Pacific Asia Travel Association’s regional director-Pacific, Chris Flynn, reflects on the changing dynamics of Asia-Pacific tourism.
It’s a well known fact that travel to, from, and within the Asia-Pacific region has undergone a huge surge in recent times. Changes in airline operating models, the establishment of new carriers, improved infrastructure and increased investment have all served to bring new opportunities for both leisure and business travellers alike.
International visitor arrivals
Preliminary data for 2015 shows that Asia-Pacific continues to be one of the world’s most in demand destinations.
According to the World Tourism Organization (UNWTO), International Tourist Arrivals (ITAs) across the globe peaked at 1.184 billion (+4.4%) in 2015, with Asia-Pacific accounting for 277 million of the total or 23% of the market.
The economic statistics for last year are not yet in, but UNWTO’s figures for 2014 show that back then 263 million arrivals to the Asia-Pacific region delivered $377 billion to regional economies, a year-on-year increase of 30%.
This positive shift in visitor arrivals correlates directly with the increase of affordable air services right throughout the Asia-Pacific region.
Indeed, this expansion in route network development has delivered a range of opportunities that continuing to stimulate the growth of new destinations and drive trade and investment to new heights.
And improved infrastructure such as airport expansions, port facilities and new road systems to high speed rail networks are all serving to support, enhance and improve the visitor experience.
But as new opportunities arise so, too, does competition with destinations and industry stakeholders alike all vying for an increased share of the expanding visitor economy.
Nowhere is this more evident than in the accommodation sector where hotel companies are investing billions of dollars in an effort to broaden their respective Asia-Pacific footprints.
In 2015 we witnessed hotel room supply reaching record numbers, with thousands of additional rooms in the development pipeline. But we are also witnessing other accommodation providers growing at unprecedented levels.
One such operator relatively new to the market is Airbnb, a company that has literally re-written the hospitality rulebook. On January 10, 2014, for example, co-founder Brian Chesky tweeted, “Marriott Hotels plan to open 30,000 new hotel rooms in 2014. We will add that in the next two weeks!”
According to Fortune.com, in 2015 the company’s annual revenue had grown to $900 million with predictions that they will achieve $1 billion annually by 2020.
There is no denying that this additional and previously unrecognised potential has changed much about the way people think in terms of accommodation options. Just like the introduction of the Low-Cost Carrier (LCC)operating model, Airbnb and other online booking providers offering similar options have changed the mindset of the consumer in an almost immediate and irreversible way.
As a result of the sustained growth in visitor number many countries and territories are now viewing the visitor economy as a significant economic driver, and one with the capacity to stimulate significant long-term sustainable investment.
And without doubt as emerging economies compete to capitalise on the benefits of increased visitation, travel and tourism has become the recognised catalyst for positive change.
This is especially true in some of the smaller economies of the Mekong and South Pacific, where traditional exports now take a back seat in favour of responsible tourism growth and expansion.
The rise and rise of Asia-Pacific aviation is without question the main driver of increased visitation throughout the region. The rush to secure new air services is therefore paramount in the minds of many government policy makers as increased access usually results in increased economic wealth.
Network expansion and connectivity is happening on an unprecedented scale both in terms of volume and timeframe. With increased capacity and competition generally resulting in the availability of more affordable air services, it’s an exciting scenario that benefits all concerned in the equation.
The impact of low-cost carriers (LCCs)
The emergence of LCCs and other more cost effective and profitable operating models in the Asia-Pacific region has enabled carriers to expand at records levels.
However, competition remains tight as airlines compete head to head in one of the largest and most competitive regionsof the world.
Currently LCCs vie head to head with more traditional airlines as they, for the most part, operate in heavily regulated environments. This drives operators to seek new destinations in an attempt to establish new more lucrative markets that offer less competition.
In spite of the heavily regulated environments, we have already seen spectacular growth and innovation in terms of route network development and expansion.
The desire for change and the effect this has had on everyday consumers is self-evident. As a result, we’ve seen a scramble of activity as more traditional carriers attempt to mirror these operations as a means of capturing and securing a share of these new market opportunities.
This surge in new airlines has served to open up the region in previously unthinkable ways. Cross border trade, once considered off limits for most SMEs due to the high cost of facilitating new business in far flung regions, has now become standard practice.
Likewise, the investment in tourism infrastructure and development has sought to successfully capitalise on conditions a surge in new visitors creates. All this has been due, for the most part, to a landscape of sustained network expansion and promotion and the swift impact this has had on consumer demand and expectations.
Another key aspect of tourism expansion is the advancements in aircraft and engine design. New aircraft types now permit airlines to access markets previously off limits due to the restrictions on range coupled with associated high fuel costs.
In early March, Emirates launched one of the world’s longest non-stop services between Dubai and Auckland, with A380 operated flights taking around 17 hours and 15 minutes from New Zealand to the UAE and 16 hours in the other direction.
Indeed, announcements of new route network expansions offering non-stop flights of 16 to 17 hours in duration are becoming commonplace and this could have potential issues for traditional stopover destinations, but I would suspect the rate of growth and the ability to compete in an ever-expanding market could nullify these concerns.
Rising middle class
Growing economies and more affordable travel options than ever before means that for many, air travel is no longer something only the wealthy can afford.
In fact, most consumers now consider air transport as just another item on the shelf – something to be stacked high and sold cheap. Supermarket mentality if you will. Certainly not the luxury, unattainable experience it was once considered to be.
At this point it’s worth taking a look back to see how things have evolved and will continue to develop. Back in the early 1990s, Europe and North America accounted for more than 70% of global air traffic. Both regions enjoyed a stable middle class and, with the onset of air space deregulation, the opportunity to expand air services to the masses.
What we are now witnessing is the economic baton being passed to the new emerging economies of the world. And with it, the anticipation that the sustained growth of travel and tourism in Asia-Pacific and the Middle East means that the regions are set to become the dominant force in global aviation.
With ongoing plans to deregulate the ASEAN region, some of which has already occurred, we will see an explosion of air connectivity similar to that which occurred in North America and Europe – but on a much larger scale.
As a result, Boeing predicts that we will begin to see the European and North American markets roll back and shrink to 38% of global traffic by 2034.
Coincidentally, as this shift takes place, we will see the explosion of a new Asia-Pacific middle class, coinciding with the shrinkage of the middle class in western markets. The opportunities then are clearly self-evident.
Airport growth and expansion
This rapid and unprecedented shift brings with it both opportunity and risk. To meet the challenge of growth is no easy feat.
There is a constant need for careful planning, especially for airport and/or associated stakeholders as they seek continued success.
To capitalise on growth but also meet the growing demand of the new traveller, it’s necessary to be prepared. The most sustainable requirement for any business is ‘profit’ because without it you cease to be. Therefore, the primary focus for all businesses has to be sustained revenue streams.
How to achieve this is a constant challenge, especially if you are expected to provide the products and services demanded by today’s travellers, but for no apparent increase in fees. Not the most desirable equation.
It is generally agreed that ‘ancillary revenue’ will become an even more significant aspect of future business development for both airports and airlines alike.
Finding new ways to sources additional revenue through external or third party products and services is already a key function of many airports, but it will become even more critical in the years ahead due to the constant demands of growth and external pressure this creates.
Therefore, doing things the same old way simply does not work anymore. Instead, it requires innovation and an ability to think beyond our current offerings if sustainable profits are to be achieved.
Airports need to morph into complete business and social environments – something that can only be achieved through the provision of services and lifestyle experiences designed to attract new ‘customers’, independently of whether or not they are travelling.
The days where airports were seen as merely transit hubs for people to leave or enter a destination is a thing of the past. Better utilisation of space, both airside and landside to drive profit through the provision of better services will become an increasingly critical factor.
But this provision of services also allows airports to become ‘the place to do business’ rather than just the gateway to a business environment elsewhere.
The provision of these services will become a critical factor in the decision-making process for owners of emerging SMEs who effectively conduct their business ‘on the run’.
These are companies with little if any access to professional facilities or budgets offered by some of the larger corporate employers. Yet their needs are the same.
The winners then will be those airports that invest in attracting this massively expanding sector through the provision of tools and facilities required to enable them to do business, not just remotely but also on site.
The establishment of strategic partnerships with third parties and/or other service providers as a mechanism to offer these services will, and must become, standard practice if airports are to achieve the returns needed to remain competitive.
It’s often the speed of change that has commentators flummoxed, as predictions increasingly fail to meet the true reality of growth. This is a situation set to continue, with UNWTO forecasting that global visitor arrivals will reach 1.8 billion by 2030.
PATA’s five year Asia-Pacific forecast supports these predictions, indicating that this trend is set to continue for the foreseeable future.
The prognosis therefore is good. This resilient industry we call tourism is set for spectacular growth, delivering with it a range of opportunities – some of which, to use JFK’s famous line, ‘have not been invented yet’.PATA forecast
The 38 Asia-Pacific destinations for which PATA produces five-year annual forecasts are expected to collectively continue with the overall growth momentum of the last few years and pass 550 million foreign arrivals this year and 600 million by 2018.
It predicts that each year between 2016 and 2020 will set new records for foreign arrivals, which will reach a near-term collective record high of close to 650 million by 2020.
At the sub-regional level, average growth rates between 2015 and 2020 are expected to range from around 3% per annum for the Americas and the Pacific to 3.4%per annum for Northeast Asia, says PATA.
Southeast Asia is forecast to show an average annual growth rate of 6.8% to 2020 while South Asia will set the pace with average annual growth of 7.6%.
Overall, Asia is predicted to see its foreign arrivals count increase by an average of 4.5% per annum between 2015 and 2020.
And just over 80% of the foreign arrivals into Asia-Pacific in 2020 – adjusted for the Greater China influence – will come from just 20 source markets and two-thirds of that volume will come from Asia.
Mario Hardy, CEO of PATA, says: “It is heartening to see that the momentum of the Asia-Pacific tourism sector will continue until at least the end of this decade and that it continues to play a significant role as both a receiver and generator of international visitors.
“The region’s identity as the engine of growth in international tourism is well justified. While this strong and sustained growth is a positive sign, it brings with it a number of responsibilities that require changes in mindset and measurement.
“We must ask ourselves if we are able to maintain high service delivery in the face of such continued growth and whether or not we have the correct software in place.
“The protocols and policies to manage effectively this growth are vitally important and we must also question how such increases in visitor arrivals may be managed to remain both rewarding to the destination citizens and sustainable in the longer-term.
“Growth brings with it rewards, but also responsibilities.”