San Francisco, Feb. 1998

By Murray Bailey Travel Business Analyst

Asia's tourism industry has been hit hard by the slowdown in regional economies and other crises  that started in July 1997. In the period since then, Hong Kong has been the most negatively affected, but most destinations were expecting to be well down on initial targets for the full year.

From July to September 1997, international arrivals in Hong Kong fell by 27 percent, with all key market sources registering a decline. Out of Asia, the biggest drop was from Japan. Of Hong Kong's top three longhaul markets, the U.S. was down eight percent, Australia 24 percent and the U. K. 41 percent.

Singapore experienced declines from eight major markets, although it still recorded an increase of 2.5 percent overall. Thailand's total count stagnated, with declines from seven key markets-its top three markets actually increased. Confounding most analysts, meanwhile, Indonesia's arrivals in the three months increased by 19 percent, although Japan fell by two percent.

It is not yet possible to identify a growth trend pattern since the different crises began last year. The downturn in tourism caused by currency devaluations and Southeast Asia's smog was relatively slight initially. Hong Kong was the only destination to really suffer in July 1997, but that was because of its own unique problems. However, both these disincentives began to kick in by August and September.

Currency related declines could account for 10-20 percent of Hong Kong's downturn so far. For Singapore,
the impact of the currency declines is somewhat clouded by the smog issue. Singapore may have gained some traffic as a result of the currency crisis in source markets. Land costs for travellers from badly hit markets such as Indonesia, Malaysia and Thailand would not have increased as much as for a trip to, say, Hong Kong.

Although Thailand did not really have a smog problem - like that of its Southeast neighbours - this was not the perception, especially in longhaul markets. Smog related problems could have had more of an impact than currency factors. There may also have been some gains related to currency problems, since Thailand was quick to promote its cost attractiveness as a result of falling currency.

Nevertheless, by about the end of September 1997, the currency crisis had escalated into a major economic crisis, spreading to all major Asian markets. Although China and India have only been marginally affected, this is now having a negative impact on up to 70 percent of total International tourism in Asia.

Assuming a decline in arrivals for Asia overall of around 20 percent related to currency/economic factors, but allowing for a (generous) 10 percent increase from longhaul markets, the overall visitor decline in 1998 will be about 12 percent. However, the economic related decline may become much worse, with markets such as Indonesia, Malaysia and Korea-ROK down by as much as 50 percent. That could result in a 15-20 percent decline for the major destinations in Asia.
 
 

� Chinese Taipei may actually have finished the year with an increase in departures of around eight to nine percent. But the disappointment with this market is that nearly 50 percent of its total departures are for just two destinations-Hong Kong (of which most is in transit for China) and Japan.

An interesting indicator, which still needs to he confirmed, is that the new airport at Macau seems to be attracting a lot of growth in the China-bound market from Hong Kong. Travellers from Chinese Taipei to Macau - of whom as many as 90 percent are believed to he onward bound for China - accounted for about nine percent of total outbound travel in 1997. Macau is already the fourth largest destination from Chinese Taipei, and will probably overtake the U.S., in third position, in 1998.

� The other major producing market for Pacific Asia is Korea-ROK, which was already showing signs of slowing early in 1997. But the sudden and steep decline of its currency after October is believed to have caused a sizeable drop in outbound travel. For that reason, there was probably a decline in outbound travel over the whole year-possibly of around three percent. As with Japan, the outlook for the Korean market in 1998 does not look good.

� Americans are increasingly bypassing travel agents. A study by the Air Transport Association (ATA) suggests that in 1997, about four million airline tickets, or one percent (if the total, were bought via the Internet in the U.S. This year, the figure could increase to 13.4 million, the ATA predicts. The expected growth is partly due to the increasing practice by agents of charging processing fees following cuts in airline commissions. An estimated 50 percent of the travel agents on the U.S. west coast already charge these fees, ranging from US$5-40 per transaction.

� Pacific Asia is about to gain lost ground as far as the U.K. market is concerned. Based on bookings to date, the region is forecast to attract a 33 percent increase in sales for summer 1998 (May to October inclusive). According to A.C. Neilsen, the research group that compiles the trends for the U.K. travel trade, this is due to more realistic hotel rates and special offers following the start of the current currency crisis in the region. The growth compares with 13 percent forecast for longhaul overall.

In summer 1997, sales for Pacific Asia fell by 26 percent as against an overall increase in longhaul of around six percent. Among the major destinations which benefited from the downturn to Pacific Asia were Mexico and the Dominican Republic, up 83 percent and 62 percent respectively

Meanwhile, longhaul sales for winter 1997/98 (November 1997 to April 1998) are expected to increase by 18 percent-an increase partly attributable to the earlier than usual launch of tour operators' winter programmes last year.  Mexico has again topped the growth table, up 270 percent in bookings so far, but Goa has attracted a 43 percent rise in sales. By way of interest, the U.S. appears to be stagnating.

� Two of Pacific Asia's top three market sources ended 1997 on a weak note. Japan's outbound total may just have stayed positive, but is likely to have finished the year with under one percent growth in number of citizen departures. More significantly, the monthly total was falling in the last few months of the year-which does not augur well for 1998.

Sales for Japan's travel agencies were down for the first time in six months in November, according to a survey by the Nihon Keizai Shimbun. Combined sales by eight major travel agencies, including Japan Travel Bureau, fell 1.7 percent to 344.28 billion. Domestic travel sales dropped 1.1 percent to 220.25 billion and sales for overseas travel fell 3.1 percent to 107.78 billion.

A detailed breakdown of travel agency sales in the first six months of 1997 across key markets of Pacific Asia
points to a slowdown in Japan, but the month of June was still good. In contrast, sales fell sharply that month in Hong Kong and Thailand, resulting in a stagnation for the first half of the year

Destinations

� The Asian economic crisis could cause a drop of nine percent in Australia's international arrivals in 1998, according to the director of the quarterly Queensland Development Report. The decline from Asia could be as much as 33 percent, although this should be compensated for to some extent by a possible 12 percent growth from Europe, eight percent from North America and as much as 100 percent from China.

China's growth projection is due to the fact that after many years of effort, the Australian Tourist Commission has won destination status for leisure travel from China. This means that Chinese travel agencies can now package leisure tours to Australia. In the past, tours had to be designated business or study tours and/or have a strong business element. Australia is the first destination outside Asia to have been granted this status.

� As some Asian currencies continue to tumble, hotels are grappling with the problem of fixing rates. Although the preferred option is to fix in U.S. dollars, the market has showed how precarious that can be. The best example is Bangkok, where some earlier special rates-after the first round of declines in the Thai bath-put nightly special rate room prices at around US$120. As currencies fell further against the U.S. dollar, these earlier levels became unsustainable-partly because other international hotel groups came out with their special rates, which better reflected the revised currency situation. This resulted in room prices falling to under US$100 per night just prior to the December holiday season.

With an unfolding economic situation, it is difficult to determine where all this is heading. But at present, it would seem that in cities with heavy hotel room construction and sizeable currency declines-which essentially means Bangkok, Jakarta and Kuala Lumpur - prices will not get back above US$100 for some time and may not even exceed US$80.

In Seoul, which has had a 50 percent decline in the value of its currency (to December 1997), but where the city has had a serious shortage of hotels, special rates may also fall to around US$100. Of the major tourist centres in the region, Hong Kong will probably average around US$175-$200, Singapore about US$125, and Tokyo US$150-$175.

� International backpackers are Australia's most valued visitors, spending more, staying longer and travelling more widely in the country While only 6.5 percent of international arrivals in 1996, backpackers accounted for almost 14 percent of direct visitor expenditure. They spent an average 74 nights in Australia compared with the overall average of 24 nights. (Note: most countries do not include stays exceeding three months in their total tourist arrivals count.)
 
 

� The latest annual U.S. forecasts from PKF Consulting predict that hotel investment activity should grow in 1998, yet at a slower pace. Luxury and upmarket U.S. hotels offer the best growth prospects. But all developers will be eyeing the major gateway cities, where opportunities are scarce. In 1997, average occupancies in the most favoured cities for hotel investment-San Francisco, New York City, Boston and Seattle-exceeded 78 percent, and average room rates were above US$100.

� Holiday Hospitality is opening a 'high-tech, hightouch' prototype hotel in the first quarter of 1998. Guests who make their reservations with a credit card will be able to swipe their card at the automated kiosk to get their room number, bypassing the front desk. Swiping the card through a reader hard-wired into the wall opens the room door, turns on the lights and air conditioning or heating system, as well as alerts the front desk that guests have entered the room. The first property will be a showcase hotel used for promoting franchise sales, testing new operational ideas and design concepts, and conducting employee training and operational awareness programmes.

National Tourism Promotion

� The tourism industry is back on the government's agenda in Hong Kong. Chief Executive Tung Cheehwa has pledged a HK$13 million loan to the Hong Kong Tourist Association to help attract conference business to the destination. The government has also confirmed its backing for several projects including a movie theme park, a cruiseship centre and an international exhibition to mark the turn of the millennium.

� Both Australia and New Zealand are restructuring their national tourist office (NTO) operations in Asia. The Australian Tourist Commission (AIC) in Hong Kong will now have control over all Asia outside Japan. Its office in Singapore, which previously had sub-regional responsibility for Southeast Asia, will become a country office. Indonesia was due to be upgraded from a representative to full office, and the ATC also hopes to open in Shanghai-which requires permission from the Chinese authorities.

� Until now, New Zealand's NTO has divided Asia into Japan; North Asia, with offices in Hong Kong; and South Asia, controlled from Singapore. This is now due to change, possibly early in 1998. The whole of Asia will become one region, and each country office will report to an area manager for Asia based in head office in New Zealand.

� Outsourcing NTO offices might become popular again with the downturn in business in the region. Although some NTOs will now have bigger budgets when converted into local currencies, this will be matched by the need for a harder sell to travellers who have seen their holiday budgets shattered. The Swiss Tourist Office was planning to open offices in Bangkok and in China. Both would be what it calls mandate offices-which mean those run by another body, such as the Swiss Chamber of Commerce.