ASIA PACIFIC TRAVEL Abacus International interview January 2005 bacus counts on huge Asian travel market Abacus, Asia Pacific s leading travel facilitator, is gearing up for almost unlimited growth potential in Asian travel. Here Abacus International President and CEO Don Birch spells out to Hui Min Neo the phenomenal opportunities that lie ahead following the recovery from SARS and the Iraq war and despite December s tsunami. The Moodie Report: How does Abacus assess the likely impact of the 26 December tsunami and its effect in terms of travel numbers and travel patterns in 2005? Don Birch: Travel to resorts represents only a small percentage of the 120 million international journeys forecast for next year in Asia Pacific. The impact on travel and tourism in some coastal holiday destinations which suffered extensive damage from the tidal waves is likely to be significant in the short term, particularly in Thailand and Sri Lanka. However, we know from experience that the recovery time is surprisingly short following a crisis. We can expect a full recovery within a year as infrastructure is rebuilt and traveller confidence returns. 76 The Moodie Report
January 2005 ASIA PACIFIC TRAVEL Abacus International interview While travellers will be more cautious in making their travel selection, we can expect to have a tsunami warning system in place relatively quickly and, as always, travellers will assess the risk and take sensible precautions. Many leisure travellers will also choose to travel to other resorts in the region while reconstruction work is under way. Looking at bookings in Singapore alone, most have diverted to other destinations with very few cancellations reported. Over the past three years the region s travel industry has faced several major crises. In each case it has shown incredible resilience, moving quickly from a period of recovery to one of strong growth. Across Asia, how are low-cost carriers (LCCs) transforming travel trends? With more than 20 LCCs flying international and domestic routes in Asia Pacific, the budget sector is now a force to be reckoned with. In many respects Asia is an ideal growth environment for LCCs. There are 130 cities with populations of more than two million people, major centres in close proximity and a strong demand for costeffective travel. In the short and medium term LCCs will continue to lower the threshold for air travel for millions of travellers in the region. The emergence of the thriving LCC sector has gone hand in hand with the quickening pace of aviation deregulation in key markets, and greater moves towards greater trade and tourism integration. Their emergence has had a major impact on travel in Asia. By making air travel more affordable, LCCs have expanded the travel market by developing new segments at the budget end. In large markets such as India and Indonesia, people who would once have had no choice but to travel by road, rail or sea can now fly. Another trend that has emerged has been for people to take more, but shorter, holidays thanks to the lower cost of reaching their destination. LCCs have prompted network carriers to reassess their cost structures, and I think that we will see the emergence of a middle ground as network carriers and LCCs adopt parts of each other s business model. In terms of distribution, LCCs have challenged the model that has served the industry for decades. Many LCCs have sidestepped the traditional distribution channels in an effort to drive down operating costs. For global distribution services (GDSs) it was clear that new strategies and new offerings were crucial if they were to remain relevant and competitive, and continue to add value to airlines and travel agencies. The experience with direct distribution has been that it works in some contexts but given the global and fragmented nature of the travel business, it doesn t work in every market and in every segment; and it is certainly more difficult in the international environment. The success of direct distribution relies on the wide availability of the Internet, and the willingness of customers to browse, compare and buy online. Japan, South Korea, Taiwan, Hong Kong, Australia, New Zealand and Singapore are among the most connected markets in the world, but Internet penetration remains low in many key Asia Pacific markets. The majority of Asia Pacific travellers are also more comfortable with the onestop shopping experience offered by bricks-and-mortar travel agencies. Direct distribution has other drawbacks. By targeting individual travellers, LCCs miss a significant slice of the market. For instance, in Asian markets such as China, Taiwan, Hong Kong and South Korea, group bookings are a large segment. In most cases, groups book through travel agents rather than online because travel agents have the experience and infrastructure to manage groups effectively. LCCs that are serious about growth recognise that they must adopt the distribution channels that best fit the Intra-Asia travel s share of total Abacus bookings December 2003 November 20 90% 88% 86% 84% 82% 80% 78% 76% 74% 87.2% 80.3% 78.4% 80.3% 78.8% 79.0% 82.8% 81.8% 81.1% 81.7% 82.4% 84.0% 72% Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 03 The Moodie Report 77
ASIA PACIFIC TRAVEL Abacus International interview January 2005 Abacus total bookings Dec 2003 Nov 20 vs Dec 2002 Nov 2003 400% 300% 200% 100% 154% 0% Dec 03 123% Jan 152% Feb 181% Mar 347% Apr 241% May 146% 111% 100% = same month, previous year 105% 1% 92% 114% conditions of their target markets. This is where GDSs have a role to play as a viable distribution channel in markets where the effectiveness of direct distribution is limited, and even now we are seeing a growing trend by LCCs to adopt GDS distribution. In the travel recovery after SARS and the Iraq war, how has the long-haul market improved, especially for South Korean travellers? (Editor s note: Abacus does not service the Japanese market.) Since being fully liberalised in 1989, the Republic of Korea s outbound travel market has been one of the most explosive in the world. Today the market continues to grow at a rate of about one million travellers a year, and Asian destinations are taking an increasing share. South Korean travellers have traditionally favoured Asian destinations because of proximity to home, cultural affinity and cost. However, since the late 1990s, a growing South Korean middle class who can afford leisure travel, the introduction this year of a five-day working week and a trend towards shorter holidays have all contributed to dramatic growth in regional travel. Between 1999 and 2003 the total number of outbound South Korean travellers increased by 2.7 million to 4.7 million, according to the Pacific Asia Travel Association Jun Jul Aug Sep Oct Nov (PATA) Korea Outbound Report released recently. Of the additional 2.7 million, 1.9 million visited destinations in Asia, compared with 144,000 for the Americas, traditionally the next most popular destination, 187,000 for Europe and 175,000 for Oceania. Travel within Asia has been particularly strong as Asians choose not to venture too far following SARS and the Iraq war. Do you expect travel in Asia to keep growing in the coming year? Or will it give way to more long-haul travel? Asia is travel growth personified. From traditional destinations to emerging markets, the industry has moved very quickly from a period of recovery to one of growth. Intra-Asia travel is the best indicator as to the health of the region s travel industry. Since Q3 2003 intra-asia bookings on the Abacus system have shown solid and consistent growth. Currently, intra-asia travel accounts for 84% of Abacus bookings, and I don t expect that to change significantly during the coming year. In the 12 months from December 2003 to November 20, growth in intra-asia travel outstripped all long-haul routes except Asia Middle East. Recent relaxation of regulations has made it easier for the large growth market of Chinese travellers to head to Europe. Would you expect the opening of these destinations to the Chinese to eat into the share now held by Asian destinations? Despite relaxed travel restrictions to Europe from September, Asian centres such as Hong Kong and Macau will continue to be the destinations of choice for Chinese travellers in the foreseeable future, due to their proximity, the cost of travel, cultural compatibility in terms of food and language, and shopping and entertainment options. Most European centres are not as well prepared to meet the unique travel preferences of Chinese travellers. However, as incomes rise, I would expect long-haul destinations such as Europe to show steady growth. What is the profile of a typical Chinese or Indian traveller? How has this profile changed over the past five years? China and India are very diverse markets culturally, geographically and economically, so there is no such thing as a typical Chinese or Indian traveller. In targeting 78 The Moodie Report
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ASIA PACIFIC TRAVEL Abacus International interview January 2005 these huge markets, the industry has to come to terms with the fact that there is not just one China or one India, but many. With close to 1.3 billion citizens, around 2% of whom travel internationally each year, China has begun to exert a powerful influence. The diversity of the Chinese people creates unique challenges for travel service providers seeking to understand the motivations of the Chinese tourist and how to cater to their needs and expectations. In developing strategies for China, the Hong Kong Tourism Board recognises that significant regional differences exist when it comes to travel preferences and expectations. In its 20 Hong Kong Tourism Overview the Board presented market research that underlined the difference in priorities of travellers from the key Pearl River Delta, Yangtze River Delta and Bohai Rim regions. India has long been a sleeper market. But as it casts off the shackles of past regulation and enters the modern era, travel is becoming an aspirational product among the new middle class. Malaysia, Thailand, Japan and South Korea continue to benefit most from China s love affair with travel. Along with Southeast Asian destinations such as Singapore, Malaysia and Thailand, the Middle East is emerging as one of the most popular destinations for Indian travellers thanks to an explosion of low-cost services, geographical proximity and competitively priced gold. However, Indian travellers are increasingly looking beyond established destinations. The significance of educational travel also shouldn t be overlooked. A large number of Chinese and Indian families send their children overseas to study. There are 60,000 Indian students studying in Australia alone, which means a lot of travel. The sheer number of potential Chinese and Indian travellers is staggering. When do you expect these markets to peak? These markets have almost unlimited growth potential. As their economies grow and incomes rise, so will the demand for travel. We re looking at decades rather than years before these markets reach their peak. Traditionally, an Indian family would make a pilgrimage within India once a year. Now they have greater capacity to travel, and thanks to widespread availability of the Internet and as many as 50 TV channels, they are more aware of what travel options are available. Where do Chinese and Indian travellers want to go? From January to July 20 departures from China exceeded 16 million, an increase of +63.7% over the same period in 2003, and cemented the nation s position as the new leading outbound market in the region (source: PATA). The majority of these were overland day trips to China s top tourist destinations, Hong Kong and Macau. Other intra-asia destinations such as Singapore, Abacus FIT bookings year-on-year (January October 20) 2003 2002 2001 (% change) (% change) (% change) China +59% +42% +107% India +43% +99% +140% South Korea +32% +13% +4% Figures represent the % change on the period January October 20 What is the outlook for Asian markets? Asia Pacific accounts for 21% of the world s travel expenditure, 60% of its population and 21% of its GDP. Goldman Sachs predicts that China will be the largest economy in the world by 20, when its economy will be 3.5 times the size of Europe s. India s economy is expected to be 2.2 times that of Europe. So in terms of travel growth, there is enormous potential. In summary: North Asia: North Asia, which for us includes China, Hong Kong, South Korea and Taiwan, will continue to be the star performer. Currently North Asia accounts for about 45% of all Abacus FIT bookings. Abacus FIT bookings for North Asia for the period January to October 20 were up +11% over 2002. Indochina/Central Asia: Travel restrictions and visa requirements are being relaxed in the Indo-china and Central Asia markets. Together with the signing of new international tourism routes involving China, Vietnam and other regional countries, bookings are likely to 80 The Moodie Report
January 2005 ASIA PACIFIC TRAVEL Abacus International interview show strong growth during the next year. Already some markets are showing explosive growth. Abacus FIT bookings from January to October 20 compared with same period in 2002 increased by +26% for the whole region. Among the big markets Thailand grew by +22% and Vietnam by +25%. South Asia: Outbound traffic from India is expected to have topped four million for the first time in 20, and it is estimated that the new middle class will spend an additional US$420 billion on travel over the next four years. To cope with the demand the Indian government is investing heavily in travel infrastructure. Growth in Abacus FIT bookings from January to October 20 increased +99% over the same period in 2002 and +43% over the same period in 2003. The expected boom in lowcost carriers should further fuel growth. Most other South Asia markets are showing growth yearon-year. Abacus FIT bookings growth from January to October 20 compared with same period in 2002 are shown in the chart below. It all adds up to an increasingly vibrant and exciting travel landscape. I m confident that this trend will be Abacus FIT bookings growth January October 20 vs same period in 2002 130% 120% 110% 100% 90% 80% 70% 60% 50% 127 sustainable in the long term, and that it will deliver a major boost to economies around the region. What are the key issues facing the Asian travel market in the next 12 months, in particular South Asia? I believe the key issues are: Political stability: A period of relative political stability has enabled the Asian travel market to move rapidly from a period of recovery after SARS and the Bali bombings to one of strong growth. Economic growth: Continuing buoyant economies across the region will bring an increase in consumer confidence and an anticipated rise in consumer spending on travel. Aviation liberalisation gathering pace: Liberalisation of aviation by the governments in China, India and Vietnam has made travel more accessible and spurred the emergence of a vibrant, uniquely Asian low-cost carrier sector. Liberalisation is set to continue in 2005 in these and other markets. Low-cost carriers: LCCs will continue to develop markets that didn t exist before. With low fares, the new breed of domestic carriers will target users of rail and other transport modes many of them people who have not flown before. New revenue streams: As price competition puts pressure on airline commissions, travel agencies will increasingly make the transition from ticket brokers to full-service travel consultancies. Abacus is well positioned to help with leading non-air content, such as hotels and cars. Jet fuel prices: Jet fuel is a scarce commodity, so over the long term we could expect to see prices continue to track upward. Because fuel is the second biggest cost for airlines after labour, accounting for 12 14% of operating costs, it is a major threat to airline profitability. 40% 30% 20% 10% 0% 11 27 3 2 5 34 38 Australia Bangladesh Brunei Indonesia Malaysia Nepal New Zealand Pakistan 11 Philippines 2 Singapore 44 Sri Lanka Technology adoption/internet access: The adoption of a common IP platform across the industry, facilitating seamless integration between suppliers, GDSs, travel agencies and customers, has yet to be realised. Internet penetration remains low in some markets, limiting the growth of online selling and cost-saving initiatives such as e-ticketing. Infrastructure: Governments and the travel industry will have to ensure that infrastructure keeps pace with travel growth. The Moodie Report 81