Christopher Columbus is said to have written "mercacciones innumeras" ("incalculable trade") in the margin of his copy of "The Travels of Marco Polo," alongside the description of the harbors of Cathay. More than 500 years later, China might still have disproportionate mind share to market share, but travel executives around the world are venturing East, calculators in hand, in an attempt to rationalize what a slice of China trade might mean for their organizations.
While they deal with myriad issues in the observations below, all the executives interviewed for our Preview issue this year have a significant stake in China, hoping to play successfully in that vast numbers game. Here, they describe how they expect those strategies to play out in 2015 and how they fit in with their broader goals and global visions.
President, National Tour Association
We did a survey of our members after the first half of 2014 asking them to let us know about year-over-year changes vs. 2013. Sixty-five percent of the operators said they booked more tours and served more clients, 59% of suppliers said they were up, and 71% of the destination marketing organizations saw a rise. Revenue numbers were stronger than prerecession numbers in 2007. I think we're positioned well going into 2015.
Certain types of travel and types of travelers saw growth. National parks are huge. Student travel, multigenerational travel were all up. Agritourism, ecotourism, sports, faith-based, also culinary and active-adventure travel. The percentage of young people, 24 and under, traveling with our members rose 15%. That's important. They can go online and book, but they find they actually want to work with someone who has some knowledge. They're booking FITs, too.
As regards source markets, we're seeing good rises from Brazil and Mexico. Canada is our No. 1 source market and continues to be strong. China is No. 7 in terms of annual visitors to the U.S.; initially, they focused on New York, Los Angeles, San Francisco and Florida, but what's happening now is they're moving around the country to see how we really live. There's a lot more interest from them in our national parks, too.
China moved into second place in 2013 in terms of their per-person spending. That year, 1.8 million Chinese spent $21 billion traveling to and through the United States. That's because their average stay is 30 nights. Their arrival numbers are growing fast; we expect 4.3 million to come in 2018.
Lots of things are driving that. President Obama's decision to offer 10-year visas to Chinese will be a huge boon to inbound tourism.
We have a memo of understanding to work with 199 Chinese tour operators who are ready to bring groups into the U.S., and we can bring groups into China, as well. It's not just big companies that can profit from China; there's opportunity for smaller companies, too. Our director of international development, Haydina Hao, makes regular trips to China and does a lot of training about getting ready for Chinese groups coming to the U.S., everything from translating menus to ensuring that you understand their culture and their expectations.
In 2015, we will also be very involved in the centennial of the national parks. Sixty-nine percent of our members package tours to the national parks.
I'm only beginning my fourth month on the job, but I know the key areas I want to focus on in 2015: growing our membership and the benefits we offer; making sure that while we're expanding our international reach, we also strengthen domestic markets; and increasing our presence and representation in Washington. We also have a huge Canadian membership, and I also want to work more closely with them and Canadian legislative efforts.
We seem to be in good shape going into 2015. The travel industry reached an all-time high in industry jobs in November, and outpaced growth in the U.S. economy, growing 37% faster since the recession. That will continue.
COO, Carnival Corp.
I see the macroeconomic environment as being neutral for the industry.
Most economists are predicting that Europe is slowing down while the U.S. is accelerating. Expansion in Asia is still robust; in South America, some areas are strong, others mixed, and then they trade places.
Consumer confidence in the U.S. has been improving, and the underlying economic numbers have moved in a positive direction: Unemployment is quite low, the number of jobs created is quite healthy, and the number of open positions is reasonably high. Because there are more jobs available and fewer people seeking jobs, there may be some wage inflation, which is a healthy driver for spending, including on cruises.
One positive sign is the recent collapse of oil prices, which will hopefully take the edge off pricing for airlines and bring more profitability for the transportation side of travel. If it becomes more of a long-term trend than a short-term anomaly, it may find its way to [consumer] pricing. Otherwise, it will [add to the profitability] of [travel] industry companies.
The [cruise] industry has so much momentum now. And the movement into new markets and the fascinating new ship deliveries, while exciting, are just the tip of the iceberg. The existing shipyards have full order books through 2017, so in 2015 we'll begin to see orders for 2018 and 2019. Whether it will continue to be as full as through 2017 remains to be seen, but you can anticipate that a number of ship orders will be made.
If [the North American economy] continues its growth spurt but the rest of the world begins to slow, it will be harder for [the cruise industry] to continue momentum. Still, cruising is a bit more sheltered from the macroeconomic climate than travel as a whole. It appeals to a somewhat more affluent [demographic], and in any period of economic flux, the affluent are less impacted; that's generally been the case over the last four or five years after the shock of the economic crisis passed. As an industry, we've managed successfully in challenging economic environments.
In some ways, we'll see pretty much the same as in previous years. The Caribbean will continue to be the dominant destination. Europe and the Baltic will continue to be the second-largest market. The industry will continue to balance [ship positioning] based on demand, and the Caribbean is most likely [to be rebalanced], as it was a source of pricing pressure in 2014. When the Caribbean becomes a little challenging, the industry tends to move ships to the West Coast or Europe to compensate.
As regards developments in China, Carnival Corp. announced the exploration of a joint venture with the China State Shipbuilding Corp. to build a ship and create a cruise company that would be the beneficiary of new ships built in that yard. The [announcements that Royal Caribbean Cruises Ltd. sold the Celebrity Century to the China online travel agency Ctrip and will form a joint venture with that company to create a Chinese-brand cruise line] followed.
The Chinese national government is keen to grow its domestic cruise market. They see cruising as a vibrant opportunity, and when the government makes that sort of positive statement, state-owned industries tend to get very active. I'd be surprised if there weren't several announcements about ship owning, port development, logistics and all the other aspects that touch cruising. I expect that part of the market to begin accelerated growth.
I would add also that if you look at the scale of China, the market has the potential to be as large as the U.S. market in the not-too-distant future. It's four times the population of the U.S., and not only is the middle class growing, but the upper middle class is becoming a greater percentage of the middle class.
There's not a lot of transparency in the numbers that come out of China -- official numbers are always suspect -- but from what I've read by economists who follow China, they're all quite bullish. Growth will move from 7.5% to 5%; you can't sustain the hypergrowth you had when you had a smaller base. But their total GDP will exceed the U.S. in the next few years. On a per-person basis, they're not anywhere near the U.S., but by 2030, China will meet purchasing price parity with the U.S.
That's a long ways away, but directionally, I feel very bullish on China.
CEO, U.S. Travel Association
The rest of the world thinks we're crazy not to take all the time off that's given us. We leave 429 million [vacation] days: 3.2 days per person. We coined the term "work martyrs" to describe this and came up with "The Travel Effect" to examine its impact on the economy, workers and companies.
Next year, we're changing the name to "Project Time Off." We think there's an opportunity to build a coalition with other industries. Think about Home Depot. Think about the restaurant business.
We're doing a study about the overhang liability that companies carry on their balance sheet with untaken time off.
And I picture the day an insurance company meets with an employer and asks how many days its workers take off. If the answer is 12, they'll say, "Too bad," because their research shows it's healthier to take at least 13 days, and that company will miss out on 2% savings.
One thing you're going to see is the reemergence of layaway plans, but for travel. Last year, Disney quietly tested a plan, giving a discount to people who saved for a trip over the course of a year. They're going to do more of it. Expedia is pushing vacation rate guarantees for people who commit early.
With layaway, travelers become locked into a picture of the trip they're going on. We've been talking to AARP, and they're interested in travel and mental acuity. When I ask my retired friends if they've done anything interesting lately, they'll say, "In May, I'm taking a river cruise in Russia" and tell me about the research and planning they're doing. There's a mental benefit to looking forward to something.
We just got the 10-year visa for travelers coming from China, and that's a monster. It'll increase visa capacity because 30% to 40% of applicants are repeat visitors who had to go to the U.S. embassy every year. So now, they're out of the line.
We'll get 2 million visitors from China in 2014. The U.S. Department of Commerce is projecting 7.3 million by 2021.
Right now, the U.K. and Japan are our biggest source markets outside North America, and by 2020, China will overtake those two combined.
Last week, I had a meeting at the Mandarin Oriental in Washington, and about 60% of the people in the restaurant were Chinese. I had a meeting at the Four Seasons, as well, and I'd say it was 10%. So you're seeing a propensity for the Chinese to go where they're comfortable. People who get that will do very well.
Now, the bad news. We're so damn fragile, this industry. The problem is pandemic panic vs. an actual pandemic. We had one death [in the U.S.] from Ebola, and people were calling for travel bans.
The other thing is ISIS. Travel gets roped into these things. It affects things like visa waiver programs. When you add a country, it's like turning on a faucet. South Korea went up 46%. If we add Brazil, it would bring 800,000 visitors. But the political climate is toxic to it. With all this ISIS talk, it would be an uphill battle. There's even talk of shutting down the visa waiver program, which would be terrible.
One last thing about visa waiver: It's poorly named. For a country to join, they have to agree to all sorts of protocols regarding security. Visa waiver actually steps up security.
Graham 'Skroo' Turner
Managing Director, Flight Centre Travel Group
Graham ‘Skroo’ Turner
We're in 12 countries, but about half our business comes out of Australia, and in Australia, the economy's not going great guns at the moment, and consumer confidence isn't so great, so it isn't going to be a brilliant year; it's going to be pretty flat. We have about 30% market share, so any small increase in consumer confidence will help us.
But in the U.K. and in the U.S., where we have Liberty Travel and Gogo, they're both doing pretty well at the moment.
We're also in China, Singapore and the Middle East, and those places are doing quite well in general. We're in India, too, and it's always a bit of a challenge, but it's hanging in there at the moment.
We have our leisure businesses and our corporate businesses. Leisure is the foundation; it's about 55% to 60% of our business around the world.
We have seen over the last few years that online growth has been slowing our brick-and-mortar growth quite substantially. But we believe that, providing you have the right products, there's going to be a big place for person-to-person dealings. There'll be a lot of travel that people just don't want to do online. We can see that even for the next 20 years, there will continue to be plenty of opportunities for that, but you've got to get your product, your service, your expertise right.
But it's also the systems, the platforms. And together, it's a combination that people are prepared to pay for. We consider offline expertise to be a really crucial part of our long-term business.
We do about $2.5 billion in the States, and we have just a tiny part of the market. We've been in the U.S. since 1998 with the Flight Centre brand, and we bought Liberty in about 2008. Leisure has been a tough scene for us, but we've been profitable for the last couple of years with Liberty, and corporate [travel] is going really well, so we see a huge amount of opportunity in the States in the longer term. We're growing about 10% a year on a reasonable base, and we want to keep that rate of growth going.
In China, we're mainly corporate. We went in about seven years ago, in a joint venture in Beijing, though we've taken it over and basically have 100% now. It's a tough market. It's generally biased toward local operators, and they change the rules all the time. They certainly don't make it easy for foreign companies.
But we've got a reasonable boutique operation; we probably do about $300 million in Hong Kong, Shanghai, Beijing and Guangzhou.
We make a couple million dollars of profit a year [in China], and we want to grow at 20% to 30% annually. But we're not going to grow dramatically there, particularly in outbound leisure. It is a very tough market, and we just don't feel leisure is our field of expertise in China.
It's just one of those markets you've got to be fairly careful about going in in a big way, with a big bang. You've just got to know it well and decide what part of the market you want to be in, and grow that.
One area we've very bullish about is the youth-and-student market. We have a number of brands involved in this, and we see globally a lot of opportunity. China or India may get a lot more into this as time goes on -- a huge number of students go from China and India into our markets in Australia and New Zealand, Canada, U.S., U.K.
It's an area we'll most certainly be growing in the States over the next year or so. Some people believe it will be more online, but we can see there are a lot of exciting offline opportunities, as well.
We might look at expanding operations into South America and Europe, but we've got so many expansion opportunities in the 12 countries we're operating in now. If something falls into our lap that we really like, it's strategic and it's the right price, we'd certainly look at it. South America is very important because of our corporate business, and possibly our youth-and-student business, too.
A lot of our corporate clients would probably like us to be in Europe. We have a lot of good partners there at the moment, but if the right opportunities came along, we'd be open to it.