VZCZCXRO0946
OO RUEHCN RUEHDT RUEHGH RUEHPB RUEHVC
DE RUEHHM #0356/01 1311026
ZNR UUUUU ZZH
O P 111026Z MAY 09
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5715
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 3755
RUEHHM/AMCONSUL HO CHI MINH CITY PRIORITY 5951
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000356 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
USTR FOR BISBEE 
TREASURY FOR CHUN 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV ETRD CVIS SOCI PGOV VM
SUBJECT: SOES THRIVE AS TOURISM FOCUS SHIFTS FROM INTERNATIONAL TO 
DOMESTIC 
 
REF: 08 HANOI 1391 
 
HO CHI MIN 00000356  001.2 OF 003 
 
 
¶1. (SBU) Summary:  While the global economic downturn has 
reduced the number of international visitors by 16 percent in 
the first quarter, domestic tourism continues to expand and 
firms catering to that sector of the market seem to be picking 
up some of the employment slack.  This is especially important 
because by some estimates, tourism employs over ten percent of 
Vietnam's workforce.  The prime beneficiaries of this shift are 
the state-owned enterprises that dominate Vietnam's tourism 
sector.  The GVN has led efforts to revive international tourism 
by reducing prices and fees.  These efforts have yet to show 
results, and many operators are calling for more aggressive 
promotion in overseas markets and the easing of visa 
requirements.  End Summary. 
 
Domestic Tourism Offsetting the Drop in Foreign Visitors 
--------------------------------------------- ----------- 
¶2. (SBU) Overall international arrivals have fallen over sixteen 
percent in the last three months, with international business 
travel plummeting by over twenty five percent (reftel).  The 
latter drop has hit HCMC, Vietnam's commercial hub, hard.  Five 
star HCMC hotels report record low occupancy rates of below 50 
percent, while luxury resorts along the central coast are 
filling only a quarter of their rooms.  The drop off has 
prompted the GVN, state-owned and foreign-invested tourism 
firms, as well as domestic tourism companies, to launch 
promotion campaigns, lower prices and cut costs in an effort to 
resuscitate demand.  Explosive growth in international tourism 
-- 4.2 million visitors last year, up from two million in 2001 
-- had been one of the drivers of Vietnam's economic boom. 
According to the Vietnam National Administration of Tourism the 
tourism sector employed over ten percent of the nation's work 
force while a World Economic Forum study estimated it comprised 
between four and eight percent of GDP in 2008. 
 
¶3. (SBU) While foreign tourists are staying home, Vietnam's 
middle class continues to travel, both domestically and 
regionally.  Vietnam Airlines (VNA) Boeing 777s on the HCMC to 
Hanoi run are usually packed, and the airline told us that while 
international traffic is down 20 percent year on year, domestic 
volume is up four percent.  Mr. My of Lua Viet Tours, which 
caters primarily to a Vietnamese clientele, said the company was 
adding tours to meet increasing demand.  The company's most 
popular international offering, a four day bus tour to Angkor 
Wat, Cambodia sells for $195 USD per person, all inclusive, and 
is usually sold out.  A two day $24 USD package to a beach town 
four hours from HCMC is the firm's most popular local tour. 
Local consumers are also keeping the bars and restaurants of 
HCMC's high end hotels afloat.  The manager of the HCMC Sheraton 
noted that while 85 percent of the five-star hotel's guests are 
foreigners (the hotel has not significantly lowered room rates), 
locals account for an analogous 85 percent of the hotel's food 
and beverage sales; they pack exclusive HCMC eateries on 
weekends to feast on pricey shark fin soup and abalone. 
 
¶4. (SBU) In fact, some companies catering primarily to 
Vietnamese tourists are doing very well.  General Director of 
Saigon Tourist, Mr. Nguyen Huu Tho, painted a rosy picture of 
the state-owned tourism conglomerate's finances:  average yearly 
profit increases of 25 to 30 percent, a fifty-four percent surge 
in customers served in 2008 (against an increase of less than 
one percent nationwide), and the construction of three to four 
new hotels every year this decade, all financed from retained 
earnings.  With over 100 hotels and resorts plus ownership of, 
or interests in, several airlines, golf courses, banks, and 
foreign travel agencies, the SOE's revenues surpassed $500 
million USD last year.  According to Mr. Tho, the global 
downturn has yet to slow growth, with revenues for the first two 
months of 2009 in line with 2008's record breaking increase in 
revenue.  As tourists economize by choosing cheaper lodgings, 
the occupancy rates at the three and four star hotels that make 
up the bulk of Saigon Tourist properties have remained over 70 
percent.  In contrast, Saigon Tourist's two five star HCMC 
hotels are only half-full, despite room rate reductions of up to 
30 percent.  Also, Vietnamese now account for some 50 percent of 
Saigon Tourist's revenues, which decreases the dependence on the 
foreign market according to Director of Saigon Tourist Travel 
Mr. Vo Anh Tai. 
 
'Impressive Vietnam' Campaign Impresses Few 
------------------------------------------- 
¶5. (SBU) Because the State has strong interest in supporting a 
sector that that contributes directly to provincial and national 
budgets, few are surprised that GVN has been trying to promote 
 
HO CHI MIN 00000356  002.2 OF 003 
 
 
tourism.  Responding to the global economic downturn, the GVN 
has sought to lower costs for the tourism industry by, for 
example, halving the value added tax (VAT) on tourism services 
to five percent.  The Vietnam National Tourism Association 
(dominated by State companies like Saigon Tourist) initiated a 
marketing campaign 'Impressive Vietnam' offering discounted 
package tours in the hope that cheaper prices will lure more 
international travelers.  Saigon Tourist is the linchpin in the 
GVN's 'Impressive Vietnam' price reduction campaign, with many 
of the firm's hotels or resorts offering reduced room rates. 
Most of the benefits involve bundling services available under 
the broad State umbrella -- Vietnam Airlines is offering fare 
reductions of 30 to 60 percent to the approximately 40 tour 
agencies that have signed on. 
 
¶6. (SBU) Few foreign-invested hotels are taking part because 
they prefer to maintain control of their pricing strategy and 
see little benefit from the program.  Tourism officials say the 
number of international visitors continues to slide.  Hoteliers 
and travel agency owners are particularly distressed at the lack 
of international advertising.  They insist that until it 
develops a tourism brand akin to "Incredible India" or "Malaysia 
Truly Asia" Vietnam's potential as a high-end tourism 
destination will not be realized.  Several private tour 
operators suggested funding an effective international promotion 
would be an appropriate use of GVN economic stimulus funds. 
Hoteliers and travel company officials called for stronger 
measures, most citing 'visa upon entry' travel and more 
aggressive promotion in overseas markets as key to rebuilding 
tourist numbers. 
 
SOEs Quietly Dominates Vietnam's Tourism Sector 
--------------------------------------------- -- 
¶7. (SBU) Most would be surprised at the level of State 
involvement in the tourism industry, one industry analyst 
explained, not just state-owned monopolies like Vietnam Airlines 
or historic colonial-era jewels like HCMC's Continental or 
Majestic hotels, but also substantial equity stakes in the 
five-star internationals.  After "reunification" in 1975 resorts 
and hotels in southern Vietnam were nationalized and were 
managed by the Ministry of Public Security.  "In the official 
mind" many hotels and resorts, or even the tourism sector in 
general, remains associated with "reunification", according to 
the director of a major 5-star international hotel in HCMC.  And 
although virtually all of the Ministry of Public Security 
officers that initially ran Saigon Tourist (and other tourism 
SOEs) have retired, an "MPS mentality still lingers" in the 
firm's corporate culture, according to the Director.  "The 
Majestic or the Continental could easily be HCMC's Raffles, but 
as currently run are not compatible with international five star 
standards" says another international hotel manager. 
International hotel managers likewise point to an unwillingness 
to turn over control of key assets to foreigners as being behind 
Saigon Tourist's decision to reject numerous offers by 
international firms to manage either hotel. 
 
¶8. (SBU) Private tourism companies, whether hotel/resort or tour 
companies, say competing with the SOEs is tough.  The private 
tourism sector lacks the scale, capital and preferential access 
to state-owned airlines, railroads and real estate to compete 
meaningfully with state-owned tourism conglomerates.  SOEs, 
especially Saigon Tourist, snagged most of prime HCMC hotel 
sites more than 30 years ago, and aren't interested in doing 
anything to benefit of their private sector competition. 
Private companies are shut out of many of the discounts offered 
by the 'Impressive Vietnam' discount promotion and can't 
effectively compete with Saigon Tourist's deep pockets and web 
of industry connections.  Mr. My of Lua Viet Tourist Co. says 
Saigon Tourist seems to get 'first pickings' of discounted seats 
on VNA flights, and when asked about Impressive Vietnam's 15 
percent discount on rail travel, simply noted that "Vietnam 
Railways has their own travel agency."   Mr. Nguyen of Hoi An 
Express travel said Saigon Tourist receives preferential land 
use and lease arrangements from local authorities not available 
to his resort properties.  He also noted that small tourism 
firms like his are not been able to take advantage of the GVN's 
Small Medium Enterprise loan subsidy program until they pay off 
existing loans.  He predicts that fewer than 20 percent of 
Vietnam's private tourism firms would survive a downturn lasting 
an additional year or more. 
 
Slowdown Forces Productivity Gains 
---------------------------------- 
¶9. (SBU) As elsewhere, the economic downturn has lead the 
 
HO CHI MIN 00000356  003.2 OF 003 
 
 
industry to cut costs wherever possible.  The manager of a 
foreign invested five star hotel in downtown HCMC fondly 
recalled the "salad days" of mid-2007.   With occupancy rates 
averaging 85 percent, the hotel often auctioned the last vacant 
rooms to the highest bidder, and focused exclusively on the 
business travelers then flooding HCMC, ignoring the tourist 
market as "too price sensitive".  Since the global downturn 
halved occupancy rates in the second half of 2008, the hotel has 
cut costs and contract employees.  Whereas one thousand 
employees served 300 rooms in 2007, now 800 staff cover 500 
rooms.  Employees have been cross-trained to multi-task and have 
foregone a yearly raise, while new technology has cut 
expenditures for water and energy.  As a result, the manager 
notes that although revenues are still down, profit conversion 
and productivity have increased, leaving the hotel well placed 
for the anticipated recovery. 
 
Comment: 
-------- 
¶10. (SBU) The effects of the global downturn on Vietnam's 
tourism industry mimic its impact on the broader economy.  While 
international tourism is down, domestic travel, part of a 
broader picture of steady domestic consumption, remains buoyant. 
 A long downturn will likely trim the ranks of the private 
domestic tourism sector, concentrating even more of the industry 
in state hands, but will leave a more productive core of 
surviving private sector firms.  Similarly to the export 
manufacturing sector, tourism would also benefit from the GVN 
making use of the economic slowdown to "catch up" in 
transportation infrastructure.  Improved transportation links 
between tourism destinations would encourage repeat visits and 
longer stays, allowing Vietnam to emerge from the economic 
downturn better able to compete with its neighbors for the 
tourist dollar.  End comment. 
 
¶11.  (U) This cable was coordinated with Embassy Hanoi. 
FAIRFAX