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Slower Growth for Duty Free Sales
 Also: Travel Agents Beware the Internet
PATA
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Charts:
Top 10 Duty - Free Shopping Outlets Worldwide, 1996
Traffic to / from Amsterdam's Schiphol Airport and Selected Points in Asia*, (1997)
Hotel Bookings Online, 1996 - 2000
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San Francisco, June  1998

Total sales of duty-free goods worldwide in 1996 - through all distribution channels -  were around US$25 billion, according to the latest annual survey, The Best n' Most in DFS, compiled by Generation Sweden publications. This compared with around US$20.5 billion the previous year, confirming a slowdown in the annual growth of duty free sales over the early - to mid - 1990s.

There were few changes in the rankings of the leading duty-free outlets. The biggest increase was recorded by Paris' Charles de Gaulle airport, up from eleventh position in 1995 to sixth in the 1996 ranking. Tokyo's Narita airport lost five places with a drop of US$100 million in sales, falling to eleventh place. This was especially curious given that Japanese outbound travel had not yet shown any signs of a slowdown in 1996. One can expect a further decline in sales for 1997.

Given last year's slowdown in traffic demand by Koreans, another decline was likely for Seoul's Kimpo airport, which was down to twenty-second position in 1996 from sixteenth the previous year. Bangkok also lost four places in the ranking, falling to twenty-sixth from twenty-second place.

Honolulu maintained its second position after being ousted from the top spot by London's Heathrow airport in 1994. Hong Kong's Kai Tak and Singapore's Changi airports both also held on to their 1995 positions. Manila's N. Aquino International, meanwhile, dropped one place to tenth.
 

Top 10 Duty - Free Shopping Outlets Worldwide, 1996
Rank
Outlet
Type of Outlet
Country
Total Sales, US $ millions
1 London Heathrow Airport U.K. 576.5*
2 Honolulu Airport U.S. 428.8
3 Silja Line Ferry Company Finland 410.0
4 Hong Kong Airport Hong Kong 380.0
5 Singapore Airport Singapore 365.0
6 Amserdam Airport Netherlands 310.5
7 Paris CdG** Airport France 293.7*
8 Viking Line Ferry Company Finland 290.00
9 Frankfurt Airport Germany 285.9
10 Manila Airport Philippines 271.0
*Estimated with input from respective outlets. **Charles de Gaulle airport.
Source: Best 'n' Most in DFS, Generation Sweden, 1997

Airlines' duty-free sales performance was very mixed in 1996. Thanks to a 17.7 percent increase to US$117.7 million, the leader, Japan Airlines, ousted the Danish charter carrier Premiair from first place in the airline ranking. The only other Asian carrier in the airlines' top 10 sales ranking was China Airlines, in tenth position with US$37.7 million.

Europe accounts for the largest regional share of duty-free sales, although this has slipped over the last few years due to competition from Asia as well as a decline in total sales of tobacco goods. Its share will fall dramatically from July 1999, the date set by the European Commission (EC) for the abolition of duty-free sales within the European Union.

Despite continued pressure from lobby groups  and  even  the  European Parliament to persuade the EC to renege on its plans, there is little chance of a reprieve. The good news for Asia is that many in the industry now believe - incredible as it may seem -  that this will stimulate travel by EU residents to non-member destinations. Asia's share could also be boosted this year by the opening of new airports in Kuala Lumpur and Hong Kong.

Air Transport

Two new watershed routes. From a new market perspective, the first from Pacific Asia into the world's gambling capital, Las Vegas - Northwest Airlines starts Las Vegas - Tokyo this June. And from an operational viewpoint - year-round non stops Chicago - Hong Kong. This is probably the longest nonstop flight in the world at just under 16 hours, and possible year round only thanks to the installation of satellite navigational facilities and improved aircraft engines.

Starwood has already announced that the FGPs of the two hotel groups it owns, Westin and Sheraton, are now linked - earnings in one can be redeemed in the other - and a new single FGP is due to he launched at the end of this year.  This is likely to encourage competitive moves, particularly from the recently linked Holiday Hospitality and Inter-Continental, and the increasingly close two Hilton groups.

For the airlines, new flights from the U.S. will he started, even if timing in the current weak market in Asia is bad. This is because competitive pressure in the U.S. is intense, and most airlines believe that any downturn in traffic on the Pacific is temporary. So both codeshare and FFP links in the Pacific region will he strengthened. FFP numbers of U.S. airlines are large. American Airlines says it gave 2.2 million free travel awards in 1997. That indicates a broad industry total of around 10 million freebies.
 

Airports

Airline passenger traffic increased by five percent to 2.6 billion in 1997, according to the global airports' body; Airports Council International (ACI), and cargo traffic was up eight percent to nearly 54 million tonnes. This compared with around six percent growth for both in 1996. North American airports - the largest region - saw an increase of only three per cent in passengers as against seven percent for European airports. Asia Pacific, the third largest region, handled just over 408 million passengers, an increase of five percent. However, this was nearly two percent lower than the growth rate in 1996.

The slower rate is attributed by the ACI to a decline in travel due to the financial turmoil which hit many Asian countries in the second half of last year.  But its figures also show that 12 percent more cargo moved through Asia Pacific airports in the 12 months. The ACI says this could reflect a surge in exports from the region, whose products became cheaper with the decline in the exchange rate of key Asian currencies as a result of the crisis.

Two developments are occurring in Japan that might have been unthinkable five years ago. Firstly; Osaka's Kansai airport is reaching capacity at certain times of the year and day. As a result, authorities are considering moving some domestic flights to the city's old Itami airport so that Kansai can handle growth in international flights. Secondly; initial proposals have been made to use a military air base near Tokyo for commercial flights if Tokyo's Narita airport is unable to build its badly needed second runway.

In 1997, Amsterdam Schiphol airport traffic to and from Pacific Asia increased 7.4 percent to 2.4 million passengers. Traffic was boosted by a strong increase on India routes. Traffic to / from Hong Kong stagnated but this followed a sharp rise the previous year.
 
 

Traffic to / from Amsterdam's Schiphol Airport and Selected Points in Asia*, (1997)
To / From
Seats Sold ('000)
% Change on 1996
% Share of Total Seats Sold
Japan 481 9.1 20.4
India 251 16.2 10.6
Thailand 246 3.8 10.4
Singapore 236 -0.8 10.0
Indonesia 206 -1.4 8.7
Hong Kong 195 0.5 8.3
Total
2,360
7.4
100.0
 *Those generating 200,000 plus passengers. Source: Amsterdam Airport

Markets and Destinations

Despite the region's current economic turmoil, a new survey from Euromonitor suggests that over one billion Asians will have middle-class spending power by 2000.

Saudi Arabian tourists spend US$17 billion a year on travel and tourism, according to a study by the kingdom's chamber of trade and commerce - and only 27 percent of the total is spent on tourism inside the kingdom. Destinations wondering how to attract Saudi tourists should know that the country has 50 theme parks and children's fairs for its population of 18 million, of whom about one-third are expatriates.

First quarter 1998 results for Hong Kong and Singapore are very much as expected. International tourist arrivals in the former British colony totaled 2.2 million, down nearly 25 percent on the same period in 1997. With the exception of Chinese Taipei and mainland China, all major market regions showed a decline in arrivals in March. Meanwhile, tourist arrivals in Singapore in the first quarter fell by nearly 20 percent to 1.5 million. But prospects for both destinations are much better for the second half of the year.

Some travel patterns are difficult to spot, and this was the case with the luxury Singapore - Bangkok Eastern & Oriental (E&O) train. The first half of 1997, to quote Mr. Tom Evers-Swindell, General Manager of E&O in Singapore, was "a real ripper." But in the second half, bookings began to slow in July, then stopped, and then went backwards as a result of cancellations.

Strangely, Mr. Evers-Swindell believes the loss was partly related to another destination in the region, somewhat removed from Southeast Asia - Hong Kong. He says many long-haul customers who travel on the train were also likely to visit Hong Kong - "and the allure of Hong Kong had gone."

According to the most recent forecasts from the Asian Development Bank (ADB), China was the fastest growing of the major regional economies in 1997, at 8.8 percent. With forecasts for most countries down for this year and 1999, China is still expected to achieve 7.2 percent gross national product (GNP) growth in 1998, and 6.8 percent in 1999. That would make it the fastest growing economy this year, and the second fastest, after India with seven percent.

Some of China's travel and tourism measures support this growth. International air seats sold increased 15 percent in 1997, international tourist arrivals rose 13 percent, and spending 18 percent. However, domestic travel growth - around 20 percent annually for most of this decade-slowed to under one percent.

Hotels & Attractions

Sales generated by Marriott International's worldwide sales offices grew by 16 percent in 1997 - the ninth consecutive year of double-digit growth. Key to this growth was a surge in electronic bookings, the largest gains in which were recorded by Milan, Mexico City and Sydney. A breakdown of overall performance by individual sales offices indicates that Miami (the group's Latin America sales office) and London achieved the highest growth levels of 22 percent and 21 percent respectively, followed by Sydney (20 percent). The only decline was in Tokyo, down 10 percent.

A wave of new hotels opened in Hanoi in the last six months have been those run by nascent Asia-based hotel management groups. Interestingly, the next wave will come mainly from international groups.

Newly opened are the 143-room Sunway (run by Malaysia-based AlIson Hotels), the 151-room Guoman (also Malaysia based), the 324-room Horison (part of Hong Kong-based Swiss-Belhotel), and the 322-room Meritus Westlake (part of Singapore's Meritus group). The international players due this year or next are the 299-room Sheraton, 260 room Nikko, 309-room Westin and 286-room Hilton. One independent hotel is also due to come on line the 325-room Lien Westlake.

Online hotel bookings are forecast to increase from just 2.5 million in Europe and North America in 1997 to 65 million by 2000. That would represent just over seven percent of total hotel bookings in those regions.
 
 

Hotel Bookings Online, 1996 - 2000
Year*
Reservations 
% Share of All bookings in the Region 
 
North America
Europe
North America
Europe
1996 0.2 0.0 0.1 0.0
1997 2.0 0.5 0.5 0.1
1998 7.0 3.0 2.0 0.5
2000 40.0 25.0 10.0 5.0
 *1996 and 1997 actual, 1998 and 2000 projected. Source: World Res; Travel Business Analyst
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Travel Agents Beware the Internet 
by Mr. John K. King Managing Director, Global Tourism & Leisure 
 
In most other retailing and wholesaling businesses, distribution involves tangible products that one can touch, see and / or smell. In travel, on the other hand, the commodity being sold and distributed is basically information. 

What the travel agent does in this distribution process is to act as a conduit for information. He or she is paid by the airline, shipping company, wholesaler or principal for distributing their information to the customer and, in turn, providing information from the customer back to the wholesaler or principal along with the processing of their payment. 

For most of the past 30 years, the travel retail industry has been at its zenith as airlines - who have owned the means of electronic information distribution - found it convenient and profitable to have travel agents as the consumer access point. The computer reservation systems (CRS) made travel agents even more powerful as they controlled and distributed the information as they - and not necessarily the customer - wished. 

With the advent of the Internet, all this has changed. The travel agent no longer has a monopoly on information. Information access and distribution have been democratised and decentralised. Not only do consumers now have the means of accessing all the different types of information available to the travel agent, but they also have the ability to do their own research to identify, or find out more about, the travel product that is of particular interest to them. Finally, and most importantly, they no longer have to go to a travel agent either to book or pay for their purchase. 

The move by airlines, hotel companies and other travel product suppliers to reduce agency commissions is not just about the need to reduce distribution costs. It stems from the recognition that travel agents no longer control the gateway to the information pathway between them and their customers. 

With Internet usage doubling in volume every 100 days and the amount of commerce transacted on the Internet now expected to multiply by a factor of 50 - from US$6 billion - over the next four years, efforts by travel agents to resist change recall the attempt by Canute to stem the tide. 

Instead of making vain efforts to resist change, their time, money and energy would be better spent researching ways to add value to their customers' purchasing and service needs. 

Travel agents need to decide how best to compete in the electronic selling market where  traditional  agency  service skills - primarily to handle customers face to face - are not relevant. To sell effectively through the Internet, travel agents need to offer specialist capabilities and services. In effect the agency web site should become a new business area like any other, requiring new skills and investment priorities. 

Many smaller independent travel agents may not have the necessary resources to invest in the area of new distribution technology - or may not have the management foresight to recognise the potential threat the Internet poses. 

As major tour operator Internet booking sites become more prevalent, smaller travel agents risk losing booking volumes at a time when agency commission levels are falling. So they must generate new revenue streams to survive. 

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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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