The beaches, cities, cultural treasures and nature spots found in Malaysia are increasingly on international travellers’ must-see lists. Both the Malaysian government and private sector are keen to encourage this trend and have taken many concrete steps in recent years to ensure that more and more visitors – be they for business, leisure or both – cross the country’s frontiers every month. In a year marked by the tragedy of Malaysia Airlines flight MH370, which disappeared on March 8 en route from Kuala Lumpur to Beijing and despite international collaborative efforts had not been found as of August, the industry is making a strong effort to regain the confidence of travellers, both foreign and local.
Adding The Numbers
In 2014, revenue from the tourism sector is expected to contribute around 12.5% to Malaysia’s GDP, up from about 12% in 2013. This would amount to about RM125bn ($39bn), according to statements made by Prime Minister Najib Razak in February 2014. According to a press release issued by the Ministry of Tourism (MoT) in March 2014, tourism was the sixth-largest contributor to the economy in 2013, making up RM51.5bn ($16.1bn) of gross national income, from seventh place in 2012, when it made up RM47.2bn ($14.7bn). Average tourist spending per person was RM2544.90 ($794) in 2013, up from RM2419.10 ($755) in the previous year. The World Travel & Tourism Council (WTTC) estimates that tourism’s direct contribution to Malaysia’s GDP will grow by 5% per year to reach RM113.3bn ($35.4bn) by 2023, then making up 7.7% of GDP. In 2012 tourism was also the second-largest foreign exchange earner. Within the tourism sector itself, shopping was second-largest area of tourism expenditure after accommodation, making up RM18.6bn ($5.8bn), or 30.7% of total receipts, an increase of some 6.3% on 2011 figures.
For the second year in a row, Malaysia ranked number 10 by arrivals in the UN World Trade Organisation’s (UNWTO) “Tourism Highlights 2013”, a rating of the top tourist destinations in the world. According to the Malaysia Tourism Promotion Board (MTPB, more popularly known as Tourism Malaysia, TM), the country saw 25.7m tourist arrivals in 2013, up from 25.03m in 2012. The WTTC forecasts that, by 2023, foreign tourist arrivals to Malaysia will reach 45.6m.
As for visitor mix, the MoT reported that ASEAN remained the largest source of visitors in 2013, with more than 19m arrivals, or 74% of the total. By country, Malaysia’s top 10 source markets were Singapore, Indonesia, China, Brunei Darussalam, Thailand, India, the Philippines, Australia, Japan and the UK.
One reason for such arrival statistics is that Malaysia has topped the lists of Muslim-friendly destinations, according to Muslim travel firm Crescentrating, which conducts an annual study measuring tourists’ ease of access to Muslim-friendly facilities in 50 countries. The company’s 2013 study found that Malaysia’s ease of access to prayer facilities and halal food, its Muslim-friendly hotel service and its visitor safety profile were the best of all the countries compared, surpassing Egypt, the UAE, Turkey, Saudi Arabia and Singapore.
Indeed, in 2012, Forbes Online named Malaysia the 10th friendliest country in the world thanks to its high quality of life, satisfying social life, unproblematic local travel and good housing standards. In 2013, CNN named Terengganu’s Pulau Perhentian Kecil, Tioman Island’s Juara Beach and Langkawi’s Tanjung Rhu three of its 100 best beaches.
A National Strategy
Recognising the importance of tourism to the economy, and seeing in it a key competitive advantage for the country, the government has taken a hands-on approach to the tourism sector in recent times. This has involved promoting a global marketing scheme to highlight the country’s tourism assets, while enacting a range of incentives and initiatives to develop the sector.
Under the Economic Transformation Programme, the government’s long-term plan to make Malaysia a high-income country by 2020, tourism is one of 12 National Key Economic Areas (NKEAs) – sectors targeted for special focus. A key element of the NKEA strategy is to encourage public-private partnerships as well as cooperation between government and industry players and associations.
The Malaysia Tourism Transformational Plan is one facet of the tourism NKEA. Its goal is, by 2020, to welcome 36m tourist arrivals, who are expected to spend some RM168bn ($52.4bn). The plan forecasts that tourism will contribute around RM3bn ($936.3m) of revenue per week by the target year. To achieve this goal, the government has launched a number of Entry Point Projects (EPPs) to promote specific subsectors, such as business tourism, international events, flight connectivity, entertainment, eco-nature resorts, biodiversity, cruise tourism, spa regulation, hotel quality enhancement and golf. Three of these EPPs also promote shopping in various ways.
In addition, while presenting the 2014 budget in Parliament on October 25, 2013, PM Razak announced a RM2bn ($624.2m) allocation for soft loans at 4-6% interest rates. These will be made available to the Special Tourism Infrastructure Fund via Bank Pembangunan Malaysia. The prime minister said that these special funds would go towards investing in building up the country’s tourism infrastructure – resorts, hotels and theme parks – as well as tourism-related equipment.
To further boost the sector, the Malaysian Investment Development Agency has instituted a wide array of incentives for investment in the tourism industry. These grant pioneer status and investment tax allowances to investors in many areas of hotel and tourism projects, including eco- and agro-tourism; the luxury yacht industry; overseas promotional activities; tour operators; and construction of international conference centres and trade exhibitions. Incentives are also available for medical tourism and the recruitment of medical specialists. Operators of private hospitals and ambulatory centres that wish to expand or establish new operations are entitled to receive tourism infrastructure funding and special tourism allocations.
The regulation and promotion of the domestic tourism industry is overseen jointly by the MoT and TM. Recent years have seen these two agencies launch of a number of new regulatory initiatives. While the bulk of these have focused on the cruise industry (see analysis), other changes have targeted the upgrading of hotels and the home-stay programme, and creating a new rating system for hotels and spas. To ensure an ample number of international-standard hotels, the government is encouraging investments – predominantly in new four- and five-star hotels – by extending the application period for pioneer status and investment tax incentives to the end of 2016.
Meanwhile, pilot testing of new standards for home-stays is scheduled to take effect in 2014. After the trial has been completed, full implementation is planned for 2015. The regulations are being rolled out throughout the ASEAN, but Malaysia’s MoT has taken the position of lead coordinator for implementing the new standards. The new regulations, which cover matters such as lodging, food hygiene, ecological sustainability and visitor participation in community events, will be valid for three years, after which they will be reviewed by ASEAN ministers. TM has also instituted an official star rating system for spas and hotels operating in Malaysia, aimed at ensuring quality and hygiene. Only rated spas and hotels are entitled to promotion via the MoT.
Place To Stay
Average hotel occupancy rates in 2012 were 62.4%, up from 60.6% in 2011. Hotel guests totalled more than 56.1m in 2012, up 4.3% from the previous year’s 53.7m, according to TM. Meanwhile, average room rates were $109-110 per night in 2013, about the same as in 2012, according to the Malaysian Association of Hotels.
The country is also increasing its share of high-end hotels, as a number luxury hotels prepare to welcome visitors over the next few years. Almost all of these upcoming luxury projects are located in the Bukit Bintang-Kuala Lumpur City Centre (KLCC) area, which receives special focus as an EPP under the Tourism NKEA, with an eye to making the area Malaysia’s premier shopping district.
The first new luxury hotel scheduled to open its doors, on November 1, 2015, will be the 200-room St. Regis in the Sentral Precinct, to be outfitted with three restaurants, meeting facilities and the Remède Spa. A second, the Four Seasons Private Residences Place Kuala Lumpur adjacent to the KLCC, will be an integrated mixed-use 130,000-sq-metre development. It will also house the Four Seasons Hotel and retail space when completed and, at 65 storeys, will be the second-largest building in Kuala Lumpur after the Petronas Towers. The cost of the project is estimated to come in at RM2.8bn ($873.9m). At the time of writing, it was unclear when the developer, Venus Assets, was planning to open the hotel, but it was reported that 50% of the residential units had been booked as of January 2013.
Other upcoming luxury hotel openings are the 150-room W Kuala Lumpur, opening on January 1, 2016 and also adjacent to the KLCC in the Golden Triangle; and the first-ever Harrods Hotel, opening in 2018. Qatar Holding, which owns Harrods, is breaking ground on its planned 250-300-room Harrods KL, which will also house two residential towers with apartments, office and retail space and will have direct access to the Pavilion Kuala Lumpur mall. The project is estimated to cost RM2bn ($624.2m). In another development, Fairmont Hotels & Resorts has announced an agreement with Cititower to build the Fairmont Kuala Lumpur, scheduled to open in 2017. This 62-storey, 750-room hotel will be the brand’s first property in Malaysia. Located within the Bukit Bintang-KLCC area, it will also house high-rise office and retail space.
Meanwhile, France’s Accor chain is planning to expand its offerings in Malaysia from eight hotels currently to 25 in 2017. In 2014 alone, at least four Accor brand hotels will open in Eastern and Peninsular Malaysia. Gérard Guillouet, Accor’s senior vice-president for Malaysia, Indonesia and Singapore, told local press that Accor views Malaysia as one of South-east Asia’s top tourism destinations, with much potential for the brand to grow. “We are focusing our energy on aggressively developing more hotels in the country across all market segments,” Guillouet said. “The mix of hotel segments in the pipeline indicates that we will continue to have a well-balanced network in 2015, with 15% of the hotels being up-scale, 40% mid-scale and 45% being economy hotels.” Accor brands in Malaysia will expand to include Novotel, Mercure, Ibis and Pullman.
The extra room capacity is urgently needed. “If we’re going to have 36m arrivals by 2020, we are very short of accommodation,” Sharon Lu, general manager of the Malaysian Association of Hotels, told OBG. She also pointed to some challenges the industry is facing, such as a lack of competent human resources. “Few people see hotel and tourism as a professional identity,” Lu said, adding that she has seen some “brain drain to places like Singapore”. However, this shortage should improve with the ongoing development of standardised occupational skills for all of ASEAN. Along with this, the dual training system will come into effect in Malaysia, in which students spend more time working in their chosen industry than in the classroom.
The simplicity and expedience of booking hotels, flights, car rentals and tickets for attractions online is reshaping the business strategy of both current and future players in the tourism sector worldwide, and Malaysia is no exception. Also as elsewhere, online sales growth has followed the rapid spread of the internet. According to On Device research, Malaysia’s internet penetration is 66% (around 20m users), mobile penetration is 140% (47% of Malaysians own more than one mobile phone) and smartphone penetration is 35% (more than 10m users). 3G subscriptions number 10m. Taking advantage of the trend towards internet connectivity, online travel agents such as Airasia Go, Asiatravel and Expedia are fast expanding, and airlines are rolling out numerous mobile applications that offer enhanced functions, such as Firefly mobile, Airasia mobile, flymas.mobi and MH mobile.
Open The Skies
The imminent launch of an open-skies policy for ASEAN members, which is set to take effect in 2015, is likely to generate even greater competition between carriers and more choices for travellers. As an consequence of the larger pool of players, carrier services should also improve. However, less competitive airlines that have been struggling in recent years could plausibly get bounced out of the arena by stronger, more nimble players. Competition will also increasingly stretch across borders. One example of how fierce this competition could get is the contest between Malaysia’s Air Asia and Indonesia’s Lion Air, where low-cost carrier Lion has been undercutting the longer-established Air Asia on several of its routes in South-east Asia.
One development that air transport sector analysts are closely watching is the progress of a new flyer in Malaysia’s skies, Malindo Air. As a joint venture between Malaysia's National Aerospace and Defence Industries and Lion Air of Indonesia, this new airline launched in mid-March 2013, starting with domestic services. It has since branched out into a number of international routes, such as India in 2014.
Price competition so far has been fierce. Air Asia, Malindo and Malaysian Airlines all reduced their prices in fiscal year 2013/14. This has had punishing effects on their margins (see Transport chapter).
With air arrivals set to increase in the near future, the sector marked a major milestone on May 2, 2014 when a new terminal for the rapidly growing budget air-travel business opened at Kuala Lumpur International Airport (KLIA). Known as “klia2”, the terminal opened a year behind schedule, beset by delays and fiscal difficulties. Malaysia Airports Holdings, which operates KLIA, has been questioned by the Public Accounts Committee on large cost overruns – from an initial cost estimate of about RM1.8bn ($561.8m), the project ran to RM4bn ($1.2bn) – and on the many set-backs of the terminal’s completion date.
Now that it has, opened, however, business is set to surge. The new 257,000-sq-metre klia2 has the capacity to handle 45m passengers per year, a significant improvement on its predecessor, which topped out at 10m and will now be converted to cargo-only. It includes a retail space of 32,000 sq metres, where 105 commercial outlets had been opened by mid-May 2014, and has room for 10 low-cost airlines. AirAsia, the terminal’s anchor airline, moved into the new terminal on May 9, 2014, and other carriers currently running operations include Lion Air, Tiger Airways, Zest Airways and Cebu Pacific Air. Firefly and Malindo are also rumoured to be interested.
Crucially, klia2 caters specifically to low-cost carriers, the fastest-growing category in the Asia Pacific air-travel market and widely expected to expand further. According to Boeing, nearly half of global air traffic growth in the next 20 years will come from the Asia Pacific. In addition to klia2, a new RM700m ($218.5) air traffic control centre at KLIA in Sepang is being constructed to handle an estimated 28m tourist arrivals, and the government has allocated RM312m ($97.4m) for airport upgrades in Sandakan, Miri, Kota Kinabalu, Sibu and Mukah.
Thanks to its competitive prices and reliable sales, Kuala Lumpur was ranked the fourth-best shopping city in the world in a 2014 CNN survey – trailing New York, Tokyo and London. Furthermore, a Globe Shopper Index survey ranked it the second-best shopping destination in the Asia-Pacific in terms of the variety and number of shops and brands to be found at any destination.
In addition, premium outlets, shopping malls and spa services have been proliferating in Malaysia. Phase II of the Johor Premium Outlets project opened in November 2013, and the Outlet Shoppes in Sepang are set to open in 2015. The planned Gateway@klia2 retail building will be adjacent to the new airport terminal, such that passengers will pass through the retail centre before going into the terminal. The centre is expected to register annual revenues of up to RM80m ($25m).
Industry insiders believe that Malaysia’s golf sector, with more than 200 courses, offers good value for money and a high potential for success in tourism. So far, however, the industry has not seen significant profits. One solution to this, they say, could be to bundle a golf holiday with other types of excursions and experiences, making golf an add-on to a niche holiday package.
An early entrant into this niche has been the new Els Club Malaysia. Branded with the name of professional golfer Ernie Els and partly designed by him, the club will be overseen by the dedicated golf management organisation Troon Golf. The Els Club Malaysia is set to open three championship golf resorts between 2014 and 2016. These include the Els Club Teluk Datai, an 18-hole par-72 championship golf course on Langkawi; the par-72 Els Club Desaru Valley in Johor; and the 27-hole championship course Els Club Desaru Coast, also in Johor. The Els Club Desaru Coast will also be home to the Els Residences – 10 elite villas with private pools opening in 2015.
Mice & Businessmen
Indeed, business travel is also a major component of the Malaysian sector. The Malaysia Convention & Exhibition Bureau (MyCEB), established in 2009 by the MoT to promote Malaysia as a business tourism and international meetings, incentives, conventions and exhibitions (MICE) destination, helps MICE planners bid for and stage events in the country. MyCEB’s objective is to boost international business tourism visitors from 5% (1.2m) of tourist arrivals to 8% (2.9m) by 2020.
MyCEB also runs a programme that appoints industry leaders to promote business tourism by identifying and encouraging bids for international MICE events. According to MyCEB, international business tourism visitors to Malaysia have increased by about 140% since 2003, reaching 1.3m in 2012. The WTTC also expected business travel spending to increase by 7.4% in 2013, to RM62.9bn ($19.6bn), climbing by 8.8% a year to RM146.2bn ($45.6bn) in 2023. With 109 meetings in 2012, Malaysia scored 35th in the 2012 International Congress and Convention Association’s statistics report, and number nine in its Asia Pacific and Middle East rankings.
The major event venues are Kuala Lumpur Convention Centre, the Borneo Convention Centre Kuching and KL Metropolis. There are also exhibition and convention centres in Langkawi, Pahang, Putrajaya, Selangor, Malacca and Johor. Other new venues are in the development pipeline.
The overall state of Malaysia’s tourism sector remains healthy, with investments in infrastructure moving forward and with a multi-pronged, creative strategy to diversify its client base working to its benefit. Challenges are likely to arise when the open-skies policy is implemented, however, and airlines in particular will need to prepare themselves for unfettered competition in the years ahead. If visitors arrive in the numbers predicted, hotels should find that staying at capacity will not be a problem, but that the quality of service in the sector will need to be continuously monitored.
As South-east Asia in general becomes an increasingly popular destination, Malaysia’s tourism officials may find it necessary to further differentiate the country’s offerings to compete with Singapore, Thailand and other regional holiday destinations. This could mean that players in accommodation, transportation and travel may have to present distinctive services and experiences that warrant costly price tags, or else leverage novel techniques and technology to offer their tourism services and products at more competitive prices. Either way, Malaysia’s tourism industry looks likely to loom increasingly large on global travel maps in the years to come.
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