Opportunities arise for outbound, domestic China travel

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Popular Chinese Travel Destinations

The most frequent international (non-Asian) destinations for Chinese travelers, based on the most recent available statistics (2003) were:

Europe 1.52 million

Italy 605,527

Russia 518,572

Germany 238,140

U.S. 157,326

Canada 83,730

U.K. 68,000

The most frequent Asian destinations for Chinese travelers were:

Hong Kong 6.4 million

Macau 4.4 million

Thailand 700,000

Singapore 576,213

South Korea 479,589

Japan 450,089

Malaysia 411,696

Source:Travel Industry Association, 2003

Edwin Fuller, president and managing director of international lodging for Marriott International, calls them his "billboard" hotels, the centerpiece of the hotel chain's combined inbound/outbound strategy for China.

Last month, Fuller told investors and analysts that the company expects to have 75 branded hotels in China in the next 10 years (more than half of those are already open).

Generally speaking, hotels are thought of as providers of host services, but Fuller told TravelWeekly.com that Marriotts Chinese hotels are being built with something more in mind.

On one hand, they will provide foreign visitors to China with a place to lay their heads, but theyre also designed to inspire the local Chinese, who eat at their restaurants, dance at their clubs and gawk at their lobbies, to think Marriott when they travel abroad.

We want to be the preferred brand of the Chinese who travel, and theres no better billboard for your brand than your own hotels, he said. Fuller said Marriott, which began opening hotels in China in 1996, projected several years ago that China will become a giant source market for outbound travelers.

Two years ago, 20.2 million Chinese traveled abroad, he said. Is that good? Compare it for a moment with India. India sent only 4.2 million outbound.

Fuller concedes that most of the Chinese outbound travel was regional, but he thinks theres a huge pent-up demand, and the affluence to travel farther is developing rapidly.

New China hands

Marriott is not the only hotel company that has its eye on China. Starwood Hotels and Resorts, which is also pursuing an expansion strategy in China, has 27 hotel properties in operation there under the St. Regis, Westin, Sheraton, W and Four Points by Sheraton brands, according to Miguel Ko, president of Starwoods Asia-Pacific division.

He said the deals have left Starwood well-positioned with deluxe properties in major and secondary cities in China that cater to the growing number of international and domestic travelers traveling on business and leisure.

Both TUI, the giant German travel conglomerate, and Cendant, its rival in the U.S., are awakening to the potential of China. TUI has assigned its TQ3 subsidiary to scout for business travel acquisitions, while Cendant has already made two moves, acquiring U.K.-based Gullivers Travel Associates, which does extensive business in China, and purchasing a 40% stake in a Chinese e-business travel group, China Youth Tour Service, both late last year.

The Swiss travel services company Kuoni Reisen Holding said it is on the lookout for a holiday tour company that specializes in China. Major U.S. airlines from Continental to United are opening routes to China on the heels of airport infrastructure development, and partnerships with domestic low-cost airlines are scooping up licenses to serve places in Chinas interior that were once only accessible by bus.

Although there has been interest in China for quite some time, the recent surge in activity is due, in part, to the convergence of two events: the 2008 Summer Olympics in Beijing and impending changes to World Trade Organization (WTO) agreements on foreign investments in China that will come into effect next January.

Old rules preventing majority foreign ownership of travel operations in China are being relaxed, and that change may not be entirely unrelated to the urgent need for tourism development to fully exploit the interest in China that will be spurred by the Olympics.

Still, those hoping to capitalize on the changing trade agreements still need to be aware that its not exactly as if the doors are wide open -- neither the way in or the way out.

It takes a license, for example, to advertise travel to the U.S. from within China. And although Nevada is the only government tourism commission from the U.S. to hold such a license, rules prohibit it from saying a word to Chinese travelers about the g-word -- gambling.

We have many other wonderful attractions here in Nevada, said State Tourism Commission Director Bruce Bommarito, presumably with a straight face. Shows and recreation. We promote those.

Nevada has taken a leadership role in encouraging Chinese travelers to come to the U.S. Bommarito led a delegation to China in mid-June to conduct training seminars for domestic travel agents and private tour operators who will be booking Chinese travelers into the U.S. Helping travel companies and other government interests develop new relationships with Chinas travel officials was also on the agenda.

Bommarito said the state has hosted Chinese travel writers and organized agent familiarization trips to Las Vegas and other Nevada destinations as a result of access and experience in becoming a licensee. That experience has drawn corporate players across the board, who are looking for good intelligence on the potentially rocky political and social road that expansion in China can entail.

Weve had recent conversations with the Radisson Group and Marriott and others, said Bommarito, who also serves on the board of the Travel Industry Association (TIA). Ritz-Carlton, St. Regis, Sheraton, all the major brands are now in the major Chinese cities and expanding, he said.

Partnership arrangements at all levels are springing up between major and midlevel players outside China and Chinese mainland organizations in every sector of the travel economy.

Teda Travel Group, a Hong Kong-based travel and real estate development firm, recently acquired a majority interest in Chinas largest timeshare company, Teda Resort Alliance Developments, which controls about 80% of the travel timeshare market in China.

Company President Godfrey Hui said that interest in timeshare properties in China has shown rapid growth and is ripe for international marketing.

Big opportunities

Developments within China have had a boost from improvements in infrastructure, from new airports, railroads, hotels and tour companies, and this has occurred largely as a result of changes in internal rules regarding privatization. Many of the largest private travel agencies and tour operations in China were government-owned, but as private companies theyre making infrastructure changes that benefit foreign companies, both large and small, interested in doing business within China.

From their cozy headquarters in Santa Cruz, Calif., George Jammal and his wife, Judy Yang, dont have to look far to see bright horizons for their small China-centric travel business.

Though the clientele at Kalantis Tours is fairly exclusive -- the company will serve fewer than 200 U.S. tourists this year with highly personal, escorted eco- and cultural trips -- Kalantis owners, too, are among those seeing profound changes as the development of travel to and from China affects business in positive ways.

The Forbidden City in Beijing.Even as multinational travel conglomerates like TUI, Carlson Wagonlit and Marriott rush into China to develop business partnerships and make investments in existing travel providers, the tourism development underway there has become a rising tide lifting even the smallest of boats.

One of our tours involves a 10-hour bus ride over mountain roads to get to Jiuzhai Gou and then to the nearby park at Huang Long, Jammal said. Its beautiful scenery but a long time on a bus. Now theyve opened new airport facilities just north of Cheng Du, which will make it much easier for us to get travelers there. And if you look, the Chinese are building new airports everywhere in the interior.

Indeed, new airports, new highways and new rail lines are cropping up throughout the country, along with new luxury and leisure hotels and new resources to make tourist visits more interesting and diverse, providers say.

The infrastructure, particularly that aspect of it involved in travel agency and tour operations, is serving both the inbound and outbound sides of the street. As more Chinese move into the economic middle class, the number of travelers to international destinations is growing. Companies that are participating in the expanding network of travel agencies and tour supplies are helping to develop the outbound as well as the inbound market.

And with the Beijing Olympics just three years away, the Chinese government itself has also been aggressively marketing tourism to China in European, Latin American and Caribbean countries.

The number of countries that have an Approved Destination Status agreement with China has more than doubled in the past 18 months and continues to grow. New advertising by the Chinese in major world capitals from New York to Paris -- most of it related to the Olympics -- is encouraging new visitors to experience China and to take advantage of bargains that have been spurred by currency issues.

For Kalantis, which seeks out unusual and out-of-the-way sights, like Chinas flocks of rare black neck cranes near the magnificent Nine Village Valley or the geologic wonders of South Chinas Stone Forest, all roads not only lead to China but become two-way streets crowded with new commerce.

Youre finding four-star hotels in places where they were not available before, said Jammal, whose wife worked as a travel agent and a tour guide for the government-owned Chinese travel suppliers before coming to the U.S.

That has helped their niche tour business flourish on the heels of the Westernization of tourism.

There are, of course, two sides to the story, Jammal said. We have people who sign up for our tours who say they want to come quickly, before the natural culture of China is gone.

I dont think they have to worry that things will change too fast, he said, chuckling. But things are changing. A lot of things, for tourists, and for us, are changing for the better.

Reforms set the stage

China began opening itself to foreign tourists in 1978 as it moved to normalize relations with Western nations and to distance itself from the Soviet economic models it had emulated since its one-party government was formed in the late 1940s.

But tours for the past two decades were tightly controlled events, with inbound and outbound travel suppliers owned directly by the Chinese government in a system that was beset with provincial rules that seemed to characterize Chinas dated relationships with its tourists.

From visa restrictions to carefully scripted descriptions of Chinese sights and cultural facts, often recited with unerring political correctness, tourists got a somewhat slender, limited -- and official -- view of life in China, say those who operated in China then.

But as new investment from outside China makes it way to the marketplace, this also is changing, although tour operators and those involved in the new wave of Chinese travel and tourism say it is likely to be an evolutionary process. 

From privatizing its formerly government-controlled domestic and foreign travel services to making visas easier to obtain and to extend -- you can generally take one to any police station for a routine extension -- to accelerating foreign investment in its tourism industry and infrastructure, the changes have become profound and far-reaching.

Evan Chan, managing director of Los Angeles-based Ritz Tours, one of the largest and most experienced of the major U.S. tour operators that sell China, says the changes are already producing results for stateside travel businesses.

Were seeing a lot of growth right now, said Chan. Our best year was 2002, and were expecting 2005 to meet that record year with more than 23,000 tours sold.

It relates, in part, to the Olympics, said Chan. Theyre planning to double the number of five-star hotels in Beijing by the time the Olympics open.

But the developments beyond Beijing are also dramatic, he says. Look what is happening to Shanghai, he said, Its a perfect example. Business travel is growing astronomically there. And the rates at hotels are going to $250 a night for business travelers, which, despite the discounts they get, are about what leisure travelers are paying.

China is getting a good bounce as well from the currency controversy that continues to swirl around the dollars performance against the euro, and currency policies that peg the Chinese yuan renminbi to the U.S. dollar.

Its pretty expensive for Americans to go to Europe right now, Chan said. So people are looking at secondary choices, and they are seeing what a really good bargain China is.

The boom expected in outbound and domestic travel has Chan thinking about other potential strategies that will engage his company, a firm that has devoted more than 25 years to China and Asia travel.

We are hoping to get involved in the domestic travel market within China as things change, he said. And there are significant possibilities for us in the market of Chinese travelers coming to the U.S.

Ritz Tours, which has offices in Shanghai and Hong Kong, also is hoping to leverage its understanding of doing business in China and recently opened a new office in London to capitalize on European interest in China.

Numbers tell the story

Helping drive the expanding tourism opportunities in China are changes that include licenses for low-fare airlines that are building interior routes between some 50 new airports developed in China within the past three years. Since opening itself to foreign tourism and loosening restrictions on domestic travel by its own people, Chinas 20 million outbound tourists reflect an increase of more than  370% since its tourism efforts accelerated in 1993.

China has also seen growth in affluence of its urban middle class, reflected in an increase in discretionary spending for leisure activities of more than 60% in the past five years.

And while most of Chinas outbound travelers still fall into the short-haul category, government numbers in this segment include Chinese possessions such as Hong Kong and Macau, which are high on the list of outbound destinations.

Even so, the number travelers to long-haul destinations has also increased, with Europe the beneficiary of most of those visits.

TIA statistics suggest that the number of Chinese people who have the affluence necessary to travel internationally continues to grow rapidly. It estimated in a report late last year that some 247 million Chinese have the resources for such travel, a number that could double within 10 years.

Another important convergence that has strengthened U.S.-Chinese two-way traffic are changes in U.S. aviation policy.

For example, direct flights from Newark to Beijing began operating on June 15. Cooperation between the U.S. and China has also resulted in changes in visa policies that allow business travelers from the U.S. to get year-long, multiple-trip visas to better interact with business partners there.

Jammal, meanwhile, said his small company has been offering direct visa service to its tour clients, enabling them to mail passports to the company.

We drive them up to San Francisco to obtain the visa from the Chinese consulate there, which satisfies the requirement that visas be obtained directly from Chinese authorities, he said. But we are also now finding that [visas] are very easy to extend, so that if our travelers want to extend their vacations, they can do that.

One of the other positive things we are seeing is the new opportunities to find better experts on the countrys culture and historic preservation and ecology, said Jammal.

Beware business as usual

There is still some undesirable business as usual, but inroads are being made. Tourist traps, retail operations in native goods that were once routinely included as tour stops for foreign visitors to boost provincial incomes under the government-owned travel services, are, one-by-one, being deleted from itineraries under privatization.

And mandatory tipping procedures -- amounting to $5 to $7 per head -- are also being re-examined.

Nevertheless, activity that smacks of the bad, old days of government-controlled itineraries remains a problem.

As we get closer to the Olympics, the suppliers are handing out itineraries for Beijing that include a day of touring the new Olympic buildings instead of spending time at, say, the Great Wall or the Forbidden City, said Jammal. And these are empty buildings, by the way. We routinely delete those from our itineraries.

To contact reporter Dan Luzadder, send e-mail to [email protected].

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