PATA Director of Strategic Intelligence Centre
China Traveller
January, 2009
In our first Thought Leadership column we interviewed John Koldowski, Director of the Strategic Intelligence Centre of Pacific Asia Travel Association (PATA), to gain his insight of the travel industry affected by the global financial crisis.
Q: Can you provide us with a background of the travel industry up until the financial crisis struck?
A: Over the last 5 years, international travel & tourism has generally been growing in both arrival numbers and revenues earned. The average rate of growth for arrivals has been at around 7% per annum, while revenue growth has averaged at around 13% per annum over the same period. So the last few years in particular have seen relatively strong growth.
Q: What about the Asian market?
A: Asia has been a particularly strong performer, in both arrival numbers and revenue. Even though earlier in the year (2008), expectations were for a reduction in the growth of international arrivals, we were still bullish about Asia and were still predicting growth, albeit at a much slower rate.
Q: Has the crisis already struck or are we already experiencing its peak?
A: We have experienced growth so far this year (2008), but at a much lower rate than 2007. This is true for nearly all sub-regions within Asia Pacific, the only exception being the Americas, where the trend has been stronger growth over 2007.
Q: What about China?
A: The last few months have seen strong contractions in international arrivals, both at the aggregate inbound level and for foreign arrivals. Although China has a blooming domestic market, globalization will not allow any country to go unscathed. So it appears the downward trend will not be reversed in the short term.
Q: What does the immediate future hold in store for us?
A: This is what we are currently analyzing. But I would first like to speak of a related matter. In the aviation sector, our lifeline to the travel industry, the trends are all negative. Particularly through the month of September 2008, the Asia Pacific region all but led the global decline. According to the data from IATA, we found a very poor year-to-date result in Revenue Passenger Kilometers and freight movements as well. I just spoke with a friend from the Association of Asia Pacific Airlines, who informed me that in terms of actual passengers carried, June was flat and July saw a contraction in numbers on the Asia Pacific airline fleet. The negative forecasts for airports are therefore understandably somber. Premium traffic growth in particular has been taking a beating. And the forward bookings are looking soft too.
Q: We noticed many analysts have adjusted their economic outlook for 2008 and 2009, will there be no growth in the travel sector?
A: While the economic outlook is certainly weaker, there is still growth. It will vary greatly from country to country. But these top-level aggregate numbers are masking a more worrying concern, that of profitability. For example, the price of aviation fuel, while coming down in price, it is still unstable. The operating margin for the world airline fleet is very weak at the moment, and operating losses are expected to continue into 2009 at least. If this holds true, the aviation sector will only see profitability in a year.
Q: We are seeing news reports of airlines reducing or eliminating routes with weak demand, what impact will this have?
A: This leads us to another scenario, with reduced capacity, demand will push air ticket prices higher and it will not be as easy to get the booking you want, on the route you want, on the day you want and at the time you want. Air travel will get even harder, at least over the immediate future.
Q: Is it all bad news?
A: It is not all bad news. Some operators actually perform very well during a recession. I read an article from Lodging Econometrics recently stating that while there has been a reduction in the number of hotel projects in Asia Pacific between the first and second quarters of this year (2008), total planned room capacity is still on the rise. I am sure a very large proportion of that construction is planned for China.
Q: Let’s get back to China and our tourism sector. Will China still be the engine of growth during the recovery period?
A: Yes. Some analysts firmly believe that emerging economies such as China could do very well in a global economic downturn. In the long-run, the world economy always expands and then goes through periods of contraction. But the world will look different, from where new funds will come. Not only in China, but the rest of the world, to the fragmentation of our industry and the emergence of ‘long-tail economics’ into the business world, it is up to us to identify and capture the advantage when and where it appears. Over the medium-term however, we still expect the travel industry, buoyed by the business element, to generate growth. It will just be at much lower levels than we have been used to over the past half decade.
Mr. Koldowski is responsible for the collection, analysis and interpretation of travel statistics for PATA.
