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 / Spring 2007 / Issue 46(originally published by Booz & Company)


Tourism: China’s New Diaspora

Like hotels, cruise lines must gain an understanding of the Chinese market, as well as educate Chinese travelers about the concept of cruising. Because this is a new vacation option for mainland tourists, cruise lines will need to sell the market on the romance of the sea and the ship as a destination, and give consumers a sense of the entertainment and other diversions available on board a modern ocean liner. And they’ll need to figure out where Chinese tourists want to voyage, for how long, and at what time of year. Industry leader Carnival Corporation entered the mainland China market in 2006 with its Costa brand: an up-market offering sailing from Shanghai and from southern China. Royal Caribbean, playing catch-up, recently announced plans to begin sailing from Shanghai in 2007.

Airlines will face their own challenges. Strategically, they must serve profitable markets, either directly or through alliances and networks. This means obtaining and retaining access to attractive routes and landing slots at key airports, as well as ensuring that the government and regulators maintain an equitable operating environment. International airlines can expect competition from private domestic carriers, such as Hainan Airlines Company, which will use their internal routes as springboards to international markets. They should also anticipate a competitive environment that features one or more mainland-based mega-carriers.

The relative inexperience of mainland travelers offers a significant opportunity for travel agents, currently mostly small, local businesses. The mainland market represents an opportunity for an organization with sufficient vision and resources to establish a national presence that enhances service standards, increases professionalism, and achieves economies of scale. However, the growing popularity of the Internet poses the same threat to travel agents — and the same opportunity for e-travel companies — in China that it does elsewhere.

Finally, financial-services providers such as insurance companies will be watching the development of this market. Travel insurance and credit cards are closely linked to the travel industry and have been important revenue and profit generators in markets around the world.

Companies looking for growth in China’s outbound travel sector will not be disappointed. Pent-up demand is considerable, disposable incomes are rising, and travel restrictions are being eased. In many ways, the market is still in its infancy, with few clear leaders. However, companies can benefit from this trend if they anticipate the immense changes in China’s outbound travel sector and build their business accordingly.

Author Profiles:

Ronald Haddock ([email protected]) is a vice president and director of Booz Allen Hamilton in Greater China. He works with consumer goods and industrial companies from around the world on strategies for growth and operational effectiveness in the Asia Pacific markets.
Kevin Ma ([email protected]) is a senior associate with Booz Allen Hamilton in Shanghai. He has extensive experience with multinational corporations and Chinese companies in the travel and tourism and high-tech industries in the Asia Pacific region, with a focus on Greater China.
Edward Tse ([email protected]), a vice president with Booz Allen Hamilton, is the firm’s managing partner for Greater China. He has advised hundreds of Chinese and multinational companies across the full range of strategic issues facing the private sector in China.
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