Joseph Cartwright u1903671 Tutor: Darina Dintcheva

The COVID-19 Pandemic and Singapore’s Attractions

Singapore is a small city state and consequently doesn’t have the degree of domestic travel
that many other countries have, as its Tourism Board Chairman Chaly Mah remarked in
September 2020 discussing the government’s ‘SingapoRediscovers’ voucher scheme to
boost domestic tourism during lockdowns (Tan, 2020). In the context of the COVID-19
pandemic, this slant towards international tourism will have consequences; domestic travel
restrictions are less stringent, so relative to countries which rely more on domestic tourism, a
travel ban (one that has cut 99% of travel to Singapore in recent months) will logically
disproportionately cut tourism revenue (Tay, 2020).

First, this essay it will look at how a) the substitution of international trips for domestic trips in
Singapore by Singaporeans due to travel bans, and b) the effect of the voucher scheme, is
likely to influence optimal consumption bundles of international and domestic trips. It will
then show how this change has affected the net impact of COVID-19 on Singaporean tourist
attractions, now considering the effect both of foreign and new domestic tourists.

First, assume that a Singaporean with a

desire for leisure trips allocates a fixed

quantity of their income

M T to trips each year

and chooses between domestic and

international travel. Assume first for the sake
of simplicity (as it illustrates the general
following principle in a more parsimonious
way) that domestic and international trips
are perfect substitutes, given by the utility

function
U ( H )  H D  XH I , with H D and

H I each denoting domestic and

international trips. Assume X  1 , so the

Joseph Cartwright u1903671 Tutor: Darina Dintcheva

weight on international trips reflects a preference for travelling abroad compared to an

equivalent domestic trip. In order to let us compare equivalent holidays of identical prices so
we can best analyse preferences, assume the budget constraint is given by

M T  PH D  PH I .This all means that, ceteris paribus, the tourist will get more utility from

an international trip than an equally priced domestic trip. As the two are perfect substitutes,

H I 1
( ) ( )
the marginal rate of substitution
H D is identical X throughout. The tangency point

(where MRS=Price Ratio) does not exist; the price ratio is always 1, and as X  1 , MRS  1
so the optimal bundle is a corner solution, with only international holidays being consumed at

MT M M
0 X T  X T
quantity P and utility P P . However, Singaporeans cannot optimise here
due to international travel restrictions; instead, they must optimise at the highest indifference

MT
HD 
curve subject to a) their budget constraint and b) that
H I = 0. This is where P , for a

MT M M M
 0X  T X T  T
utility of P P . Utility is lower as X  1 and so P P , but tourists will have
substituted their international holidays for domestic holidays (though in practice domestic
travel still occurred before and there will only be partial substitution, as is discussed in the
conclusion. The assumption is there to illustrate the principle.)

Adding the effect of the ‘SingapoRediscover’ voucher scheme (in the form of $100 for

domestic travel for each adult) means

M T shifts as in Diagram 2 (the voucher works like an

in-kind transfer).
H D goes up by a fraction of $100 and so will optimise at a higher

MT
V
indifference curve
IC3 at quantity P (V representing the increase in trips made due to
the voucher). While the scheme only went live on December 1st and so data on the
vouchers’ impact is almost non-existent, a survey showed that 6 in 10 Singaporeans are
willing to spend more than the $100 allocated if the system were to be expanded, implying
promising results (Sim, 2020).
Joseph Cartwright u1903671 Tutor: Darina Dintcheva

Now, we can show the impact on attractions. Of course, the travel ban means that demand
from international tourists is very low or negligible due to the aforementioned 99% decrease

in raw numbers. This is represented by a perfectly inelastic demand curve

DF very close to

zero. However, the impact of a) the substitution of international for domestic travel, and b)
the voucher scheme has caused two positive shifts in the demand curve for attraction
demand from Singaporeans themselves. The demand curves in diagram 3 show theoretical

demand if there were no substitution of holidays

DA , the effect with substitution DB and the

effect combined with the voucher program

DC . The voucher program boosts demand from

Q1 to Q2 . Therefore, the pandemic + voucher scheme means that while would-be tourists to

Singapore forgo their plans, Singaporeans who would travel abroad or not travel substitute
these plans for domestic holidays to some extent, thus mitigating the overall demand shock.

The extent of the impact on domestic attractions will depend on numerous factors. It is likely,

for example, that the allocated fraction of income

M T may not be fixed and may decrease

due to the pandemic. This could be due to decreased income of Singaporeans (which could
lead to a disproportionate decrease in luxury goods such as holidays) or because
Singaporeans may substitute international travel for a different good altogether rather than
domestic attractions. The two are also not actually perfect substitutes, and domestic trips still
occurred pre-pandemic. However, substitution is still relevant insofar as many will want to
experience some travel and so there may at the very least be partial substitution,
encouraged by SingapoResdiscovers (which, as previously mentioned, looks promising in
Joseph Cartwright u1903671 Tutor: Darina Dintcheva

terms of its ability to persist and expand) such that demand for domestic trips from
Singaporeans increases for a combination of these reasons.

It is even possible that some positive externalities could result from the scheme post-
pandemic; Mah added in the aforementioned interview that the country will ‘have [their] own
Singaporeans experiencing some of these local attractions so they can tell an authentic story
when they relate it to the tourists’, which could add extra utility and potential revenue through
word-of-mouth in the future if locals can add value to foreign tourists’ trips when international
restrictions are relaxed as the pandemic fades and international tourists repopulate the
tourism sector (Tan, 2020). Post-pandemic, hopefully vouchers will no longer be necessary,
and tourist attractions can be kept afloat as they were previously, in addition to the potential
externalities. Either way, the combination of holiday substitution and the voucher scheme will
mitigate what would otherwise be a larger decrease in demand for attractions.

Bibliography

SIM, S., 2021. 6 In 10 Willing To Top Up Local Tourism Vouchers: Poll. [online] The Straits Times.
Available at: <https://www.straitstimes.com/singapore/6-in-10-willing-to-top-up-local-tourism-
vouchers-poll> 

Singapore Tourism Statistics 2020. [online] Budgetdirect.com.sg. Available at:

<https://www.budgetdirect.com.sg/travel-insurance/research/singapore-tourism-
statistics#:~:text=Singapore%20saw%20an%20increase%20in%20outbound%20tourism%20of
%20Singapore%20residents,US%2424%2C543%20million%20in%202017.>

TAN, H., 2020. Singapore Turns To Domestic Tourism As Travel Sector Reels From Coronavirus.
[online] cnbc.om. Available at: <https://www.cnbc.com/2020/09/16/singapore-turns-to-domestic-
tourism-as-travel-sector-reels-from-coronavirus.html> 

TAY, T., 2021. Visitor Arrivals To Singapore Hit Historic Low In April. [online] The Straits Times.
Available at: <https://www.straitstimes.com/singapore/visitor-arrivals-to-singapore-hit-historic-low-in-

Tourism - Latest Data (2021) [online] Available at: <https://www.singstat.gov.sg/find-data/search-by-

theme/industry/tourism/latest-data> [Accessed 5 January 2021].