Domestic tourism gets fresh impetus

Endless theme park queues and sold-out ticket booths never looked better as China's "cooped-up" consumers are stepping out again after the COVID-19 outbreak has been largely brought under control domestically.

Hotel bookings have returned to about 50 percent of normal levels, while airlines have generally resumed operations at more than half of their capacity, based on information from industry leaders.

According to the Government Work Report unveiled on May 22 during this year's two sessions, China will extend the exemption of value-added taxes for the tourism industry until the end of the year, and will support the recovery and development of tourism as part of efforts to shore up consumption.

A daily average of 23 million people traveled in the five-day May Day holiday, the first major national holiday since the COVID-19 outbreak, down by about half from the same period in 2019, according to the Ministry of Culture and Tourism.

Despite the year-on-year drop, it's a great improvement from February and March, when China was largely locked down due to the contagion. Even a few weeks ago, a three-day weekend in early April saw only around 14 million daily domestic travelers.

People flocked to famous scenic areas in the extended May Day break, which ran from May 1 to May 5. Beijing's Forbidden City sold out all 25,000 tickets before the holiday even started, while scenic Taishan Mountain in Shandong province saw massive overnight queues at its entrance ahead of its May 1 opening.

It's worth noting that tourism demand has been partially curbed by tough crowd-gathering control measures to reduce infection risks. The ministry ordered scenic park operators to cap visitor numbers at 30 percent of their capacity during the May Day holiday.

A gradual recovery in domestic tourism could offer a dose of encouragement to other countries looking ahead to life after lockdowns, including the release of pent-up demand among consumers. For many people, travel is a way to vent their stress and frustration from lockdowns.

Yet the rebound could be tentative with risks lingering. More data are needed to know when a full recovery might blossom.

For instance, China's commercial carriers are staging a rebound while many airlines around the world remain effectively grounded. Financially, they fare much better than many foreign commercial carriers. Large Chinese airlines show relatively strong balance sheets without any immediate liquidity problems.

Despite the improvement, challenges remain for Chinese airlines. International flights have almost completely collapsed, while domestically, business travel remains sluggish. Forward bookings indicate that a recovery in demand will be gradual, with low visibility beyond the very near term.

The epidemic plunged hotel occupancy rates to single digits in February, but the numbers have since bounced back to around 50 percent, based on our checks with operators and industry experts.

Midmarket hotels are faring better than both high-end and low-end properties. A lack of business or international travelers has curbed demand for luxury hotels; Chinese consumers could also be tightening their budgets.