Coronavirus analysis

The travel and tourism impact in Asia Pacific

The effect of the coronavirus on travel markets was the subject of a webinar hosted this week by the Pacific Asia Travel Association, featuring panellists from travel analyst ForwardKeys and travel research firm Twenty31 Consulting.

How can the travel and tourism industry mitigate against the impact of the downturn in outbound China traffic as a result of the coronavirus outbreak?

That was the key question in a webinar hosted by the Pacific Asia Travel Association (PATA), which naturally paid particular attention to the organisation’s home region.

ForwardKeys President – Insights Olivier Ponti began the webinar with a presentation on the dramatic results of an analysis of year-on-year flight bookings made recently both into and out of Mainland China.

Unsurprisingly, there has been a strong decrease in bookings for the Chinese New Year period and for the coming weeks and months. But it is the knock-on effect that is key – if bookings don’t pick up in coming weeks then there will be serious and prolonged repercussions for the travel and travel retail sectors in the coming months.

Olivier Ponti

ForwardKeys assessed bookings made in the week of 19 January and the changes compared to 26 January after travel restrictions had been placed.

The Chinese New Year holiday season typically begins a fortnight before Golden Week; and travel reaches its peak just before Golden Week starts, noted Ponti. This year, outbound travel reached a new peak and the season was on course to break all records. Although the majority of Chinese had left before the travel restrictions took effect in the week of 20 January, cancellations from that point on changed the picture dramatically.

Up to 19 January, outbound travel bookings from China (excluding Hong Kong and Taiwan, where political unrest has impacted travel) were +7.3% ahead, benchmarked against the equivalent period in 2019; a week later, as of 26 January, when Wuhan Airport was closed and the Chinese government stopped outbound tour groups from travelling, bookings for the Chinese holiday period were -6.8% behind.

The dramatic slowdown has affected travel to all parts of the world. Asia Pacific, the region which attracts over 75% of Chinese New Year travellers, has been worst hit. As of 19 January, bookings were -1.3% behind where they were at the equivalent moment in 2019; a week later, they were -15.1% behind. The deterioration seen for other global regions has been similar, but a little less severe.

China as a destination has also been impacted by the coronavirus crisis. Up to 19 January, inbound bookings for the Chinese New Year period were +4.5% ahead of where they were at the equivalent point last year. A week later, they were -7.2% behind [see charts on this page for detailed figures].

Better balance

ForwardKeys’ Ponti then joined his fellow panellists – PATA CEO Dr. Mario Hardy and Twenty31 Consulting Partner Oliver Martin – in an insightful discussion. A key message was the need to rebalance the tourism business from its recent heavy reliance on Chinese outbound travel.

“We have been lucky in the Chinese outbound market growth but have become so reliant on that market at the expense of not doing things differently or balancing our portfolio of geographic markets,” said Martin. “We have to do this so we are not beholden to the impact of one crisis.”

Hardy added: “It is critical that destinations do not just rely on one source market but have a balanced portfolio. This should be a wake-up call to anyone in tourism that we need balance in our source markets.

Dr. Mario Hardy: “This should be a wake-up call to anyone in tourism that we need balance in our source markets”

“China will still be critical in the recovery. What we need to do as an industry is to pay attention to our business partner in China and provide assistance to them. They are suffering the most here. For businesses who trade with China, can they offer refunds or letters of credit or other measures so we can maintain these very important relationships for the future?”

Changing patterns of travel?

Martin said that the travel industry had shown itself to be resilient but questioned whether there would be a change to Chinese travel patterns once recovery occurs.

“We are in a world that has ups and downs. We had 9/11, the Gulf War, SARS in 2003, the economic crisis in 2008; travel will always react. Travellers will stop travelling to one destination, but they will re-jig their plans to another destination and things will just move.

“But today, from a perception and data perspective, this appears different to how SARS was perceived. This is very much about Mainland China, which is directly impacting the Chinese outbound flows. Part of this is precipitated by the airlift component dramatically dropping off: so many destinations now have little or no direct air [connections] into the China market. That is having a dramatic impact on the Chinese ability to travel.

Oliver Martin: “So many destinations now have little or no direct air [connections] into the China market. That is having a dramatic impact on the Chinese ability to travel.”

“We know there is a direct correlation. If there is positive consumer sentiment, people will travel; if the inverse is true then people won’t travel.

“The Chinese traditionally after Golden Week are energised and excited for the New Year so make travel plans, but that is not happening right now. One of the bigger risks to our industry is the question mark over the next 60, 90 and 180 days; it is that grey space of consumers not making their travel plans.”

Ponti said: “It is important to take into account the fact that there is a direct impact from this crisis. That is people cancelling their trips and there is a delayed impact: people who should be preparing their trips for the summer holiday are not booking.”

Martin added: “In Canada after SARS it took us several years to get to the pre-2003 arrivals and spend levels. I don’t want to be alarmist and say this will happen but there will be a big decline short-term in Chinese outbound travel.

“If DMOs (destination marketing organisations) and their partners can quickly pivot and look at other alternative markets, we can recover some of those numbers this year. But there may be a longer-term impact on China. The Chinese will return eventually once this settles down and they have confidence in the economy and health situation, but may switch to North and Southeast Asia, already popular but close to home. The impact on long-haul markets from China could take longer to recover, whether that is [the] UK, US, Australia or others.”

Salvaging 2020

Speakers urged other countries to focus on how to salvage their tourism business for 2020, but to act fast.

Martin said: “We are telling clients not to give up on the China market but also to look more closely at India. India is a powerful market: the Indians love Southeast Asia, they spend, they travel, so this is an opportunity for these destinations and for other places such as Australia or Canada that have [until now] put more investment into China.

“Indians are no different from other travellers. They are interested in getaways, spending time with family, exploring other cultures. They have great air links, disposable income and if I were a southeast Asian destination I would put in place packages to incentivise them to come there.

“Also, look at Thailand, Vietnam, Indonesia and Malaysia. Although relatively small outbound markets they have high discretionary spend and excellent regional air links. They are also interested in the Middle East so could be opportunity markets to go after in trying to shore up the decline in Chinese outbound travel.

“The Middle East can also bank on Indian and European travellers as they know and trust their destinations. In times of crisis, beyond that, your domestic market is also a great source of travel and tourism. People can fill hotels on weekends when business travellers are not there, and they can disperse throughout the destination during festivals or events.”

“The Chinese traditionally after Golden Week are energised and excited for the New Year so make travel plans, but that is not happening. One of the bigger risks is the question mark over the next 60, 90 and 180 days; it is that grey space of consumers not making their travel plans.”

Regaining trust

Speakers also noted that building trust in tourism destinations takes time.

Ponti said: “You can only have recovery once people are convinced the crisis is over. As long as trust is not there, people will not travel until they know that this is under control, especially that it is safe to travel within China. It’s too early to talk about recovery yet.”

Martin added: “Trust takes so long to build in the reputation of companies, brands and locations. It takes years to build but seconds to lose. Tourism is very much an emotional game. We tend to look at things logically as marketers in the travel trade but on issues like this emotion kicks in.

“As much as governments and partners put a logical, fact-based presentation on this, once the health situation gets under control, it will still take months to get people to think beyond the irrational and emotional and put their trust back in brands and destinations. Now it’s about what we can do short term and tactically to salvage this year.”

Hardy said: “From past events, typically it takes about six months to recover but here it may be different and could take even longer. It’s the big question: how long before recovery begins?

“The World Health Organization has said that we have not yet reached the peak. We have to monitor case numbers. When we see a drop in these, even a small drop, this marks the start of the end. Once we have that tipping point, we may be able to understand how quick the recovery will be. It’s also interesting to look at other decades and situations. When recovery comes, numbers grow not only normally but even faster than before.”

Ponti stressed the need to be careful about monitoring only cancellation numbers to track advance bookings.

“Cancellations are a tool to monitor the direct impact. We know that about 12% of bookings are cancelled across a typical year but in the first days after the travel restrictions we saw that rate hit more than 33%, and it has been increasing. But there comes a moment when if there is no booking, then cancellations are not relevant any more. Then you have to look at new booking trends. What we see now is a strong decrease in bookings for the coming weeks and months. If those booking don’t pick up in the coming weeks then the whole sector will be in trouble in coming months.

“A crisis of this scale is not unique. What it usually provokes is displaced tourism. Very often people keep travelling. What’s happening now is that people have stopped travelling.”

Ponti concluded the webinar by noting that in times of crisis it is vital to not only look at the negatives, but also the opportunity. “It forces you to look at your own business in new ways, to reinvent yourself and if you can do that, once the crisis is over, you can expand your business,” he said. “So once recovery comes it usually goes well beyond pre-crisis levels. If you survive you will have found new ways to move forward and cover new ground.”

The Moodie Davitt eZine

Issue 276 | 7 February 2020

The Moodie Davitt eZine is published 20 times per year by The Moodie Davitt Report (Moodie International Ltd).

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