Visitor Economy Bulletin 1

Riding the Dragon:Connecting with Outbound Chinese Travellers as

the Market Changes and Matures

The Connected Visitor EconomyBulletin

Tourism is known to economists as a ‘higher good’: the wealthier we become the more of it we do. This is nowhere more evident than in China. Over the last 37 years, the Chinese economy has grown more than 30 times its original size¹. This extraordinary growth has powered a growth in tourism (both domestic and outbound) on an unprecedented scale. In 2012 some pundits were predicting that by 2020 more than 100 million Chinese would be travelling overseas. But that prediction came true in 2014!

In 2015, more than 130 million journeys were made by outbound Chinese travellers² – with about half of those trips made beyond the Greater China region (Hong Kong SAR, Macao SAR and Chinese Taipei).

Whilst economic growth powered that to some extent, there was another factor. Previously isolated from the world, China became newly connected and government policy was favouring overseas travel as a form of soft power. So the desire of Chinese travellers to see the world was a key driver of tourism – travel outranked every other activity for those enjoying ‘new wealth’ in 2014 as the chart below shows.

June 2016

Chart 1: Preferred Leisure Pursuits by Chinese Middle/Upper Class³

Source: Hurun Report Chinese Luxury Consumer Survey 2014

1 Source: Andy Xie, Economist, China Uncovered Event, Sydney, April 20162 http://www.forbes.com/sites/profdrwolfganggarlt/2015/12/30/2015-year-of-resilient-growth-and-further-segmentation-of-chinas-outbound-tourism/2/#4008cd953343 (Wolfgang Arlt of COTRI)3 Hurun Report Chinese Luxury Consumer Survey 2014 as quoted in the Brand USA China Tourism Market Update December 2014

Visitor Economy Bulletin2

Will the growth continue?

Can we be confident that growth will continue? Recent economic news from China has been softer; growth has slowed and consumer confidence is down from the highs of five years ago (see Chart 2).

Chart 2: Chinese Consumer Confidence⁴

The consensus among China experts and economists seems to feel that there is still potential to grow. Whilst the rate of economic growth is now below the eight percent ‘red line’, it is coming off a larger base than formerly. COTRI⁵ notes that the top five percent Chinese consumers are continuing to grow wealthier.

Predictions by ANZ Bank agree that both the total income of the market and the proportion of the Chinese market which is affluent will continue to grow up to 2030 (see Chart 3).

Chart 3: Chinese Consumer Affluence⁶

4 http://www.tradingeconomics.com/china/consumer-confidence 5 Forbes article already cited6 ANZ Bank Research quoted by Warren Hagan former ANZ Chief Economist at the Destination Australia Conference, Sydney, April 2016

Visitor Economy Bulletin 3

Even those who predict a ‘hard landing’ for the Chinese economy have noted that any downturn is likely to have only a short term impact on outbound travel⁷.

The key to this seems to fall into two areas: • Aim for a ‘balanced portfolio’. Despite the growth of China to become its largest inbound market, Tourism Australia

has continued to target a portfolio of key markets in different regions with a focus on affluent travellers from many markets rather than just China

• Build resilience planning into the targets for China. Sound marketing plans should have contingency for any dramatic or sudden fall in Chinese tourists. Which markets could supply the shortfall? What stimulus would be best applied? This tends to be less discussed publically but is important. This also deals with what may be an equally realistic concern: a change in policy by the Chinese government in discouraging tourism as the economy softens

What is most certainly agreed is that the market is undergoing major structural change. This has proved problematic for some destinations especially those in Greater China. A recent analysis by the FT Confidential Research based on HSBC data estimates that there has been a 6.9 percent drop in visitation to Hong Kong SAR, a two percent decline in Chinese Taipei (although this may also be affected by wider geopolitical issues) and a one percent decline in visitation to Macao SAR⁸. But for destinations both within and beyond Asia there has been continued strong growth.

The structural changes which are driving a different market dynamic

Analysis by BCG⁹ suggests that three factors are driving this: the continued growth of affluence also noted above, a changing generational mix and the rapid growth of e-commerce in China (as shown in Chart 4).

Chart 4: BCG Three Great Factors Driving Change¹⁰

How generational change is driving changes in travel behaviour

Chart 5: China’s Population Pyramid¹¹The phenomenon of generational change is not unique to China. The retirement of baby boomers, Millennials entering peak childbearing years and the emergence of a generation beyond Millennials are global shifts that will profoundly affect travel. But in China there are some distinctive features to this shift. China has an aging population just as do many Western markets (see Chart 5). But, unlike Western markets where wealth rises with age, for the Chinese market it is younger groups that are wealthier and which consume more (refer to the middle graph in the BCG threshold above).

7 Andy Xie, China Uncovered Conference already quoted8 HSBC and FT Confidential Research, The Business of Luxury, Financial Times, Monday 23 May 20169 New China Playbook, BCG December 201510 Op cit11 https://populationpyramid.net/china/2016/

Visitor Economy Bulletin4

The history of China has created three distinct generations: the children of the 70s (and above), the 80s children and 90s children – as Table 1 below shows.

Table 1: Three Generations in China¹²

Those aged 40 and above can remember times of poverty and hardship – and their parents can even recall starvation. The 80s children are also wealthy and affluent but are definitely more around finding their place in their peer group. This group is now highly likely to have children – affluent family travel will be important. But this has led to many different styles of family travel from the three person family to multi-generational travel when grandparents come to spend time with their grandkids (and provide free baby-sitting). Occasionally it may also give rise to solo travel as one parent stays at home with the children allowing the other to travel overseas. This reflects also the challenges of organising travel for two people.

In contrast, today’s 90s children have grown up as the heirs to six people (thanks to China’s one child policy most grandparents only have one grandchild). They are also the most educated – with 68 million of them holding a tertiary education. For this generation, standing out and leading from the front are critical.

It is these travellers who are driving the next generation of travel. Seventy three percent of them aspire to be FIT (Fully Independent Travellers) and they want to try new experiences. They are also more internationally minded. According to Mark Tanner of China Skinny, more than half of these travellers are positive about countries like the USA, compared to their parents and grandparents who are staunchly pro-Chinese13.

So what motivates the new generation of travellers?

According to research done by OMD and MyTravelResearch.com, the Trigger for trips is an aspiration to visit the destination (42% – see Chart 6) or to undertake a particular type of experience (33%). So aside from all the other reasons, it is important that a strong and aspirational destination brand helps drive this – as well as an understanding of the types of experience on offer.

The research also showed that one in ten travellers actually had their trip triggered by a deal – usually delivered digitally.

Motivations to travel may vary by destination by overall and there are some consistencies in this. Chinese people normally live in very busy congested cities with high pollution levels. As such, they value natural experiences and eco-tourism. Culture and history and beach experiences are also very strong experiences.

Chart 6: Triggers for Taking a Trip¹⁴

12 Jens Thraenhart, Managing Director, Dragon Trail, article published in UNWTO and WYSE Travel Confederation report, The Power of Youth Travel13 Mark Tanner, China Skinny, China Uncovered event, Sydney, April 2016 and Australian China Business Chamber China Digital seminar June 201614 OMD Passport to Discovery Research June 2015 (n = 814 Chinese Travellers)

Visitor Economy Bulletin 5

For example, the top five motivations for a long-haul trip according to Brand USA are:

Chart 7: Motivations for Intercontinental Travel¹⁵

Within these experiences, needs are also evolving. The 2016 Hurun China Luxury Travel Report focused on these young, affluent travellers and their motivations. It showed this increasing focus on more adventurous and immersive experiences is set to continue (see Chart 8). For these younger travellers, more adventurous experiences are a mode of self-expression. Half say they want to explore the world in the next 3 years, whilst a third will be looking to undertake adventure travel experiences.

Chart 8: Traveller Trends among Young Affluent Chinese Travellers¹⁶

Traveller Trends in the Next Three Years

This changing profile also offers hope that the most stubborn challenge of a growing Chinese market may begin to be resolved: dispersal. This appears to be supported by analysis done by Tourism Research Australia on the dispersal habits of Chinese visitors to Australia17. It found that first-time visitors were more likely to disperse than repeat visitors (who were more likely to be VFR travellers). Although Chinese travellers have shorter trips than those from say Europe (between 7 and 12 days on average it appears across sources), the nature of the experiences they seek is likely to drive them beyond traditional locations. However, it will be important to support this by good access to ensure that they can make the most of their limited time. Offering multiple gateways is also likely to encourage dispersal by repeat visitors, although research by MyTravelResearch.com indicates that targeting hosts and encouraging them can also be a vital way to build dispersal.

The indications are that they are also beginning to change their tastes in hotels. Historically, the mantra of Chinese travellers has been that they ‘sleep cheap, but shop expensive’. However, the Hurun Report shows a shift in preference for local (38%), boutique (42%) and unique (40%) properties when they travel.

How do we communicate with them?

The third trend BCG notes is that of increasing digital interaction and e-commerce with a 20% growth rate among affluent consumers18. It is increasingly important to be present in digital channels and in particular to be mobile ready. Ninety percent of China’s 688 million internet users access the web via their mobile phones. In fact, 19 percent (127 million)

15 Custom Study for Brand USA, China Market Profile16 Generation Y: Chinese Luxury Travelers Come of Age The Chinese Luxury Traveler 2016 Hurun Report17 Dispersal Habits of Chinese FIT visitors in Australia, Tourism Research Australia, March 201518 BCG New China Playbook op cit

Visitor Economy Bulletin6

of internet users use only their mobile phones19. Chinese travellers will often research things or discuss travel on their mobile whilst travelling.

However, serious travel planning is still largely done during the day. Search engine Sougu estimates between 10 am and 3 pm are the most popular times for researching travel.

In establishing your digital assets, the recommendation is that your website should be situated behind ‘the Great Firewall’ and designed to meet the needs of Chinese travellers. Tourism Australia identifies the launch of its Australia.cn website as a significant influence driving the growth of Chinese travellers (now Australia’s largest inbound market). Jeff Sharp of Asia Digital20 claims that a Chinese website is no longer unattainable even for relatively small destinations and businesses.

Even more than in most markets, your trust, reputation and authority (and thus your optimisation for search) also resides on your activity in China’s distinctive social media landscape. Whilst Word of Mouth remains key, its influence is parlayed through social media. WeChat a combined messaging app and social media platform has really seized the high ground here – especially among women as Chart 9 below shows.

Chart 9: Traveller Information Sources²¹

But as both the Hurun Report and the OMD Passport to Discovery research show, one of the most fascinating things about the way China’s interaction with brands and even advertising in the digital space is very powerful. Brands remain important to consumers across all categories.

Chart 10: Social Media Sources Used by Chinese Travellers in Travel Planning²² Chart 11: Most Popular Apps²³

19 The 37th Statistical Report on Internet Development in China, January, 2016, CNNIC, 2016 quoted in Stoking the Dragon, Sinorbis, June 201620 Engaging China directly, Presentation at China Uncovered Conference, Sydney, April 201621 Hurun Luxury Travel Report, op cit22 OMD Passport to Discovery Research op cit

Visitor Economy Bulletin 7

While travellers are heavily influenced by social media, they still rely on travel agents. Most seek advice from a travel agent during planning and many book with them – albeit online or via apps. Indeed apps overall remain very important to Chinese travellers across their path to purchase (ranked number 3 in the OMD research). Ctrip is the dominant app among affluent young Chinese travellers, followed by Qunar and Tuniu (see Chart 11).

Same, same but different

Although we have seen a shift toward more experiential travel, it is important to note that Chinese travellers have read the ‘travel maturity playbook’. It is not just that they have travelled this path faster than travellers in other markets. They have made their own route as well.

Packing a lot into every day is one key difference. This may be due to shorter holiday times, but it may also be a cultural approach to events. As travel matured in Western markets, the density of activities often fell. But Wolfgang Arlt of COTRI in a recent report on Chinese tourism in Tasmania (Australia) noted that Chinese travellers “want to do as much as possible. So when they come back [to their accommodation] and they want to do some shopping and have dinner it's after 8:00 pm or even 9:00 pm.”24 When offering experiences (or managing destinations), it is important to bear this in mind.

It is also important to note that the focus on experiences has been alongside shopping NOT instead of it. Gifts remain an important way of showing status and Chinese travellers are often buying on behalf of others as well25. But increasingly that gift needs to be local and unique, not just a big brand handbag. This insight also gives hope to destinations that have traditionally built their Chinese tourism product on shopping. Although the Financial Times estimates that tourism to Hong Kong SAR may fall by as much as 6.9 percent between 2015 and 2016, it also notes that initiatives by Harbour City to offer more experiential shopping experiences resulted in that shopping centre achieve higher gross revenues and profits despite the smaller number of tourists.

Shopping is also still very important for shorter-haul destinations as well. Singapore, Japan and Korea (ROK) have all seen tourism growth by building a combined offer of Chinese-relevant shopping (Japan is ‘cosmetic heaven’ for Chinese women according to Associate Professor Mimi Li of Hong Kong Polytechnic whilst economist Andy Xie claims that Korea (ROK) has built the same perception) and fascinating cultural experiences.

Although we have discussed overall preferences here, it is important to remember that a country like China is not a monolith. It remains important to think of ‘Chinas’, rather than China. As one simple example, the northern Chinese have cultures built on wheat cultivation compared to the rice eaters of the south. These historical differences affect both food and culture. When offering Chinese food options, it is important to show sensitivities to these differences (either focus on the cuisine of your core market or acknowledge its source).

The Tier 1 megacities of eastern China are wealthier, more internationally focussed and more digitally engaged than Tier 2 cities or those further west. But there are differences within them. Shanghai and Guangzhou remain more commercially focussed, whilst Beijing still reflects its place as the seat of government. In focus groups, these cultural differences can often be clearly seen.

But as wealth spreads, so will the appetite for travel in those new destinations. Many will provide opportunities for tourism based on the more traditional group market – this is still growing, albeit at a slower pace than for the FIT sector. Thailand’s route to tourism growth has lain in building air connections to some of these emerging cities using low cost carriers (see Chart 12-13) according to OAG.

23 2016 Hurun Luxury Travel Report24 http://www.abc.net.au/news/2016-05-31/chinese-tourists-unhappy-with-tasmanian-experience/7462926 25 Speech by Sinorbis, Australian Business Chamber China Digital Conference26 China to the World, OAG, 2016

Chart 12: Growth in Capacity from China to Thailand²⁶

Visitor Economy Bulletin8

Chart 13: Airline Carrier Share of Frequency – China to Thailand²⁷

Taking this approach means that the Financial Times estimates that tourism to Thailand will grow 46.2 percent in 2016.

The sheer size of this market also creates some opportunities to reach new sectors. For example, both Visit Britain (COTRI’s China Ready DMO of the year) and Singapore Tourism Board have identified and successfully targeted the Business Extender market using local influencers and ensuring that the invitation is made prior to departure.

And as Beijing prepares to host the Winter Olympics, it is likely that winter sports, especially skiing, will be an important niche growth market. Both Japan and Canada are targeting this sector.

Sometimes the simplest changes can have the biggest impact

Perhaps the single most important change for destinations to facilitate is easier visas. Brand USA notes that the recent changes to its visa programme including the 10-year multiple entry visa is expected to drive a 30 percent growth in booking.

Another quick win is to ensure that tourism businesses and retail outlets accept Union Pay. The David Jones department store in Sydney saw an AUD800,000 increase in sales to Chinese visitors in its first year of offering Union Pay. The number of banks which offer Union Pay through standard terminals is growing but can be a useful and simple policy area to address.

Whilst more costly providing free Wi-Fi especially close to photogenic experiences or locations can provide rich content marketing. Social media widely used to post images both during and post trip and search engines like Sougu are increasingly merging this media content with search.

In summary

China’s outbound travel journey continues both to evolve and grow. Despite the slowing of its economy, the central expectation is that this will continue (although it pays to plan for alternatives). This growth and evolution creates a diverse range of opportunities and with many potential alternative strategies to reach them. But generally focussing on experiences, communicating these digitally via rich content and making simple changes to make Chinese visitors welcome ensure that you can ride the dragon to future success.

27 China to the World, OAG, 2016 op cit

Visitor Economy Bulletin8

Visitor Economy Bulletin 9

Visitor Economy Bulletin is published monthly online and is madeavailable in hard copy at “supported” events.

June 2016 EditionAuthor Carolyn Childs, CEO and Co-Founder, MyTravelResearch.com

Design & Layout Jessica Naval, PATA

Please contact PATA Publications at publications@PATA.org.

About MyTravelResearch.com

MyTravelResearch.com is a tourism research and marketing agency that makes your (business) life easy headed by global tourism researchers and strategists Bronwyn White and Carolyn Childs. They started the company because they saw that tourism businesses and destinations were often confused or overwhelmed by research and struggled to apply it to theirbusinesses.

MyTravelResearch.com provides custom research, strategy and marketing consulting – and people love it. But through the pioneering trends reporting membership approach and crowd-sourced Insights to Action products like the Visiting Friends and Relatives Research, they provide cost effective, ‘always on’ insight and marketing advice to support your business.

PATA PREMIER PARTNER

PATA PREMIER MEDIA PARTNER

PATA STRATEGIC PARTNERS

PATA PREFERRED PARTNERS

PATA ALLIANCE PARTNER

PATA GOLD AWARDS SPONSOR

w w w . P A T A . o r g

Pacific Asia Travel AssociationHead Office28th Floor, Siam Piwat Tower989 Rama I Road, PathumwanBangkok 10330, ThailandTel: +66 (0)2 658-2000Fax: +66 (0)2 658-2010Email: membership@PATA.org

PATA ChinaBeijing, ChinaTel: +86 (0)10 6500-1397Fax: +86 (0)10 6500-1497Email: china@PATA.org

PATA PacificSydney, AustraliaTel: +61 (0)40 983-9225Email: pacific@PATA.org

PATA Europe, West Asia, AfricaLondon, UKTel: +44 (0)7932 074-978Email: europe@PATA.org

MEDIA PARTNER

PATA_HQ

PATA_HQ

PATA_HQ

PATA_News