San Francisco, Nov. 1997

Travel Business Analyst's (TBA's) barometer of travel and Tourism trends in Pacific Asia over the first six months of 1997 highlights the negative impact of currency and other crises on industry performance. There has been a slowdown in growth in almost all sectors, in some cases, to levels that even look slow in North America and Europe, and one can expect a further downturn in the second half of the year.

Pacific Asia's three leading airlines all registered declines in number of seats sold in the first half of this year. Singapore Airlines' growth fell below its self-imposed seven percent threshold, and Cathay Pacific went into a negative growth pattern, caused partly by the grounding of its Airbus A330 fleet after manufacturing malfunctions. Curiously, the stock markets seem to he in a different world. Cathay's price has more than doubled since 1990, and both JAL's and SIA's have halved in value.
 
 

Hotel occupancies in the region suffered less than might have been expected. Singapore remained steady, Bangkok fell by 3.9 percent, and Hong Kong was down 2 7 percent. Hong Kong's result was primarily due to a poor June - the month for which most predicted the biggest boom because of the hand over from British to Chinese rule.
 
 

According to TBA estimates, Hong Kong inbound tourism growth continued to be quite strong, boosted by arrivals from China and Japan. The Japanese market only began to collapse  two months before the period ended. Singapore and Thailand are running close together, although Thailand's figures are inflated by border crossings from Malaysia, while the equivalent is not included in Singapore's count.

The growth in outbound was better than most other segments in the first half of 1997, although it was still not good compared with recent years. Chinese Taipei's growth has stopped slowing, but it has been replaced by a slowdown in Japan's growth. However, this could be limited to a slowdown to Hong Kong. The Republic of Korea's growth appears to have collapsed, and this seems to be related to pressure by the government to reduce unnecessary spending.

Markets

Domestic travel deserves more attention. By 2000 domestic air travel in Pacific Asia is expected to generate more than double international passenger traffic numbers. And the potential has hardly been tapped at all in some countries. India currently estimates its domestic tourism market at 141 million. China reports close to 700 million.

The USA counts over 1 billion domestic travellers annually, more than five times its population. With the same ratio, or the same propensity to travel as among Americans, China's total should be 5 billion travellers and India's over 4 billion!

The cost of business travel in and out of Europe is set to rise by up to six percent next year, according to a new study by American Express. Business-class air fares are projected to increase by six to seven percent and by as much as nine percent on long haul flights to North America and Asia. But the good news is that the rises are not all expected to dampen travel demand. On the contrary. As business expands into new markets, executives will be travelling more frequently and to destinations further afield.

With all the attention given over to business travel, the leisure market is sometimes neglected. But not so in Japan. There the leisure share of total outbound travel is already high, leading many observers to believe that as numbers are growing, the share of leisure travel must also be on the rise. In fact, there has been no change in sector shares this decade. Leisure travel accounted for 83 percent in 1993, the same level as in 1990.

Change has occurred in the female market. The female share of outbound travel increased from 39 percent to 46 percent over six years. Will Japan become the first of the world's mature travel markets where female travel exceeds 50 percent?

Hotels

Hotels know they must play the market to get business. Shangri-La says that only three percent of its customers pay the rack rate, although they produce six percent of the company's revenue, hence the reason it has decided to give more than a room to full rate customers. They now also receive free airport/ station-to-hotel transfers, full breakfast,  local telephone calls plus fax/IDD at cost, unlimited dry cleaning and laundry, and check out extended to 1800.

The hotel outlook for any one city cannot he viewed in isolation. Thus, while Bangkok's low rates reflect over-capacity; that over-capacity has some residual effect on other regional markets. This can be seen both in terms of rates and holding down increases to keep prices as close to possible to those competing, low-rate destinations, and in actual booking. "I'll put my room bookings into your Bangkok and Jakarta hotels if you give me space in Hong Kong and Seoul" has become a common refrain.

Marriott International is looking to become a major player in Asia with more than 100 hotels in the region by 2000, up from the current 60. Despite the oversupply of hotel rooms in some parts of Asia, not to mention the recent downturn in business, Mr. Bill Marriott says: "I've been going through ups and downs for 40 years in this industry; and the Asian ups and downs seem to be quicker.  You seem to hit puddles and just keep on going. For us, Asia is a long-term play."

Intervention by the International Hotel & Restaurant Association (IHRA) at a meeting convened by the International Labour Organisation (ILO) has been successful in blocking a resolution by workers compelling industry employers to reach "collective agreements" with employees and trade unions before introducing technological changes in the workplace. Had it not been challenged, the resolution could have seriously undermined the competitiveness of the hotel and restaurant industry.

Travel Distribution

Advertising revenues from the World Wide Web and the four largest proprietary online services - America Online,  Compuserve,  Prodigy  and  Microsoft Network - totalled around US$200.1 million last year and are forecast to grow to US$1.97 billion in 2000, to quote the findings of Web Advertising: Market Analysis & Forecast, a new study published bv SIMBA Information Inc.

Although more than 71 percent of online travellers seek out travel information on the Internet, they still rely on travel agents to select airlines and hotels, according to a survey conducted by Plog Research and co-sponsored by System One Amadeus, the U.S. arm of the global distribution system (GDS).

The Interactive Traveller Survey found that 57 percent of travellers who log onto the Internet for travel information search Web sites for airline fares, hotel rates and availability. However, they still prefer booking through more conventional reservation methods. While 61 percent made a reservation after visiting a travel site, only 19 percent did their own booking online, due to concern over the security of Internet transactions.

The  Hotel  Electronic  Distribution  Network Association (HEDNA) claims that travellers are using the Internet to book hotel rooms at twice the rate they are using it to book airline tickets. Airlines claim that less than 1 percent of their tickets are cyber-sold, but a HEDNA study puts the online book share for hotels at 2.6 percent.

As far as global distribution systems (GDSs) are concerned, the survey indicates that Wizcom, the former Avis technology subsidiary now owned by HFS, handles 48 percent of GDS connections for hotels, narrowly beating out Thisco at 42 percent. Sabre and Galileo rule on the back end, accounting for 73 percent of all GDS bookings. Negotiated rates are offered through the GDS by 86 percent of HEDNA members-each hotel typically has 51 different negotiated rate codes.

More than two years after their enactment, airline commission caps are still the biggest detriment to the U.S. travel agency business, according to a survey commissioned by TTG North America. However, most travel agencies have become much more marketing focused as a result of the caps and now offer products and services targeted to specific travel segments.

Two-thirds of U.S. travel agencies made a profit in 1996, up from 61 percent in 1995. Around 80 percent expect to make a profit in 1997 and only five percent anticipate a loss at the end of their fiscal year.

A few years ago, leisure travel generated 48 percent of U.S. travel agents' business, which now accounts for 54 percent of their revenue. This is expected to rise to 60 percent in the next few years.

Airports

According to Airports Council International (ACI), airports in richer countries earn more from services such as duty free shops, restaurants and parking than from fees paid by airlines, like landing charges. In Europe, where the duty free shopping business is well developed, non-aeronautical revenues currently account for nearly 56 percent of airport income-a share that will decline after 1999, when intraEuropean Union duty free purchases are abolished. In North America, the share is 51.4 percent.

In the Indian sun-continent and the Middle East, airline fees dominate, with a 64 percent share. The ACI says low passenger flows through the airports of these regions-as in Latin America and Africa-limit their potential to generate landside revenues from retail concessions, parking and other uses of airport property; such as hotels and conference centres.

The results of studies commissioned by the European Travel Research Foundation (ETRF) suggest that the end of duty and tax free sales within the EU will lead to a loss of up to 81 percent of gross profits from the current sales level for airports, affecting their ability to finance investments. To offset the fall in profitability; airport charges will have to be increased by between 20-40 percent, the FTRF says.

Before the recent currency and environmental crises, Indonesia's largest duty free operator, PT Sona Topas Tourism Industry, was expecting its core business to boost net profit to 25 billion rupiah (US$10.3 million) in 1997, up 84 percent on 1996. Sona claims a 60 percent share of the country's total duty free shopping industry, with outlets in all of Indonesia's major tourist areas. The opening of its newest duty free shop on Bali has boosted the firm's total selling space to some 12,000 square metres.

Credit/Charge Card Business

The charge and credit card companies are keenly aware of the importance of the international traveller to their businesses. Visa's recently launched rewards programme for its Gold card members in Pacific Asia is heavily dependent on travellers. The main partners are Malaysia Airlines, Hertz, ITT Sheraton and Ritz Carlton. Visa Gold card members represent only 11 percent of all VISA cardholding in the region, but an amazing 34 percent of spend - US$3,415 a year compared with US$1,075 on regular cards.

Mastercard International expects a 30 percent increase in the number of its credit cards in China this year from 13 million at the end of 1996. It also sees 20-25 percent growth in transaction volume from last year's US$72 billion. China had a total of more than 20 million credit cards issued at the end of 1996.