2008 a More Demanding Year for Asia’s Travel Industry

Asia’s travel agents can face 2008 with some confidence of continued industry growth even as the United States economy tilts towards negative territory, says Abacus International, one of Asia Pacific’s leading travel facilitators.

Abacus’ President and CEO Don Birch said Asia’s travel market is holding steady in the wake of the credit crunch, and the World Tourism Organisation is still predicting growth in tourism numbers for 2008, albeit at a lower rate than previous years.

“Added to that, people around the world still have money and seem set on travelling in the coming year despite the belt-tightening that will be going on globally. Abacus along with the other travel associations sees Asia Pacific passenger numbers increasing 5 – 6% in 2008,” said Mr Birch.

“The continued growth is a positive indication of the maturity and robustness of the region’s travel and tourism industries, but there is no doubt there will be volatility in the coming year. However, in that volatility there will be opportunities.”

He warned that the rapid expansion of the past has attracted more players into the travel retail market.

“Travel agents will need to work hard to capitalise on past gains and continue to grow their business over the coming months. This means a move towards diversification of product offerings and strategies to deal with an increasingly fractured travel distribution sector. 2008 is a year for strategic thinking.”

The growth of passenger numbers for the past six years in a row is expected to continue and will have a strong impact on the broader travel landscape in the region. Traditional or full service airlines are moving to accommodate the projected increase in passenger numbers with new routes, strategic partnerships and additions to their fleet.

The number of flights in January 2008 was 2.5 million globally, which is a 4% increase on the same period last year and an additional 91,000 flights. The number of seats has leapt up as well with 13.7 million more seats available in the same period, bringing the total number of seats to 294.2 million.

Asia Pacific is seeing aggressive expansion strategies from both full service and low cost carriers. A sample of one week’s news in the region’s aviation industry showed China Eastern Airline and China Southern Airlines acquiring new craft, along with Air New Zealand and Vietnam Airlines, while Kazakhstan’s Air Astana and AirAsia, Viva Macau and Japan Airlines all announced new routes.

This, of course, is only a small sample of the developments but it gives a taste of how the regional aviation sector is expanding rapidly.

Airlines are regularly finding a peak-time squeeze for services and are scheduling more flights to cope with the increased demand. In a busy period over December, Thai Airways boosted its capacity by almost 10%t, increasing the number of daily flights between Bangkok, Phuket and Chiang Mai.

And it is not just airlines struggling to cope with demand. China’s aviation industry is growing in excess of 16% annually and the Civil Aviation Authority of China had to cut flights to and from Beijing Airport from 1,100 per day to 1,050 and eventually to 1,000, in order to cope with the increasingly clogged airspace, and to allow the training of additional workers. However, flights will exceed 1,600 per day during the Beijing Olympics in August this year.

India is also seeing rapid growth in the aviation industry. There are currently 15 airlines in operation and another 10 or so planning to set up shop there.

“Last year 8.5 million Indians travelled overseas and that is driving huge growth in the aviation sector there,” said Mr Birch. “Just look at one segment, India’s LCCs, that saw a 75% increase in capacity in the year to September 2007.”

The rapid growth of LCCs is not unique to India. Australian LCC JetStar is in line for the first Dreamliners ordered by parent company Qantas and has already announced plans to use the jets to extend its routes into the long-haul market. The budget airline is not alone. After several years of exponential growth and wresting more than 10% Asian market share from full service airlines, competition is prompting other regional LCCs to think about extending their routes.

Tiger Airways is negotiating new routes into China, Air Asia has joined forces with Virgin, connecting with Virgin’s entire network, Korean Air is about to launch Air Korea and LCC Oasis Hong Kong Airlines trumped full service carriers to win Airline Of The Year at the World Travel Awards this year.

“Regionally, this year will see increasing capacity pressure for these airlines as well as growing competition,” said Mr Birch.

“While the LCC tradition of direct-to-consumer marketing is not yet a thing of the past the increased competition will reward those airlines with the biggest customer reach, while some LCCs now see that they need to diversify their distribution strategy including entering partnerships with GDSs.”

According to figures from OAG, budget airlines offered 58 million seats on 392,000 flights worldwide in September last year. That represented 20% of all flights, an increase of 24% on the year before.

While LCCs represented a much smaller share in Asia Pacific air travel, only 12% of all flights, the sector is on a rapid ascent. Budget flights in the region were up 26%, with almost a third more seats available. In real terms, LCCs have gone from 3,900 flights and 600,000 seats six years ago, to an impressive 61,000 flights and 9.2 million seats in September 2007 according to OAG.

As the LCCs look to join full service carriers in the long-haul market, the search is on for a new aviation “hub” to support all that traffic and the Middle East is working hard to secure the mantle.

The 10 leading airports in that region are investing almost US$37 billion in new airport developments that will be operational by 2012.

That means the region will be able to take an additional 318 million passengers each year, increasing the regional capacity to just under 400 million passengers, an increase of around 292% according to the Centre for Pacific Aviation’s Middle East Outlook.

Much of the growth can be attributed to the incredible expansion of the regional airlines. Middle East-based airlines are collectively growing at 10% per year, which is double the average for the rest of the world’s carriers according to the Arab Air Carriers Organisation (AACO).

Gulf Air has ordered 16 Dreamliners from Boeing and taken options for eight more. The comparatively small airline wants to order 35 more planes and build a fleet of 50 in the next five years. Emirates currently adds one more to plane to its fleet every fortnight and is looking to expand into the North American market.

On top of the infrastructure investment, Emirates’ base-city, Dubai, is making a major push into the tourism market, especially in Europe and North America. The city is targeting to raise visitor numbers to 15 million by 2010, and hopes to attract 1.4 million tourists from the UK and Ireland alone. As well as an aviation hub, Dubai is increasingly becoming a centre for international cruises – this year is expected play host to 200,000 cruise passengers, up from 85,000 last year.

Mr Birch suggested the Middle East will challenge Asian hubs like Singapore and Bangkok, especially with the new-generation planes that put the region practically one flight from anywhere, and with the development of a vibrant tourism industry.

“One spot or another in the Middle East regularly makes the top ten list for travel, it is certainly very vogue. No matter how ‘trendy’ it may be right now, by becoming an aviation hub, and fostering a strong industry, the region is working to secure its stake in the future of tourism and travel. The adage, ‘build it and they will come’ has the potential to come true in the Middle East.”

While the continued growth of passenger numbers is a positive sign for airlines’ profit margins, Don Birch predicts airlines and travel companies will still be looking over their shoulder as the concept of carbon credits becomes a commercial reality.

“The larger airlines are beginning to develop responses to consumer concerns around carbon emissions from air travel in a way that positions them as environmentally aware, and is a prudent move in the emerging situation,” said Mr Birch.

Last year, industry body IATA developed a four-pillar strategy for its 240 member airlines that includes investigating efficient technologies, infrastructure and plane operation as well as working with governments and regulators to meet emissions targets.

Just last month British Airways launched their own offset programme using UN certified reductions to support the development of clean energy in developing countries, stop deforestation of the Brazilian rainforests and even research into aircraft emissions.

British Airways is not the only player in the travel industry that provides an offset scheme to their customers. Travelocity offers the chance to “Go Zero” and customers can pay towards an independent offsetting scheme when they book travel and Cathay Pacific and Dragon Air were the first airlines to launch their own carbon offset schemes late last year. European car rental company Holiday Rentals has added hybrid cars to its fleet and runs its own offset scheme for customers, and youth-focused tour company Contiki Holidays has partnered with independent schemes.

China is about to get its first carbon neutral hotel when URBN Hotels and Resorts opens its first property in Shanghai. The hotel will pay to offset the total amount of energy it uses, including guest usage, staff commuting and deliveries and guests will even be able to buy credits to offset their flights directly from the hotel.

It is that same “streamlining” or centralisation of the offsetting process that British Airways have already put in place. Rather than facilitating the process or going to separate scheme provider, it is all added to the ticket price the customer gets from British Airways – about an extra US$65 from Singapore to London return.

Mr Birch said that, ongoing, there will be a greater need for travel agents to be aware of what is available for their environmentally-minded clients.

“Knowing the schemes, understanding what they mean and how they work will give the customer more choices about their travel, and being able to offer customers more choice and flexibility is a business advantage, albeit with Asia still trailing Western markets by several years in consumer concern about this issue.”

The growth in passenger numbers, airline expansions, new infrastructure developments and consumer-friendly initiatives will continue to alter the supplier landscape for travel agents. They are also creating an intensely competitive environment where airlines, hotels, travel agents and other travel providers are all fighting for a bigger share of the market.

Abacus International’s Travel Agent Insights Survey for 2007 showed their relationship with suppliers was the major concern among the region’s travel agents. 81% of the 1,600 agents surveyed were looking to work with different suppliers where possible in the coming year.

A quarter of agents also cited the squeeze on their profit margins as a major worry for 2008, due to the increased pressure from suppliers, as well as competitors.

Another major concern for travel agents for some years now is the role of the internet, especially in direct-to-consumer marketing from hotels and airlines. However, Mr Birch contends that airlines and hotels in Asia are learning not to put their eggs in one cyber-basket.

“Like LCCs, hotels are beginning to admit they cannot stay outside the tent on their own. The customer/travel agent relationship is still vital in the Asian travel market and GDS and travel agents will remain an important method of distribution for all industry players,” said Mr Birch.

However, he warns that to catch the wave of growth that online travel promises, travel agents must stay informed on new technologies. Figures from EyeforTravel show offline sales still make up the lion’s share, or 89%, of travel sales in Asia. However offline sales have grown at just 2.3% CAGR in five years to 2007 whereas online sales have shot up 49% per year.

As computer literacy and access increase across the region, online travel agencies (OTAs) and hybrid agencies look set to enjoy growth rates above and beyond their ‘real’ world competitors but Mr Birch warns the fundamentals of business hold just as true on the web.

“If you’re adding value or providing a new service, then it doesn’t matter if it is web-based or not. If, however, you’re not keeping your customers happy on or off the net, your business will suffer.”

Online is not the only direction that travel agents will feel pressure from. Corporate travel is a growth area in Asia and within that, travel management companies (TMCs). According to one TMC insider, the role of the TMC has possibly become even more important in the tighter economic climate with large companies needing to reconfigure or rethink travel budgets.

“All these factors are creating increased competition for travel agents and propelling them towards consolidation,” said Mr Birch. “The ones who will triumph in this tough environment are going to be the agents who have developed niche products or services, who are entrepreneurs or just great at what they do.”

With more flights, new “hot” destinations, and countries like India and China developing a taste for international tourism the travel market in Asia is set for growth. However this will be tempered by the effects of a US-led recession on customers travel budgets, and also the increased scrapping for a share of the travel distribution pie.

LCCs will continue to push the boundaries, consumers will continue to expect increasing personalisation of their travel plans and travel agents will have to provide innovative and attractive products and services.

“It will be a demanding year for many in the industry. After years of exceptional growth, the travel industry has attracted a lot of players,” said Mr Birch.

“If oil prices spike or a global recession eventuates, there is going to be a real fight on for some businesses. Travel agents should ensure they stake their claim in a defendable niche of the travel industry landscape, out-think their competition. That’s the way to capitalise on the continued growth and future-proof their business against any turbulence we may see in 2008 or beyond.”

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