Southeast Asia’s online travel sector grew to $34.4 billion this year, from $29.7 billion in 2018 and $19.4 billion in 2015, according to the latest study of the region’s internet economy released on Thursday by Google, Temasek, and Bain.

The rise of budget hotels, led by brands such as Oyo Rooms and RedDoorz, is a highlight, according to the report. Queries for selected budget hotel brands soared in 2019, up more than nine times compared to 2015, according to Google Trends.

“These companies offer reliable accommodation at a fraction of the price of international hotel brands, aimed at youth and cost-conscious travelers from within and outside of Southeast Asia.

“After becoming popular in India, such services are mushrooming in Southeast Asia, where there are thousands of budget hotels and guesthouses scattered across the region waiting to establish a presence online,” said the annual research, conducted since 2016.

Another highlight is investments made by online travel players in experiences, which is “driven by the insight that for every dollar spent by travelers in flight and accommodation, a varying multiple of that is spent during the trip itself.”

Online travel aggregators such as Indonesia’s Tiket.com and Booking.com have also expanded their reach by building partnerships with ridehailing players including Gojek and Grab.

And further propelling growth in online travel is vacation rental, which continues to gain ground in Southeast Asia. Queries for leading vacation rental brands grew more than threefold in 2019 compared to 2015, according to Google Trends.

“As a pioneer of vacation rental services, Airbnb is an exemplification of the entire category. Online aggregators Agoda, Expedia, and Traveloka, however, have been building their own suite of rental accommodations to challenge the leader. With clearer and more supportive regulations on short-term property rentals, these services could facilitate the development of the tourism sector across the region,” the report noted.

Who’s Spectacular

Growth in online travel in the region, however, is more steady than spectacular, as the sector is the most mature, being one of the first services to move online in the region.

The online sectors that are “blazing through” Southeast Asia are e-commerce, which has overtaken online travel as the biggest in the Internet economy, and ridehailing.

In just four years, e-commerce has jumped seven times from $5.5 billion in 2015 to over $38 billion in 2019. The sector is on track to exceed $150 billion by 2025 — $50 billion more than predictions made over a year ago.

In 2015 some 49 million people bought or sold items online. Today that number has tripled to 150 million people, said the report.

The other “standout performer,” ridehailing, has also eclipsed expectations, with the number of active users ballooning five times to reach more than 40 million today, from just eight million in 2015.

“In the span of a few years, e-commerce and ridehailing have become an integral part of daily life for millions of Southeast Asians, especially those living in big cities. They offer convenience, value, and access to services and products [including food delivery and financial services] that were previously difficult to obtain.”

Overall, Southeast Asia’s internet economy across online travel, e-commerce, online media (video/music streaming and gaming), and ridehailing sectors hit the $100 billion mark this year. It’s on track to reach $300 billion by 2025, topping the report’s initial projection in 2016 by $100 billion.

The region’s online travel market, comprising flights, hotels, and vacation rentals, is projected to grow to $78 billion by 2025, from $34.4 billion this year.

Indonesia is the biggest online travel market, worth $10.2 billion this year, and is expected to rise to $25 billion by 2025. Thailand is next, currently at $7.2 billion, but it is the fastest growing and projected to grow to $20 billion by 2025. Singapore, Vietnam, Malaysia, and the Philippines follow.

Other Takeaways

Here are three points from the report worth thinking about:

Mobile Internet Transforming Southeast Asia Just over a decade ago, four in five Southeast Asians had no internet connectivity and limited access to the internet. Today Southeast Asians are the most engaged mobile internet users in the world. There are 360 million internet users in the region, and 90 percent of them connect to the internet primarily through their mobile phones.

Growth Opportunities Beyond Metros The growth of the internet economy has yet to spread evenly across Southeast Asia. Seven metropolitan areas, which house just 15 percent of the region’s population, still account for more than 50 percent of the internet economy.

On average, people living in these metro areas buy six times more online than those living elsewhere. The internet economy, however, has the potential to grow twice as fast in areas outside the big cities, bringing all Southeast Asians on board.

Digital Financial Services Reach the Inflection Point The adoption of digital payments has finally reached the inflection point and is expected to cross $1 trillion by 2025, accounting for almost one in every two dollars spent in the region.

Other digital financial services are still nascent but gaining traction. These technology-enabled business models are best positioned to give Southeast Asia’s underbanked population access to financial services. While new entrants and established players are competing and partnering to tackle this opportunity, supportive regulations will play a critical role, said the report.

Photo Credit: An Oyo hotel in Ho Chi Minh City, Vietnam. The rise of budget hotel chains like Oyo and RedDoorz has driven the growth of Southeast Asia's online travel sector to $34.4 billion this year. Oyo Rooms