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Shrinking Government Funding for Tourism
San Francisco, July  1998
The current economic environment in Asia is having an impact not only on travel and tourism prospects, but also on ways in which the industry; operates. The liberalisation of aviation is one example - in line with changes that have already taken place in North America and Europe - and a number of other developments underway in other regions are almost certain to be followed in Pacific
Asia, especially; given today's economic  realities.  These include the emergence of low-cost airlines in Europe, largely modelled   on   U.S.-based Southwest Airlines, as well as the growing number of large airline alliances and the trend towards open skies.

Europe's low-cost airlines include Azzura Air in Italy, Ryanair in Ireland, Virgin Express in Belgium and several in the U.K. including Debonair, EasyJet and the new British Airways' subsidiary, Go. With the plethora of fares available it is difficult to be precise, but these are broadly 30 percent below those of the lowest (and highly restrictive) fares of traditional airlines.

Europe's low-cost carriers ate all short-haul airlines and there do not appear to he any plans for long-haul low-cost carriers - probably because of the high share of charter operations in the long-haul holiday sector. The European low-cost airlines sold eight million seats in 1997, but a Solomon Smith Barney report suggests the share could rise to 36 million - 13.5 percent of total market - if it reaches half the market share achieved in the U.S.

Now would seem to be the time to launch airlines in Asia that openly offer lower fares, although this would require the region's governments to be more liberal in their approach to aviation. Current low fares in Asia are mainly under-the-counter discounts and they are about 20-200 percent above the European low-cost airline levels. Given Asia's lower costs, they should logically be far below those levels.

There  has  been  a steady trend towards more liberal aviation agreements for two decades now, but it has only begun to affect Asia in the last two years. The change began with the strategy announced by the U.S. to sign open-skies (OS) agreements with Korea  (ROK),  Brunei, Malaysia, New Zealand, Singapore  and  Chinese Taipei. The last of these, with Korea (ROK), was signed just a few months ago. The strategy is to isolate other markets, particularly large ones like Japan and Hong Kong, in an attempt to force them to accept OS agreements.

The U.S./Netherlands OS agreement is reported to have resulted in a 100 percent increase in capacity and a 225 percent increase in traffic between the two countries. But it is not only the OS that makes a difference in terms of traffic potential. The agreement between the U.S. and Japan is a striking indication of what liberalism can do for growth.

As many as 106 new frequencies were requested by just three airlines, plus 56 by seven other carriers, including newcomers TWA, US Airways and Hawaiian. This compares with the 90 flights currently available. The grand total would result in around five million more seats a year.

Flights Requested by Main U.S. Airlines
American 28 Chicago - Tokyo
New York - Tokyo
Boston - Tokyo
Dallas - Osaka
Delta 43 Atlanta - Tokyo
Portland - Osaka
Porland - Fukuoka
Atlanta - Osaka
Cincinnati - Tokyo
New York - Tokyo
Continental 35 Various

Meanwhile, alliances are increasing in number and size. The United/Lufthansa and American/British
Airways combinations looked large enough, but United is linking with the second largest U.S. airline,
Delta. Northwest has linked with Continental, and American with US Airways.

Compared with these operations, Pacific Asia's airlines are tiny yet, as the world liberalises trade and aviation, they will need to have strong links internationally There have already been a number of moves between airlines in Asia and some of those big international groups. And if United feels the need to link with Delta (US$30 billion combined revenues), how long might it be before those friendly rivals, Cathay Pacific and Singapore Airlines (US$8 billion), feel the need to join forces?


Worldwide passenger traffic grew by an estimated five percent in 1997 to some 2.7 billion, according to the Geneva-based Airports Council International (ACI). However, there were marked fluctuations in the growth levels from one continent to another After registering an increase in passengers of just under seven percent in 1996, the Pacific Asia region turned in a meagre performance with just three percent growth.

Chicago's O'Hare headed the passenger volume ranking, and the leading airport outside the U.S. was London Heathrow, in fifth position - just ahead of Tokyo Haneda. Only two other Asian airports featured in the top 20 - Seoul in ninth place and Hong Kong in twentieth. Hong Kong was the only airport to register a decline in traffic.

At stressful times like these, it is useful to take stock of the fact that despite rapid growth rates before the start of the crisis, Asia's travel industry is still in its infancy. Take airports, for example. Of the major ones in the region, only Singapore has more than one runway.  Compare that with Paris Charles-dc-Gaulle, which has recently decided to add two more, and Amsterdam Schiphol, which has five.

Top World Airports for Passenger Traffic Volume, 1997
Passengers ('000)
% Change on 1996
Chicago O'Hare 70,380 1.8
Atlanta 68,200 7.7
Dallas / Ft. Worth 60,490 4.2
Los Angeles International 60,140 3.7
London Heathrow 57,970 3.8
Tokyo Haneda (6th) 49,300 5.9
Seoul (9th) 36,490 5.9
Hong Kong (20th) 29,000 -4.1
Source: Airports Council International (ACI)

Even Hong Kong, due to open its new airport this month, has just one runway, although the second is due to be ready before the end of the year This could make a big difference. When it opens its second runway, hourly aircraft capacity will increase from about 37 to 50. But when the system gets up to speed, this will grow to 70 aircraft an hour!

Airlines are more fortunate than hotels since they can move their capacity to other markets. Even before the Indonesia crisis, for example, Cathay Pacific had switched some of its Jakarta flights to run through Singapore instead of nonstop, and to Penang via Kuala Lumpur.  It also doubled its flights to Sydney. Singapore Airlines added flights on long-haul routes outside the region - three more to London and Frankfurt, and three weekly to Newark via Amsterdam.

Some hotel designers still install too few elevators, or install the floor - button pad on just one side. So it is not surprising that airport designers sometimes overlook the small details. Is that the case with Hong Kong, where all departing passengers have to travel down elevators to get to the departure level rather than by a much more passenger - friendly moving walkway? Fortunately, the airport's design is such that there is enough space to add a moving walkway at a later date.

Hotels & Resorts

The Hong Kong Tourist Association is not expecting hotel occupancies in the Chinese SAR (special administrative region) to start rising again until 2002. This is due not only to a decline in tourist arrivals, but also to an increase in capacity.  Hong Kong has had almost no increase in its hotel room count since 1992 when it reached 33,000.

Forecasts for Hong Kong Hotel Operations, 
1998 - 2004
No. of Rooms
% Annual Change
% Average Occupancy
1996 * 33,536 1.5 85
1997 * 33,425 -0.3 76
1998 37,533 12.3 72
1999 41,271 10.0 71
2000 45,967 11.4 69
2001 50,310 9.4 69
2002 52,188 3.7 71
2003 53,706 2.9 74
2004 57,860 7.7 73
* Actual. 
Source: Hong Kong Tourist Association

In contrast with trends over the last couple of years, only one of the five U.S. hotel segments will experience growth in revenue per available room (RevPAR) greater than the rate of inflation in 1999, according to the Lodging Research Network, Coopers & Lybrand's Internet lodging industry database. Luxury hotels' RevPAR will rise 5.1 percent to US$109.74 in 1999 ahead of the Consumer Price Index (CPI), which is forecast to be 2.8 percent. But the revenue growth of all other hotel segments is expected to fall below that level.

Regent's first move under its new partner, the Carlson Hospitality Group (which includes Radisson hotels), has been into a new gambling and leisure resort in Las Vegas. Until now, most of Regent's expansion has been in Pacific Asia. Franchising a top quality name is not common in the hotel business, and it will be interesting to watch how this develops. It is certain that if it works well, there will be many copying the concept.

Markets and Destinations

Forecasts of overseas travel to the U.S. highlight the country's underlying confidence in the fairly rapid revival of Asian markets. Or do they simply underestimate the severity of the downturn? Japan, Korea (ROK), Chinese Taipei and Hong Kong (Hong Kong declined 8.3 percent in 1997 and is expected to show the biggest drop in 1998) are all expected to be back to positive growth by 1999.

Revised figures from Australia's Tourism Forecasting Council (TFC) project an eight percent decline in Australia's visitor arrivals in 1998 to 3.97 million. This compares with the 4.7 percent drop forecast in April, to 4.1 million. The Japanese market is now expected to fall 10 percent this year, to 732,000, while the number of visitors from the rest of Asia could plunge 29 percent to 953,000. The depreciation of the Australian dollar may boost arrivals from Europe and North America, but other markets would need to rise by 28 percent to compensate for Asia's fall - and this is not going to happen, the TFC says.

Travel Distribution

According to a survey conducted by the American Society of Travel Agents (ASTA), nearly two-thirds of U.S. travel agencies now charge service fees to book travel. This compares with only about 25 percent in September 1997. The average fee per transaction is US$l0, although fees range from as low as US$5 to US$200. Agencies charge the most for trip planning or research - usually about US$50 - and US$20 for cancellations. Customer acceptance of the fees is reportedly high and 96 percent of the responding agencies predict they will not lose any business as a result.

Travel Agency Locations of Global and Regional CRS Vendors in Pacific Asia
Galileo / Apollo 5,001
Sabre 4,471
Armadeus / System One 2,700
Abacus (Pacific Asia) 7,300
Axess (Japan) 7,009
Infini (Japan) 6,348
Topas (Korea (ROK)) 2,718
As at Nov 1997. CRS = Computer reservation systems.
Source: Travel Distribution Report

Galileo leads the global computer reservation system (CRS) vendors in terms of number of locations in Pacific Asia, accounting for a 41 percent share - slightly ahead of Sabre with 37 percent. However, Abacus remains the preferred CRS in the region and in Japan, Axess and Infini are still close competitors for the local market.

Tourism Budgets

U.S. state tourism offices are expected to spend US$478 million on tourism promotion in fiscal 1997/98 - up 6.5 percent on last year - according to a recent survey by the Travel Industry Association of America (TIA). Illinois has the biggest budget, of US $35.3 million, followed by Hawaii with US$27.7 million and Texas with US$25.1 million. New York ranks seventh with US$18.1 million.

California recorded the biggest budget growth for 1997/98, of 68 percent. This was due to the establishment in 1997 of the non-profit California Travel & Tourism Commission (CTTC). This is a partnership between the state government and companies in tourism or related industries which benefit in some way from tourism. The concept is to leverage the state allocation of funds for tourism marketing with private funds raised by an industry-wide self-assessment.

Ms Nancy Cockerell Editor & Researcher

Shrinking Government Funding for Tourism
by Ms Nancy Cockerell,  PATA Issues and Trends, Editor & Researcher

At a time when national tourism organisation (NTO) budgets around the region appear to be shrinking, it is perhaps some small comfort to know that the trend is not unique to Pacific Asia. Some of the world's leading tourism destinations have already suffered, or are facing cuts in government funding of national tourism promotion and marketing.

A prime example is France - and in a year when the world's favourite tourism destination country; in terms of international arrivals, is hosting the World Football Cup. Not only has Maison de la France's budget been cut for the third year running, but an increasing share of its budget is being earmarked to develop domestic tourism.

The German government has said it will progressively withdraw funding of the German NTO, the DZT, so that by the decade's end, it will be mainly funded by the private sector. The U.K. government is also considering closing the British Tourist Board as part of a sweeping spending review.

Meanwhile, the U.S. situation is still unclear following the disbanding of the United States Travel & Tourism Administration (USTTA) a couple of years ago. Although the government approved the establishment of the U.S. National Tourism Organization (USNTO) - the new public-private sector marketing body proposed by the Travel Industry Association (TIA) of America to replace the USTTA - it is still being funded solely by the industry

The USNTO is trying to secure funding from government for the partnership, but if a source of government funds is not identified and approved by the end of October 1998, the USNTO will have to close down. Different proposals for funding have already been rejected by government following opposition from airlines and the State department. These include an additional fee on new passports and a supplementary departure tax.

The latest proposal is to fund the USNTO with revenue from the aviation trust fund - or rather, from interest earned from the fund, which is expected to generate a US$14 billion surplus next year But this proposal has also met stiff opposition from airline groups and time could be running out for the USNTO.

For additional information contact:
Ms. Nancy Cockerell, Editor and Researcher
Pacific Area Travel Association
Web Site:
Email: [email protected]

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