The global travel industry is bracing itself for a new wave of tourists out of China. Like the droves of Americans who explored Europe in the 1960s and the Japanese who traveled the world in the 1980s, the tastes and preferences of China’s new international tourists will have an enormous influence on the entire tourism ecosystem.
Currently, only about 2 percent of the Chinese population travels outside the mainland — well below the 15 percent of Americans who travel abroad. But China is catching up. The International Air Transport Association predicts that the mainland’s international passenger traffic will grow at an annual rate of 9.6 percent between 2005 and 2009, while various other agencies estimate that China will be included among the top four sources of outbound tourists by 2020.
What is unclear, however, is the quality and cost of the experiences that these tourists will seek: bus tours of Paris’s outer arrondissements, or private tours of the Louvre? Spanish street food, or tasting menus at El Bulli?
The earthier options seem to be more popular thus far. Ask for a description of the typical Chinese tourist, and observers from the industry are likely to use such words as value-conscious, shopping, gambling, and chain-smoking. Or, as the Economist put it in a June 2006 article, “Typically, a Chinese tour group will choose the cheapest hotel — even if it is 50km (30 miles) outside a city — travel by bus and eat only Chinese food…. Posh hotels, resorts and restaurants will have to wait for their Chinese windfall.”
These descriptions contain elements of truth, but they don’t offer a complete picture. As the New York Times recently noted, a significant subset of the overall population of Chinese tourists will be quite affluent and willing to spend accordingly. Consider this: China’s 31 million international travelers spent US$15.2 billion in 2005. At nearly $500 per person, mainland travelers spent more per capita than international tourists from the United States, France, or Japan.
Successful tour operators are offering upscale packages that promise deeper knowledge of a city, region, or country. They are also introducing lifestyle-oriented products, like fine-dining and wine tours that have proven popular with other nationalities, and adapting them to the increasingly sophisticated tastes of mainland travelers. Current offerings include a six-day winter trip to Kyushu, Japan, for skiing and visits to the hot springs, at a price of RMB9,000 (approximately $1,155) and a seven-day “ancient civilization exploration” tour of Egypt for RMB11,000 (approximately $1,410).
Shopping continues to be popular among mainland travelers. But China’s growing manufacturing muscle poses a challenge for overseas retailers: How do you sell to a tourist from a country that makes just about everything? One option is to appeal to Chinese consumers’ brand-conscious nature, with a focus on items with labels that can be shown off. Smart sellers will remember the trend in China in the 1980s and 1990s of leaving tags on sunglasses and jackets to show off the brand. Thus, Louis Vuitton handbags, Swiss watches, and Chow Sang Sang gold are popular. Service will also matter: Hong Kong retailers often provide service in Mandarin and accept the renminbi (the official language and currency, respectively, of the mainland).
Gambling is also a top travel pastime for Chinese people. Australia, North Korea, and Singapore are launching or intensifying efforts to attract mainland high and low rollers. However, the profitability of this business will be hit by higher marketing costs and greater competition. Larger construction and maintenance costs will also play a role as customers come to expect a luxurious, Las Vegas–style experience.
Companies within the travel and tourism industry stand to benefit from an abundance of opportunities, but must remain cognizant of the significant pitfalls. Hotels will need to keep costs down to meet mainland travelers’ value expectations. At the same time, opportunities exist both for hotel groups that can migrate customers from the lower and middle tiers into more expensive properties, and for chains that can develop a strong brand in China and use it to attract mainland tourists when they travel abroad.
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.
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.