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IATA Revises Forecasts for 
Pacific Asia Air Traffic Growth
 
PATA
 
IATA's Revised Passenger Traffic Growth Forecasts
European Outbound Travel Trends, 1997
International Tourist Arrivals in Vietnam by Transport, 1997
--
 
San Francisco, May  1998

The financial and economic turbulence in Asia during 1997 and its impact on the region's aviation market have led the International Air Transport Association (IATA) to review its medium-term air traffic growth forecasts for the region to 2001.

Traffic growth levels to, from and within the region have been among the highest in the world in the past, IATA says, and a number of the region's carriers have been among the world's most dynamic and profitable. Pacific Asia traffic was projected to increase from 35 percent of world aviation in 1995 to as much as 50 percent in 2010 when IATA made its last forecasts for the region in early 1997. However, according to the newly published revised forecasts, its share could now drop over the period to 33 percent.

The forecasts, which have been compiled by IATA's Aviation Information & Research Department, are
based on estimates of the impact during the period 1996 to 2001 provided by Chief Executives of 46 airlines operating to, from and within the region and responsible for 75 percent of total international scheduled traffic.

These estimates suggest that there will be a reduction in average annual growth rates over the five years. Passenger traffic growth is now expected to fall from the previously projected 7.7 per-cent per annum to 4.4 percent - implying some 30 million fewer passengers in 2001 than in the previous forecast - and cargo traffic growth will average around 6.5 percent a year, instead of nine percent.
 
 

IATA's Revised Passenger Traffic Growth Forecasts, 
1996-2001, %
World Region
To / From
Average Annual Growth Rate 1996 - 1996 - 2001, %
Previous Forecast Revised Forecast
China 14.0 11.7
Chinese Taipei 11.2 7.0
Japan 5.8 4.1
Korea - ROK 8.1 3.1
Malaysia 8.0 4.8
Singapore 7.2 5.1
Thailand 7.3 4.0
Previous forecast based on estimates from airlines as at end 1996; revised forecasts based on estimates
made in early 1998. Source : IATA Aviation Information & Research

The results also suggest that the impact of the crisis on airline operating profits will be in excess of US $1.5 billion in 1998 for the carriers surveyed. If this were projected to all PATA member carriers operating to, from and within the region, the impact on profits would increase to around US $2 billion.

Some level of reduced growth is expected in most markets, but the levels vary significantly from one country to another. Korea - ROK, Chinese Taipei, Thailand and Malaysia are expected to be the most adversely affected - in terms of their respective decline in growth rates  - with Japan and China suffering the least.

For each of the three financial measures - costs, rev-enues and operating profit - airlines based in the Pacific Asia region take a more pessimistic view of the impact of the current crises on their own carriers financial performance than do carriers based outside the region. A few Asian airlines predict a positive increase in operating profit, but far more expect a decline - with several anticipating a decline in excess of US $100 million.

Changing Market Conditions

In this travel downturn, will some companies fall into the old 80:20 trap? Mark Gordon, market strategist at Asia Associates, believes that even though you may get 80 percent of your revenues from 20 percent of your customers, that does not mean you can cut out the 80 percent of customers who produce only 20 percent of revenues.

One credit card company, Gordon says, started to drop some outlets from the 80 percent market segment that brought in only 20 percent of its revenues. But it began to lose customers because, of course, they increasingly found that the card was not accepted when they wanted to make purchases. So the value for the customer carrying that card gradually diminished.

Will the industry now look to save costs by cutting from those that produce only a small share of their total business? The 80/20 theory suggests caution.

Does the current turmoil mean that it is time to throw out some of the old measures that give us an idea of what is happening in the travel business?

American Express, for example, is running into complications with its Airfare Index. It reports that average economy fares are five percent higher than a year ago, and that both business class and first class fares are up four percent. Yet everyone knows the industry has never seen such low fares - with many as much as 50 percent below earlier levels. Clearly; some segments of the market may be missed in such surveys.

Meanwhile, Travel Business Analyst (TBA), which tracks statistical development in a number of industry segments, is finding that its city-wide hotel measures are being confounded by varying exchange rates. Until now, one single exchange rate to the U.S. dollar has been used every month - the end-of-month rate, according to Murray Bailey, TBA's research director.  But with so much fluctuation in rates over recent months, that formula has been increasingly challenged. TBA is now working on a refined measure.

But some things never change. Although big numbers usually mean a slower percentage growth, this is not the case with the world's leading international travel trade fair, ITB Berlin. This year, the fair had 30 percent more exhibition space. ITB also attracted a 13.9 percent increase in foreign exhibitors - or + 9.6 percent in exhibitors overall - and an 11 percent growth in visitor numbers.

Markets

Japan Travel Bureau (JTB), Japan's leading travel agency - it is twice as big as its closest competitor - has forecast a growth in Japanese outbound travel of just 1.4 percent for 1998. But this would still be better than in 1997, when the total foreign trip volume increased by under one percent to 16.8 million. 1998 started off badly - January departures showed a drop of almost 12 percent - but many believe that a recovery will start to be seen in the second half of the year.

European outbound travel growth slowed in 1997, according to the European Travel Monitor (ETM), both in terms of trip and overnight volume. Total travel spending rose by five percent to Ecu 210 billion
(US $228 billion) - or up one percent per trip and four percent in spending per night - although this was partly attributable to exchange rate fluctuations.
 

European Outbound Travel Trends, 1997
Absolute Volume
% Change on 1996
No. of trips, mn 270 2
No. of nights, mn 2,600 2
Total Spending, US$ billion 228 5
Breakdown of trips, mn;
Holidays 180 + / -0
  • Long
150 3
  • Short
30 -3
Business 
 
52 -2
VFR (Visits to friends and relations) 34 6
Other / Unspecified 4 na
Long holiday = trips of 4= nights, Short = trips of 1 - 3 nights. Figures have been rounded that might cause some distrotion.
Source: European Travel Monitor (ETM)

Long-haul travel stagnated overall, although the U.S., Mexico, South America and the Caribbean registered significant increases at the expense of Pacific Asia destinations - the second year of decline recorded for this region since the beginning of the 1990s. But the good news is that the results of ETM's survey of travel intentions carried out at the beginning of 1998 confirm that there will be a strong growth in demand among Europeans for Pacific Asia this year

Kuoni Travel Switzerland generated SFr 84 million in revenues from sales of long-haul tour packages to the Pacific Asia region in 1997 to around 35,000 passengers. This meant an average price per passenger of SFr 2,375 (US $1,580 at today's exchange rate). The average price, which is more than 1.8 times higher than Kuoni's average price to North America and the Caribbean, is expected to increase by three percent in 1998.

Aviation

While fairly liberal, the U.S. and Japan's new air services agreement (ASA) is not an open skies agreement and does not end the imbalance in rights between the two countries. The key elements of the ASA are that two U.S. passenger airlines - Northwest and United - have virtually unlimited passenger traffic rights into Japan, including rights to pick up passengers in Japan for onward travel to the rest of Asia. The U.S. has also won preferential access to precious aircraft slots at Tokyo's Narita airport

In exchange, two Japanese airlines - All Nippon Airways (ANA) and Japan Airlines (JAL) - have virtually unlimited freedom to U.S. points, although no domestic rights within the U.S. and internationally; only rights to pick up passengers in the U.S. for onward travel to Latin America. But code-sharing is allowed by all airlines and this can be expected to generate more airline services from existing and new carriers within, to and from Japan.

There is a great deal of aviation activity between the region's two biggest economies, Japan and China. The current growth trends in air routes between the two give some indication of the eventual importance of China in travel terms. While most air movements in the past were between major city airports in the two countries, this developed into travel from secondary cities into the main centres in China. Now, some of these new Japan - China flights are from secondary to secondary points.

JAL, for example, is considering new routes to Tianjin, Qingdao, Wuhan, Xiamen and Shenyang, with services from Osaka and Nagoya. All Nippon Airways has similar plans. The Chinese airlines have announced Shenyang - Chitose/Osaka Kansai, Harbin - Niigata, Dalian - Toyama, Chongqing - Nagoya, Xian-Qingdao - Fukuoka, Xian-Shanghai - Niigata, as well as some new big city routes, Shanghai - Nagoya, Beijing - Dalian-Hiroshima, and Tianjin - Nagoya.

Destinations

Sri Lanka's tourism bounced back in 1997 with a 21 percent increase in foreign arrivals to 366,165. This followed a 25 percent drop in 1996. The strongest growth among major markets came from the Netherlands, Australia and Germany. The Ceylon Tourist Board is targeting a further 20 percent increase for 1998 to 440,000.

Vietnam recorded 1.7 million tourist arrivals in 1997, up 6.7 percent. Air arrivals grew by more than 10 percent, increasing their share to 60.3 percent, but there was a sharp drop in arrivals by sea. Of the total, around 40 percent were leisure visitors, 22 percent on business and 24 percent visiting friends and relations (VFR). China was the major source, generating 405,389 - followed in a distant second was Chinese Taipei.
 

International Tourist Arrivals in Vietnam by Transport, 1997
Transport Arrivals 
'000
% Change on 1996
% Market Share
Air 1,035 10.1 60.3
Land 551 8.9 32.1
Sea 130 -19.4 7.6
Total 1,716 6.7 100.0
 

Hotel Talk

Renowned French scientist and futurologist, Jol de Rosnay, warns that it is not enough simply to acquire advanced technology - hotels must adapt their management culture to meet the changing needs of tomorrow's customers. "New technology in an old organisation just means an expensive old organisation," he says.

We are locked into providing services that are too expensive to implement and are only wanted by a small proportion of guests in the first place, believes Chris Robinson, Information Systems and Technology Manager at Millennium Copthorne. One of the problems, he says, is that the hotel industry actually possesses very little useful information about what customers really want. We may think they want all the electronic wizardry in their rooms, but the actual uptake is relatively low - from as little as five to 20 percent. Guests may not be interested in paying extra for such services, either, Robinson says. Millennium Copthorne's experience shows that computer games attract only a very low percentage of guests, as do in - house movies.

Following its failed bid to acquire ITT Sheraton, Hilton Corporation's CEO Stephen Bollenbach says the group's main goals are to "make effective use of our capital, strengthen our position in the gaming market, and acquire full-service properties."

He says he expects to get to the same place as Hilton would have done through the acquisition of ITT Sheraton, but will have to do it in smaller steps. Meanwhile, as far as international expansion is concerned, he says Hilton would have sold all the Sheraton owned properties outside the U.S. even if the deal had gone through.

Jurgen Bartels, recently appointed CEO of Starwood Hotels, maintains that the integration of Westin Hotels and Resorts and Sheraton into the group's portfolio should produce operational savings of US $100 million overall in 1998 and US $140 million in 1999.

 
 

For additional information contact:
Ms. Nancy Cockerell, Editor and Researcher
Pacific Area Travel Association
Web Site: http://www.pata.org/patanet
Email: patacom@ix.netcom.com

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