20 Nov, 2003

WTM 2003 Dispatch 3: Global Travel Market Report

Imtiaz Muqbil

A compilation of key trends and conclusions reached at the World Travel Monitor Forum, organised by the consulting group IPK International in San Giuliano Terme near Pisa from 29 October through 1 November 2003

– From the World Travel Market 2003 in London

Third in a series of dispatches taking an in-depth look at the issues, policies, strategies and trends that emerged at one of the world’s largest travel trade shows.

1. WTM 2003 GLOBAL TRAVEL MARKET REPORT: This report was presented at the WTM 2003 Forecast Forum. It was prepared by Research Consultancy Group IPK International.

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1. WTM 2003 GLOBAL TRAVEL MARKET REPORT

FOREWORD

This report is a compilation of key trends and conclusions reached at the World Travel Monitor Forum, organised by the consulting group IPK International in San Giuliano Terme near Pisa from 29 October through 1 November 2003.

The tenth annual event of its kind, this year’s Forum involved some 50 heads of research and/or marketing representing national tourism organisations, research institutes, industry associations and individual companies and organisations from over 30 countries. These included the World Tourism Organization, European Travel Commission, Pacific Asia Travel Association, Office of Travel & Tourism Industries of the US Department of Commerce, World Travel & Tourism Council, Global Insight and the International Air Transport Association.

The Pisa Forum has a growing reputation as the annual ‘think tank’ of the global tourism industry. This summary provides just a brief overview of the wealth of information on travel and tourism demand exchanged by the participants. For those interested in more detailed statistics and analysis, a comprehensive report will be available for purchase in December 2003. For further information please contact Mr Etienne Pauchant at IPK International (info@ipkintemational.com) or visit the website (www.ipkinternational.com).

WORLD TOURISM IN 2003-2004

2003 has been another difficult year for world tourism. After a good start to the year, global tourism demand was severely affected by the build-up to the Iraq war – which was of greater concern in some markets than the war itself. This was compounded by continued terrorism threats, the economic slowdown and SARS, which had a greater impact on travel demand than any other event in history. All regions were affected, but the biggest impact was felt in the Middle East and North America, with May recording the worst declines globally.

Nevertheless, there are now clear signs of a recovery, reflecting the resilience of the industry and consumers’ pent-up demand for travel after one of the worst crisis of confidence in the history of tourism. International tourism results have generally improved over the past four months, according to the latest WTO World Tourism Barometer.

But this average masks wide fluctuations from one region to another. In the first four months of 2003, results were influenced by the Iraqi conflict and, from April, by the emergence of SARS. While travel confidence was gradually restored after the war, it was further dented by terrorist attacks in Riyadh, Casablanca, Jakarta and Mumbai. However, these had far less impact than expected – the travelling public seems to have grown used to living in an unsafe world.

While the Middle East & Africa – and possibly even Europe – will show positive growth in arrivals for the full 12 months of 2003, international arrivals in the Americas and Asia Pacific will end the year below 2002 levels. The Americas are likely to record a fall of around 2%, but the decline for Asia Pacific could be as dramatic as 9%. As a result, lPK International is forecasting a 1-2% decline in international tourism globally.

Recovery will be driven primarily by economic growth and given the feeble state of the economy in many countries it is expected to be a few years before the required level of stability is regained and tourism demand returns to ‘normal’. This also assumes, that there are no other crises.

Even as arrivals are picking up strongly in some regions, yields are still very depressed, and the current recovery is taking place against a relatively weak economic background. Current forecasts nonetheless point to continued economic recovery through 2004.

Data from the International Air Transport Association (IATA) highlights the fact that, in the first half of 2003, the regions to suffer most in terms of traffic declines (expressed in revenue passenger-km, or RPK) were route networks within the Far East and the trans-Pacific. In fact, before the impact of SARS, the Asia Pacific region was showing strong signs of recovery post-11 September – much stronger than for other regions of the world.

The Pisa Forum participants agreed that SARS will leave an indelible mark on global travel in 2003. East Asia’s arrivals have plummeted, led by double-digit declines for both China and Hong Kong. A second set of countries, including those in the Pacific, south and southeast Asia, relies on travellers from SARS-affected countries. Travel in these markets was shaken by the dual effects of outbound declines in the northeast Asian markets and the fear of exposure from travelling to or through northeast Asia.

Nevertheless, air transport looks like ending 2003 on a slightly more positive note than in recent years – despite a projected US$4-9 billion drop in revenues. This is due in no small part to the fact that the airline industry has learnt how to manage crises better and to control capacity. Seat load factor has risen sharply – IATA airlines achieved the highest monthly level ever in August on international scheduled services – thanks largely to capacity cuts and the continuing squeeze on prices.

Current expectations are that traffic will increase by close to 5% a year between 2003 and 2007 and the average annual growth for 2004 and 2005 should be in the order of 7%.

EUROPEAN OUTBOUND

Trends for the 16 leading European travel source countries, which account for around 90% of total outbound trip volume identified by lPK International’s World Travel Monitor, show varying results from one market and destination to another.

Outbound travel from the eurozone countries has also been stimulated in 2003 by the appreciation of the euro and the widespread availability of low-cost flights, although demand is still constrained in some markets by high unemployment and low consumer confidence. Germany is an obvious example.

The new low-cost carriers are expected to stimulate demand from a number of new markets, such as the former East European bloc. Although the different low-cost models are not all the same, there is already clear evidence that the concept is spreading across other key tourism regions of the world. Intra-European routes are expected be the second most successful international routes in the world for IATA carriers – second only to intra-Asia Pacific.

In the first eight months of the year, outbound trip and overnight volumes decreased by 2% for the 16 major origin markets that account for 90% of all European outbound travel.

Current trends from the European Travel Monitor point to a double-digit decline in European long-haul travel for the first eight months of 2003, with Asia Pacific recording a 25% drop out of Europe as against a 5% decline for North America. However, the Caribbean and South America have performed well, as has South Africa.

Short-haul European outbound travel has fallen by just 1% this year so far, although this average masks fluctuations from one market and destination to another. Business travel was up 5% in the first eight months, and this compares well with a 3% decline for holiday travel, with sun and beach and city breaks – perhaps surprisingly – both down in terms of demand.

The best outbound growth markets in Europe are currently Austria, the Czech Republic, Hungary, Netherlands and Norway. A decline in UK demand for France this year has had a marked impact on UK outbound travel, and French demand for the UK also appears to be well down.

In line with the continuing search for increased value for money, destinations like Bulgaria and Croatia have attracted the strongest growth this year out of Europe. Traditional Mediterranean sunspots, such as Spain, Portugal, and Italy, have lost ground.

Prospects for Europe outbound travel are fairly bullish, in part because of the weakness of the US dollar, on which prices in many long-haul destinations are based. More significantly, perhaps, is the expansion of the European Union next year to include many former members of the East European bloc.

These markets, which have shown sharp fluctuations in demand over the past decade – as they swung from euphoria at the opening of their markets to dismay at their lack of disposable income and back again – are now expected to be one of the main drivers of demand out of Europe for the foreseeable future. The continuing appreciation of the euro – which most of them are keen to adopt as their national currency – will of course be a major contributor to this explosion in travel demand.

USA OUTBOUND

The USA is an extremely important source market for many destinations in Europe, not least the UK. Yet its performance over the past few years – even well before the events of 11 September 2001 – was not dynamic: US outbound declined by 4.8% in terms of trip volume in 2001 and by more than 5% in 2002.

The forecast is that US outbound trip volume will only reach its 2000 peak in 2006. Performance will vary from one state to another, with the Pacific and Southeast regions of the country expected to lead the recovery.

Still, the medium- to longer-term outlook remains bullish. Although American travellers are much more sensitive to perceived threats to their safety and security, and consumer confidence in the national economy plays an extremely important role in dictating travel trends, the US travel and tourism market is relatively untapped, and therefore probably has greater scope for expansion than any other market in the developed world.

JAPANESE OUTBOUND

The trend in the Japanese market is still negative and is not expected to recover before March 2004. Meanwhile, Japan was ousted from first place in the Asian outbound travel ranking in 2002 by China, which totalled 16.6 million trips as against Japan’s 16.5 million.

Although they were one of the sectors most affected by 11 September, the Iraq war and SARS, older (50-plus years old) Japanese women are expected to be the age segment showing the most sustained growth over the next couple of years. Forecasts for Japan as a whole for the remainder of 2003 and 2004 are optimistic.

The longer-term situation can best be explained by looking at the changing structure of the population in Japan. By 2010, Japanese aged over 50 years old will account for more than half the adult population (i.e., those aged 20 years or more). Their share will increase to around 60% of the adult population, or 50% of the total population, by 2050.

Demand should also return fairly rapidly from the 30-39 year-old age segment of Japanese women. On the other hand the difficult economic situation will most likely have a negative impact on business travel in the short to medium term, as well as on travel by younger, salaried Japanese.

ASIAN OUTBOUND

The difficult operating environment of the past several months has made some in the industry question whether or not the Asian tiger has lost its teeth. But, as confirmed by the Pacific Asia Travel Association (PATA) in Pisa, the market is in fact about to explode.

The Chinese outbound market, which ousted Japan from top position in the Asia Pacific outbound ranking, is forecast by lPK and its partners to return to very strong growth in 2004. Already, China outbound trip volume has risen almost five-fold in the past ten years, and double-digit annual increases are almost guaranteed – barring a recurrence of SARS.

PROSPECTS FOR 2004

Concern over price:quality ratios – i.e. value for money – will be a major determinant of travel trends in the next few years. Interestingly, the results of the August 2003 IATA On-line Survey show that lower air fares are considered the most important motivating factor by travellers. It should be noted that in the November 2001 survey conducted by IATA – less than two years ago – improved security was the major concern of interviewees, 50% of whom cited it as the major deterrent to more frequent travel.

After a 5% growth in the first eight months of 2003, business travel demand should continue to pick up, but low-cost airlines will benefit at the expense of the network carriers as a result of a continuing demand for low fares.

All the participants at the Pisa Forum expressed optimism about 2004 – mainly due to the level of postponed travel in 2003 and earlier, and the resulting pent- up demand. But, although they agreed that numbers are coming back, they all stressed that yields are still well down – and are a long way from being viable, economically speaking.

CHANGING MARKET TRENDS

While many of the changes in market demand have been a direct response to 11 September 2001 and similar, more recent, events and developments, these have also acted as a catalyst, leading to a more fundamental shift in consumer and travel market behaviour. The message is clear – things may never again be the same as they were pre-11 September.

Among the current trends in demand discussed in Pisa:

• There are continuing concerns over safety and security, but it is clear that people are growing more accustomed to living in an unsafe world. Tourism demand has bounced back much more quickly after the more recent terrorist attacks.
• The same can probably be said regarding travellers’ attitudes to health risks. But governments and the industry cannot be complacent. They must work together to prepare for a recurrence of SARS, or the outbreak of another similar epidemic, and put in place contingency plans to minimise the impact of such outbreaks on tourism, employment and the wider economy.
• People are continuing to take shorter and more frequent trips, but long-haul travel demand is expected to recover in 2004. Nevertheless, some markets will continue to favour domestic and intra-regional travel for some time yet.
• The growth in demand for low-cost airlines has been unprecedented, and it is likely to continue unabated as new carriers emerge in different regions of the world and as people continue in their search for good value’. But if high-speed rail becomes cheaper, it could attract passengers away from air travel, especially given the current moves to introduce aviation fuel/environmental taxes.
• Similarly, there will be a sharp increase in use of the Internet to plan and book travel – booking will grow faster than ‘looking’ – and this is expected to result in a continuation of the late-booking trend.
• The leading tourism groups believe the package tour is a long way from being obsolete, even if demand is increasingly for partly packaged holidays, customised holidays and dynamic packaging, at the expense of traditional all-inclusive tour packages.
• Tourists are also increasingly looking for an experience – say, the opportunity to carry out a particular activity – rather than selecting a specific destination. This means that national tourist offices and destination management organisations will need to be much more creative in their marketing and promotions.
• Demand for authentic experiences, including local culture and closeness to nature, continues to increase, especially among the older age groups. Also of growing importance are wellness – prevention is better than cure! – and educational programmes, which allow people to improve their knowledge while on holiday.
• Finally, watch out for the hybrid consumer – looking to combine five-star deluxe accommodation with a low-cost flight, or opting for a fast-food dinner one evening and a slap-up meal the next. And do not expect the same level of destination or product loyalty that the industry became accustomed to in the past. Those days are definitely over.