as Australia and the US are still lagging.

In the same timeframe, Filipino consumers have reduced their spending on household durable goods, instead preferring out-and-about spend such as dining out and apparel. Spend on travel has been resilient, with a strong growth in hotel and restaurant sales, which suggests many travellers in the Philippines are opting for domestic stays over international destinations. One reason accounting for the weaker appetite for overseas travel is the weak peso, which in US dollar terms reached just 55 per cent of 2019 levels by 3Q2023.

It’s a slightly different picture for the Singaporean consumer for the same period, where household budgets were under pressure from high mortgage servicing costs. In addition, a sharp rise in food prices has led to an increase in spending on groceries and dining out. Although we saw the share of spend on travel fall, this was likely due to the strong Singapore dollar helping to offset increases in holiday expenses overseas, rather than an actual cutback in Singaporean consumers’ appetite for travel.

We see that in terms of outbound travel, Singapore resident departures has almost fully recovered to 2019 levels, with North Asia and South-east Asia as the most popular regions.

There is talk of revenge travel losing steam in 2024 – is Mastercard seeing this happening?
Not from a South-east Asian perspective. Specifically focusing on our data on outbound travel, the number of trips made by residents of any source country has only slightly surpassed 2019 levels in recent months. This suggests that capacity constraints and high airfares over the past two years have hindered consumers from fully satisfying their pent-up demand for travel.

Weak emerging market currencies have also tempered the enthusiasm of middle-income consumers for outbound travel, turning it into more of a privilege for affluent travellers from these markets.

Looking ahead, the expansion of budget-friendly flight connections within the region will help reduce the cost of air travel.

In addition, disposable income is expected to improve as salaries rise and inflation eases across the region. Although affluent travellers may lose some momentum, improved travel affordability should attract relatively less affluent travellers to take their place.

We have no doubt that South-east Asian outbound travel will continue to grow this year and beyond. What will be interesting to watch is how travellers adjust their spending priorities at destinations and among the various available options in response to affordability considerations.

What should travel and tourism players do to maximise business potential?
The travel and tourism market in South-east Asia is poised for substantial growth in the coming years. Projections indicate that by the end of 2024, the market’s revenue will reach an impressive US$31.53 billion.

While Singapore has traditionally been a top contender for tourists, ranking 11^th place in Euromonitor International’s annual Top 100 City Destinations Index 2023, other countries in South-east Asia are now emerging as popular tourist destinations for different reasons.

A notable shift is the increasing consumer preference for contactless digital payments, including QR codes, digital or mobile wallets, biometrics, and more. These preferences will be instrumental in sustaining the ongoing recovery and future growth of travel.

For example, the Tourism Authority of Thailand (TAT) is open to collaborate with card networks, wallet players and airlines to boost inbound tourism. Embracing a digital-first mindset is essential for sustained growth within the travel industry, making it crucial for the stakeholders to stay attuned to technological changes to ensure ongoing success and satisfaction. Wellness tourism is a key priority for TAT and Thai travellers – 77 per cent of Thai travellers are seeking to recenter the mind through meditation or mindfulness. Sixty-five per cent Thai travellers are looking for travel that focuses on mental health or that helps with life milestones.

To keep growing, travel and tourism players must adapt to evolving consumer preferences. At Mastercard, based on the key trend of travellers prioritising spending on experiences over things, we have partnered with Singapore Airlines (SIA) to elevate travel experiences for Mastercard cardholders across South-east Asia. Through this collaboration, we extend the Mastercard Priceless platform to offer SIA’s KrisFlyer members special deals, global promotions, and exclusive access to a diverse range of curated experiences. These experiences encompass dining, travel, sports, music, entertainment, and more, available worldwide.

Now is the time for all travel stakeholders to proactively adapt to this trend, or risk being left behind. As new opportunities emerge, we encourage all players in the eco-system to invest and make the necessary changes to ensure they remain relevant for consumers and are able to adapt to and help shape the future of payments in the travel sector.

The outlook you have painted seems rosy. What macro conditions could impact South-east Asia’s projected travel spend in 2024?
The beginning of this year started with a generally optimistic outlook, marked by the complete lifting of travel restrictions and the reopening of destinations across the Asia-Pacific region, such as China. The projected travel spend in South-east Asia for 2024 could be influenced by several macroeconomic conditions, particularly related to disposable incomes and travel affordability.

Positive factors include an increased travel affordability due to more budget-friendly flight options and competitive pricing by full-service carriers as capacity expands. Additionally, a general softening of inflation coupled with rising salaries is expected to bolster travel demand.

On the flipside, we are now seeing emerging challenges that could impact travel spending. The geopolitical tensions in the Middle East have disrupted shipping routes, potentially leading to increased energy commodity prices, which could drive up food and fuel costs in the region. This rise in essential commodity prices, coupled with poor weather affecting food production, has already caused a resurgence in food inflation in certain South-east Asian economies, such as Indonesia and the Philippines.

If these cost pressures persist and essentials become more expensive, consumers might adjust their spending priorities. They could travel less frequently, change their holiday spending behaviour, opt for more budget-friendly destinations, or prioritise domestic travel.

Another concern is the potential for sustained higher interest rates due to persistent inflation. The currency pressure of the strong US dollar against Asian currencies may discourage central banks from cutting interest rates, which could prolong mortgage servicing pressures and continue to weigh on consumer spending.

In summary, while several positive economic factors are expected to support travel spending in South-east Asia in 2024, challenges related to geopolitical risks, inflationary pressures, and interest rate dynamics could potentially dampen travel expenditure by affecting consumer behavior and affordability.