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Beyond the Borders

Placing Bets in the Industry
Companies within the travel and tourism industry stand to benefit from an abundance of opportunities, but must remain cognizant of the danger of significant pitfalls. For travel operators — whether theme parks, hotels, or cruise lines — the challenge will be to develop products that appeal to Chinese tastes. Hotels will need to keep costs down to meet mainland travelers’ value expectations. But 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. Companies that find the optimum combination of home comforts, such as food, entertainment, and in-room amenities, and international service standards will also do well, particularly in midrange to high-end facilities.

Like hotels, cruise lines must gain an understanding of the Chinese market, as well as educate Chinese travelers by introducing them to the concept of cruising. Because cruising 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. Cruise lines will need to find a balance between the familiar and the new, which will enable guests to experiment or to play it safe, as their mood dictates. 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’s Costa brand entered the mainland China market with an up-market offering in 2006, sailing from Shanghai and from southern China. Royal Caribbean, playing catch-up, recently announced plans to begin sailing from Shanghai in 2007. Given the novelty of cruising as an outbound travel vacation option, both will need to target their offerings at specific, clearly defined markets and communicate value to first-time customers who will be comparing cruises to land-based vacations.

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. Tactically, air carriers must support their routes with the management expertise needed to meet clearly defined service and cost targets. International airlines can expect challenges from private domestic carriers, like 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, particularly those who can assemble distinctive elements more deftly than can individual travelers. The fragmented nature of the mainland market, consisting primarily of small, local agents, 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. Mainland Chinese travelers today are not very well served and will need a lot of help to understand new offerings such as luxury cruises. However, the growing popularity of the Internet poses the same threat to travel agents — and the same opportunity for e-travel companies — in China as it does elsewhere. Research by the World Tourism Organization shows that the Internet is already an important source of information for mainland tourists, and this trend is unlikely to abate.

Finally, financial-services providers such as insurance companies will be watching the development of this market attentively. 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. Of particular interest will be outbound travelers from China, who spend far more than domestic travelers and therefore represent more opportunity for insurance companies and credit card issuers.

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  1. Frederik Balfour, “Macao Set to Trump Las Vegas in Gambling Biz,” Business Week, September 5, 2006: American casino companies are seeking conference, business, and luxury expenditures in Macao. Click here.
  2. The International Air Transport Association, “Five Year Forecast Shows Rapid Growth in Asia and Central Europe,” October 31, 2005: Summary of projected growth in international air traffic for 2005–2009. Click here.
  3. “Outward Bound,” The Economist, June 22, 2006: An overview of the current state of Chinese tourism in Europe. Click here.
  4. Craig S. Smith, “Chinese Speak the International Language of Shopping,” The New York Times, November 7, 2006: The impact of increasing numbers of both Chinese tourists and Chinese immigrants on retail offerings in Paris. Click here.
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