Asia leads travel industry recovery; emerging markets look positive
Published: 24/02/10
Source: ©The Moodie Report
By Melody Ng, Asia Bureau Chief
INTERNATIONAL. A strong final quarter of 2009 plus a robust opening to 2010 are helping Asia Pacific to lead the global travel market’s recovery, according to Abacus International.
Abacus, Asia’s leading travel facilitator, noted that emerging markets, new technology and new business practices will underpin growth and set the underlying trends for the year ahead.
Speaking at a media briefing this week (attended by The Moodie Report), Abacus International President and CEO Robert Bailey revealed that Abacus had seen earlier-than-expected recovery with an increase in bookings registered since October last year.
The 'green shoots' seen in the second half of 2009 had led to a promising end to 2009: the company closed the year with a -1% decline in overall bookings and is forecasting +3% to +5% growth in travel bookings for the first half of 2010.
 |
"The huge increase in internet penetration in emerging markets as well as aggressive airline promotions have helped boost passenger numbers" |
Robert Bailey
President and CEO
Abacus International |
Emerging markets – one of the travel industry's areas of strength during the economic crisis – will continue to drive travel bookings up with IndoChina and Central Asia as key growth regions. Several other markets such as Nepal, Bangladesh and South Korea have also contributed to Abacus’ better-than-expected business results.
The importance of emerging markets was also highlighted in a recent report by the International Monetary Fund (IMF) as the key contributing factor for the Asian region’s better performance in 2009. Asia is expected to enjoy +5.7% GDP growth in 2010, with emerging markets leading the rest of the world out of the downturn.
In addition, overall figures were revived by the surge in online travel bookings. “The huge increase in internet penetration in emerging markets as well as aggressive airline promotions have helped boost passenger numbers,” Bailey explained.
The prospect for the online segment continues to look positive. According to the Abacus Asia Travel Sentiment Survey, 71.3% of the travel agents that have no existing online business component said they are planning to develop one – the resulting convenience of making travel bookings is expected to spur a rise in passenger travel.
Another key contributor that will further stimulate growth in the region’s travel industry this year is the low cost carrier (LCC) sector. As fuel prices rise, consolidation efforts as well as network expansion will form key strategies in the year ahead, Bailey noted.
Moreover, as competition stiffens in the industry, network carriers may well adopt ancillaries as the next revenue strategy, with fares unbundled and categorised according to specific airline services and flight requirements.
In 2010 nascent trends such as the use of online marketing, the adoption of digital applications and mobile technology are expected to take root as travel players discover the benefits that these can bring to their businesses.
“Asia’s huge potential for growth and its relatively younger travel industry mean that travel players in this region are strategically well placed to capitalise on the new realm of opportunities as the economy steps into a recovery phase,” Bailey concluded.
MARKET HIGHLIGHTS
Despite the economic downturn, Abacus’s booking figures revealed that a number of markets had seen their travel bookings rise in 2009. Looking ahead, growth spurts from markets including Bangladesh, Cambodia, Indonesia, Kazakhstan, Myanmar, Nepal, Pakistan, the Philippines, South Korea and Vietnam are expected to continue.
In addition travel agents surveyed in the Abacus Asia Travel Sentiment Survey have listed Southeast Asia (67%), Europe (63%) and the US (42%) as the top three regions that their customers are currently making bookings to.
The rise of the middle class and increase in foreign business investments have largely contributed to positive booking numbers for most of the aforementioned markets, Bailey noted.
According to Euromonitor 2010’s market report, Kazakhstan registered a strong +8.1% year-on-year growth in inbound travel last year and is expected to grow by +8.6% this year. Meanwhile, Nepal showed more than +10% growth last year, with forecasted growth this year in overall air departures as well as inbound and outbound travels.
 |
Source: Abacus Asia Travel Sentiment survey
|
KEY TRAVEL SEGMENTS OUTLOOK
Corporate travel
The recession has had a pronounced impact on corporate travel, with many corporations implementing strict cost controls and revised travel policies.
 |
"We are expecting to see a gradual 10–15% growth in corporate travel in 2010, especially in traditional corporate travel markets such as Singapore, Malaysia and Hong Kong" |
Brett Henry
Vice President Marketing
Abacus International |
“About 70% of organisations have introduced policies for all aspects of travel, and there has been reductions in trips by 15–20% as well as a reduction in travel spend by 25–40% in the past year,” said Abacus International Vice President Marketing Brett Henry.
“Less travel, tightening of travel policy and shorter trips have been implemented by companies, but many of them do not necessarily view these adjustments as negative aspects. These travel adjustments can add value to corporate travel strategies and ultimately, to their bottom lines,” he said.
“As businesses resume to the ‘new normal’, we should also see an upward adjustment in travel budgets as business activities improve in a more thriving economic climate. We are expecting to see a gradual 10-15% growth in corporate travel in 2010, especially in traditional corporate travel markets such as Singapore, Malaysia and Hong Kong,” added Henry.
With travel demand still relatively strong in Asia Pacific, China is expected to lead the way with projected GDP growth of +9% according to IMF’s October 2009 report.
In a recent report by American Express Business Travel, fare increases of up to +8% are expected. As indicated in the Global Business Partnership (GBP) survey which includes 180 organisations across China, only half of respondents look to a decreased travel spend in 2010. The majority of companies in China have focused on monitoring and controlling travel expenditure, with almost 80% of organisations surveyed having formal policies in place, up from 70% in the previous year.
Online travel
The online travel segment was “hugely successful” in 2009 as it threw an important life line for the travel industry, and it looks set to thrive in 2010, according to Bailey.
“Abacus’s overall figures for 2009 showed a much higher-than-expected growth of more than +15% and although it was amidst harsh market conditions, we made further in-roads in the online segment of markets such as Indonesia, Philippines, Vietnam and China,” he revealed.
Asia alone saw +546% growth in internet users for the period 2000 to 2009, compared to +304% growth in the rest of the world. Asia also has to date the world’s largest number of Internet users, according to Internet World Stats.
“Higher Internet penetration and rising incomes from the emerging markets will bring forth an increased dependence on this channel for travel consumption,” added Bailey.
He continued: “With the industry stepping into the recovery phase, this can be seen as an even more opportune time to assess how far online distribution can take travel businesses to when normal business cycles take place, discretionary income rises and opportunities in emerging markets further mature.
“Initiating or expanding an online plan has become one of the key pillars in a company’s rebuilding efforts as this channel has proven its strength in the face of challenging economic conditions. Overall, we are forecasting +20% industry growth in 2010 as technology adoption across the region continues to increase.”
"Higher internet penetration and rising incomes from the emerging markets will bring forth an increased dependence on [the online] channel for travel consumption… Overall, we are forecasting +20% industry growth in 2010 as technology adoption across the [Asia] region continues to increase" |
Robert Bailey
President and CEO
Abacus International |
Travel agents across Asia have ranked this channel as one of the top items in their wish-list for the year, according to Abacus Asia Travel Sentiment Survey. Of the travel agencies that have no existing online business component, 71.3% said that they are planning to develop one and more than half said they will have a website ready within the next six months.
In addition the survey found that online bookings contributed up to 15% of revenue for 42.6% of the agencies last year while another 35.6% said it contributed 15–30% of their revenue. These responses from the ground clearly show the gradual shift that market players are taking in embracing the online platform as one of the core revenue streams in the new decade, Bailey noted.
TRAVEL INDUSTRY OUTLOOK
The overall aviation market
Although yearly visitor rates in Asia Pacific were down, figures released by Pacific Asia Travel Association (PATA) showed a +5% year-on-year increase in international visitors last year. There is a positive outlook on Asian travel growth for the coming year, especially among low-cost carriers, most of which posted a profit in the past year.
Already there are signs that the low-cost players will exert an even stronger strategic impact on the aviation industry. Tiger Airways’ successful initial public offering and the alliance between AirAsia and Jetstar are said to indicate the forthcoming changes that will shift the dynamics of the aviation industry.
“Even with tighter cash flows, rising fuel prices and high consumer debt, there are still some signs of a healthy recovery for the aviation industry," explained Bailey. "From the International Air Transport Association (IATA) December 2009 data, consumer confidence has increased, load factors are back, fleet sizes are growing and cash balances are more comfortable.”
According to the Abacus Asia Travel Sentiment survey, travel agents across the region said they have seen signs of customers’ travel habits returning to the pre-economic crisis period. Almost 80% of travel agents indicated that they have seen improvements in their customers’ choice of class of air travel and frequency of business travel while 67% has seen a return to a pre-economic crisis mix of international and regional/domestic travel.
 |
Source: Abacus Asia Travel Sentiment survey
|
A key revenue strategy that is gaining traction in the aviation industry is the increased focus on ancillary revenues. According to an IdeaWorks report in September 2009, worldwide ancillary revenue posted a +345% jump in 2008 to US$10.25 billion compared to US$2.29 billion in 2006. For 2010 the Centre for Asia Pacific Aviation predicts that airlines worldwide are expecting to generate US$58 billion in ancillaries in 2010.
A business model that may be more familiar for the low-cost carriers, the adoption of ancillary revenue strategies are slowly being welcomed by the network carriers as they present an attractive source of additional revenue, Bailey noted. Within Asia, it is mainly the low-cost carriers that have started exploiting ancillary products as the main source of profits while ticket revenue predominantly is used to cover the airline’s cost base.
Pioneering this new business model, Abacus launched the first ‘branded fares’ in Asia with Malaysia Airlines in 2009. Airline merchandising allows airlines to enjoy additional profit opportunities while travellers can gain greater visibility on the fares they pay in relation to the services they require, Bailey reasoned.
“Network carriers in Asia are taking a cautious approach when it comes to unbundling their fares to manage potential impact on their branding. However, if done right, sophisticated technology and proper yield management can categorise fares to allow airlines to compete effectively with the customers’ focus on product features and services rather than the price factor,” Bailey explained.
“In mature markets like the US, the top three positions for total ancillary revenue which were once dominated by low-cost carriers are now filled by network carriers. This is an industry development that will perhaps take a longer timeline to occur in the region as Asian consumers tend to be more brand-conscious. However, the ability to monetise one’s assets will no doubt lead the airline industry to educate the wider travel market on the benefits they will gain in return.”
Hotels
"Hotel occupancy across Asia Pacific is expected to increase this year with the recovering economy… Specifically, we are seeing the rise in bookings from markets such as China, Hong Kong, Taiwan, Korea, Malaysia and Singapore" |
Robert Bailey
President and CEO
Abacus International |
The hotel industry was badly affected last year with a fall in room rates and occupancy. However, there are positive signs of improvement with recent pick-ups in consumer confidence and travel demand, Bailey revealed.
Not all markets were affected negatively, however. Seoul, for example, was the only city in Asia Pacific to experience an increase in occupancy and average room rates, with 78.5% occupancy, the highest in the region. This was due to a weakness in the Korean Won, but also through development and diversification of its tourism products, including medical tourism.
The other notable markets with comparatively high occupancy levels in Asia Pacific were Australia and New Zealand. Both Australians and New Zealanders are staying closer to home, and a new immigration agreement that reduces the time it takes for travellers to cross borders could also potentially affect flight prices.
Hotel occupancy across Asia Pacific is expected to increase this year with the recovering economy. According to STR Gobal, as of January 2010, there are 948 hotels comprising of 239,918 rooms either in construction, planned or at final planning stage, with China, Thailand and India having the most rooms in the pipeline.
Moreover, Abacus’ hotel bookings are already showing signs of growth with a huge increase seen in year-on-year bookings of +90% for January 2010. Compared to December 2009, a +15% increase in bookings was registered.
“Our hotel bookings have picked up comparatively well with the start of the new year and looking ahead, the sector is expected to enjoy a relatively quick recovery as the general economy picks up. Specifically, we are seeing the rise in bookings from markets such as China, Hong Kong, Taiwan, Korea, Malaysia and Singapore,” Bailey said.
UPCOMING TRENDS
Online marketing in Asia
Moving in tandem with consumers’ preference to use the web as a resource portal and the rise of new media tools, travel companies are allocating bigger budgets to their online marketing spend in a bid to capture a bigger slice of this high-growth market.
A survey conducted by Frommer’s Unlimited with 225 travel companies worldwide showed that 2010 will be another bumper year for online marketing spend in travel: over half of those surveyed indicated that they plan to increase spending this year and just over a third plan to maintain online budgets.
|
"Apart from sporadic use of [mobile technology] where airlines are increasingly using it for check-ins, there still remains a huge potential to be tapped by the travel industry" |
Robert Bailey
President and CEO
Abacus International |
Bailey stated: “Closer to home, although the pick-up for online marketing tools is slow, it is building a momentum of its own. For instance, in the past year, we have seen Zuji and Ctrip proactively using Twitter to engage their customers with attractive promotional deals.
“While varying adoption rates are being observed at the market level, we are seeing an increased interest to experiment more with the tools of the trade. More consumers are already stepping into the online sphere, competition is getting stiffer in and the game plans of online businesses will have to change to embrace more complex and dynamic marketing tools to get the attention of potential customers,” he added.
The Abacus Asia Travel Sentiment Survey showed that a majority of the agencies (72%) are currently not utilising any social media tools while the remaining agencies that are using social media use Facebook to engage with their online customers.
An almost equal number of agencies in Asian markets (excluding China) that are currently not using social media indicated that they have no plans to do so in 2010. The main reason cited by this group of agents was that the agencies are either unsure or not ready to adopt new media tools.
The same question posed in the survey to travel agents in China generated greater interest with almost 70% of agents saying that they would consider using social media this year. This reinforces the fact that China takes the world’s number one spot for internet usage and highlights the uneven adoption of technology across Asia markets, Bailey highlighted.
Mobile technology
Mobile technology is widely tipped by to be the next big platform to take businesses to a new generation of product and service delivery and that will greatly enhance customer retention and satisfaction. This is one of the most watched spaces for the travel industry, Bailey revealed.
“Mobile penetration in Asia may have reached a level that surpassed any other region in the world yet the usage of mobile phones by companies in their communications with customers is still by far under par. Apart from sporadic use of this tool where airlines are increasingly using it for check-ins, there still remains a huge potential to be tapped by the travel industry,” noted Bailey.
A parallel is seen between mobile technology and the internet as both channels share similar growth and adoption pattern. Companies that were the first to jump on the internet bandwagon stand to gain from the first-mover advantage and this phenomenon is likely to occur in the mobile space as well. Bailey argued that innovative adoption of this ubiquitous communication tool could propel a travel business to a new level of consumption.
LOOKING AHEAD
Summarising the outlook for the industry in 2010, Bailey said: “There is certainly a strong sense of renewed energy and vibrancy in the market as the new year starts. Many travel players are perhaps in much better form now than ever as the challenges that the economic storm had brought upon us have transformed our businesses to be more nimble, more innovative, and more relevant to the world as Asia plays a central role in the global travel market.”
ABOUT ABACUS INTERNATIONAL
Singapore-based Abacus International is Asia Pacific's leading travel facilitator with around 15,000 travel agency locations in 24 markets. Experienced in fusing international best practices and local expertise with global and local partnerships, Abacus provides travel information and reservations specifically tailored to the Asia Pacific region.
Abacus International is owned by Sabre and a consortium of Asia's leading airlines including All Nippon Airways, Cathay Pacific, China Airlines, EVA Airways, Garuda Indonesia, Dragonair, Philippine Airlines, Malaysia Airlines, Royal Brunei Airlines, SilkAir and Singapore Airlines. Sabre is the US-based leader in the electronic distribution of travel and travel related services.
For more information, visit
www.abacus.com.sg.
CLICK HERE TO SEARCH FOR ALL RELATED STORIES ON ASIA PACIFIC TOURISM AND TRAVEL
Print
Email