Indonesia set to overtake Thailand as Southeast Asia's largest travel market

A fuel shock from the U.S.-Iran War has slowed regional growth to 2% in 2026. Phocuswright's new report tracks the fallout through 2029.

Thailand held its spot as Southeast Asia's largest travel market in 2025 with $17.9 billion in gross bookings. Indonesia sat just behind at $17.7 billion. Phocuswright projects Indonesia will take the lead in 2026.

The shift comes during a hard year for the region. Gross travel bookings grew 6% to $63 billion in 2025. According to Phocuswright’s new report Southeast Asia Travel Market Essentials 2026, growth will slow in 2026 and even that depends on a strong fourth quarter.

Fuel costs reshape air travel

The U.S.-Iran War drove jet fuel prices up across Southeast Asia's air networks. Carriers passed costs to travelers through surcharges and higher fares, while low-cost carriers cut routes. Gross air bookings will rise from $33.5 billion to $34.4 billion in 2026, mostly on price rather than volume.

Route maps are still changing. Asian carriers are adding service to secondary Southeast Asian cities. Lufthansa and Singapore Airlines are filling long-haul gaps to Europe.

High fares push travelers closer to home

Expensive flights are lifting domestic travel in Malaysia and Indonesia. Thailand is offering incentives to encourage local tourism as inbound numbers fall.

Hotels stall

Hotel gross bookings will stay flat at $28.4 billion in 2026. Higher airfares, route cuts and deal-hunting travelers are hitting demand. New supply adds pressure on rates in major cities.

Online keeps climbing

Online bookings will grow from $41.2 billion in 2025 to $51.6 billion in 2029. OTAs will capture 42% of all bookings by then, despite strong offline channels and direct sales from state-run air and rail operators.

Phocuswright completed its sizing before the war's full impact could be measured. The final picture depends on how long the conflict lasts.

The full report covers segment data for air, hotel, rail and car rental, country analysis for Indonesia, Malaysia, Singapore and Thailand and new sections on wellness and cruise tourism.

Open Access subscribers can ask Phocuswright's AI chatbot research assistant about any market, segment or trend and get answers in seconds, sourced from our full library of travel research. Compare Southeast Asia with Northeast Asia, track OTA share by country or check airline projections without digging through reports. Open Access also includes this report, the full Asia Pacific Travel Market Report 2026 series and company-wide access for your team. Learn more about Open Access.