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The Chinese Outbound Travel Market with Special Insight into the Image of Europe as a Destination
World Tourism Organisation, Jan 2008, Pages: 196
China is one of the fastest growing outbound travel markets in the world. Thanks to rising disposable incomes and relaxations of restrictions on foreign travel, outbound trips grew by an annual average of 22% since 2000 – reaching almost 35 million in 2006. China ranks 5th worldwide in terms of spending on travel abroad with US$ 30 billion spent in 2007. In 1995, the World Tourism Organization (UNWTO) predicted that China would generate 100 million arrivals worldwide by 2020, making it the fourth largest market in the world (UNWTO Tourism 2020 Vision). In view of recent trends, it is on course to reach that target well before 2020.
Getting the best out of any market implies knowing it well. To better understand the structure, trends and factors is the aim of the new ETC/UNWTO report. The Chinese Outbound Travel Market with Special Insight into the Image of Europe as a Destination covers the prospects for China as a source market, including results from consumer surveys conducted in the country during 2006.
Key findings:
Summary of Key Market Trends
China is one of the fastest growing outbound travel markets in the world. Thanks to rapid urbanisation, rising disposable incomes and relaxations of restrictions on foreign travel, outbound trip volume has grown by an annual average of 22.0% since 2000 and just under 15.5% since 1995 – reaching 34.5 million in 2006.
In 1995, the World Tourism Organization (UNWTO) predicted that China would generate 100 million arrivals worldwide annually by 2020, making it the fourth largest market in the world (UNWTO Tourism 2020 Vision). In view of recent trends, it is on course to reach that target well before 2020.
Nevertheless, much of the enthusiasm about China’s potential as an outbound tourism source overlooks the fact that the vast majority of outbound trips (over 70%) are to the Chinese Special Administrative Regions (SARs) of Hong Kong and Macao. Around half of the rest are ‘border visitors’ on day trips to Russia, Vietnam or Laos for trade and/or shopping, or to gamble in casinos, which are illegal in China.
Europe’s share of China’s outbound trip volume is difficult to determine as official outbound data only counts the first point of call. But the official count from the China National Tourism Administration (CNTA) was 1.8 million in 2005, unchanged over the previous year.
According to CNTA, Europe attracted a modest share of 6% of total Chinese outbound trips/departures in 2005 – down from nearly 10% in 2001, despite a 50% increase in trip volume over the four years.
Over the last three or four years, the European tourism industry’s attention has been primarily focused on the Chinese group leisure tour market, opened up as a result of the granting of Approved Destination Status (ADS) to most European countries in 2004. ADS is the scheme that authorises approved countries to receive leisure tour group travellers from China.
However, it is proving difficult to generate sustainable and profitable business in a market characterised by low-priced, low-yield, multi-destination tours. Business, incentive and technical trips are showing better growth and, like independent (FIT) leisure trips, are seen as much more attractive for the longer term.
Operating Environment
China is the third largest country in the world (after the Russian Federation and Canada) and the most populous (estimated 1.3 billion population in 2006).
Although GDP is still only one-fifth the size of the United States of America’s, and GDP per capita is a modest US$ 1,990 a year as against US$ 44,000 for the United States of America (2006), China’s economy has been growing at an average of around 10% a year since 2000 – at a pace that is unprecedented in world history
Most outbound travel is from China’s three leading cities and surrounding regions – Beijing, Shanghai and Guangzhou – but, thanks to rapid urbanisation, the second-tier cities are also emerging as sources of growing demand.
China’s demographic profile is changing. The main source of the forecast growth in travel demand will be the young, affluent middle class that is emerging – from 175 million people now to around 500 million by 2025 – but the older ‘working-age empty-nesters’ are also a key segment of the market as their children have left home and they already possess all the home ‘durables’ they need.
The majority of outbound, as well as domestic, trips are taken during the three ‘Golden Weeks’ – the official Chinese holiday periods – but paid holiday time outside these periods is expected to increase.
There is a growing ability and desire among the Chinese to spend money on leisure, including tourism – as well as a greater willingness to use credit cards or to borrow money to do so.
Despite significant liberalisation of outbound travel, China is one of the few countries in the world where outbound travel legislation continues to influence trends. These, coupled with the difficult, expensive and complex visa application process for many countries, are still a significant deterrent to growth.
This also ensures that the vast majority of leisure tourists to Europe travel in organised tour groups to countries with Approved Destination Status (ADS), which is for many the least attractive segment of the market in terms of profitability.
Outbound Travel Trends
The Chinese made 34.5 million trips abroad in 2006, up 10.5% over 2005, 90% of which were to other Asian destinations (and 71% to Hong Kong, China, and Macao, China).
Although outbound travel has increased by 22% since 2000, the ratio of domestic to outbound trips is still 38:1, reflecting the huge growth potential.
According to UNWTO, international travel expenditure by mainland Chinese residents topped US$ 24.3 billion in 2006, ranking China the world’s sixth major spender on travel abroad, but average spend is still at a relatively modest US$ 704 per trip, or US$ 19 per capita. However, other sources confirm that, on long-haul trips, the Chinese are big spenders.
Chinese leisure travellers are very price-conscious in terms of their outlay in terms of transport, accommodation, food and beverages, but they are big spenders on shopping.
Excluding Hong Kong, China, and, the top destinations for Chinese outbound travellers are Singapore, the Republic of Korea, Japan and Thailand. According to the official outbound count from CNTA, the Russian Federation, Germany, Austria and Switzerland are the main destinations in Europe for Chinese (but, as mentioned, the count only includes first point of call on a trip).
The ranking of leading destinations in terms of holiday travel – those most commonly offered by tour operators – suggests that Germany, France and Italy are the most popular destinations in Europe. The main competitors for Europe are the United States of America (which still attracts mainly students and business/technical visitors from China) and Australia.
According to the trade interviews conducted in China and Europe, the average number of countries visited per trip is 6-8, although this is usually much lower for repeat visitors. The countries in highest demand are France and Italy, with the French attractions of the Louvre, Notre Dame, the Eiffel Tower and Versailles Palace the most heavily requested by Chinese consumers.
Around two thirds of all outbound travellers earn more than Rmb 5,000 a month (US$ 604 or € 486) and 35% earn more than Rmb 10,000.
The proportion of male to female travellers is now quite balanced, with females outnumbering males by 53:47. But Europe attracts almost 50% more males than females (60:40), largely because of the higher than average share of business trips.
Around 50% of outbound travellers are aged between 25 and 44 years, which is widely considered the age segment with the best growth potential. But a higher share of Chinese in the 45-plus age group travel to long-haul destinations, including Europe and Australia, and this age group is set to increase sharply in volume.
Most travel to Europe takes place between the months of May and September, with more than 50% of tourists travelling in family groups and most of the remainder with friends.
Air Transport
China will be the world’s second largest aviation market by 2020, according to leading aircraft manufacturers Boeing and Airbus.
Although excessive congestion at the main airports has resulted in recent cutbacks in flights, there has been a huge growth in international and domestic airline capacity in recent years – not least to Europe.
In August 2007 there were 289 weekly flights to Europe, excluding flights from Hong Kong, China, with ten airlines operating more than ten flights per week (outbound only).
International airlines face practical and political difficulties in raising their capacity in line with demand, but increased traffic rights and alliances are driving growth and helping them to secure their market presence.
Travel Distribution
In 2006, more than 670 travel agencies in China were licensed to sell outbound travel.
The vast majority of outbound trips, excluding those to Hong Kong, China, and Macao, China, are handled by travel agents.
The ADS market is strictly regulated and agents who ‘lose’ tourists or otherwise displease the authorities are liable to be removed, temporarily or permanently, from the list of authorised ADS operators.
The main travelling periods for tour groups sold by travel agents are around the three national holiday periods: the so-called ‘Golden Weeks’. These are the Spring Festival at Chinese New Year, the May Holiday (first week in May) and the National Day Holiday (first week in October).
Average lead-time for bookings placed with travel agents for leisure visits to Europe is 1-2 months. After receiving the booking, the agent may spend up to four weeks selecting inbound tour operators, who may not receive final confirmation until two weeks prior to departure.
Consumer research on destinations is increasingly carried out online, but brochures and TV programmes are still popular.
Price competition is rife, due in part to the willingness of Chinese agencies to use ‘informal’ networks of business contacts that bypass many of the normal requirements of group tourism. Furthermore, this growth has been sustained by the supply of spare capacity caused by the decline in demand for Europe over the past few years from the United States of America and Japan.
Online Travel
In mid-2007, according to the China Internet Network Information Centre (CNNIC), China had approximately 162 million internet users, representing 12% of the population.
Although this level of market penetration is still low, China ranks second only to the United States of America in absolute number of internet users, and the total is forecast to grow to around 250 million by 2011 (19% of the population).
Research by ACNielsen has also shown that, within the 18-40 age group in the major cities, the market penetration level of internet users is 60-70% – and among university-educated Chinese of that age, the level is over 90%.
Online travel companies are emerging but the market is heavily dominated by the two leading players, Ctrip and eLong.
Except for domestic travel, the internet is used primarily for ‘looking’ (information gathering) than booking. This is likely to continue for the short to medium term because of the need for agents to help apply for visas.
China’s online travel industry will clearly undergo rapid transformation over the next few years. The appetite for the internet in China, together with the market’s brisk enthusiasm for reducing costs, is certain to increase the proportion of those who book online.
Driving this process forward will be the expansion of low-cost airlines, the increased use of credit cards, and the growth of the internet and of the Chinese economy. But it will not all be plain sailing for European suppliers since progress is likely to be inhibited by the continued requirement for visas from most ADS countries, restrictions on the ability of many Chinese to travel, and the tradition of relying on cash transactions.
Eleven national tourism organizations (NTOs) from Europe offer websites in simplified Chinese.
Marketing to the Chinese Traveller
Although the level of interest in Europe as a ’dream’ leisure destination is high, demand will continue to be low and compromised by cost. The Chinese are surrounded by destinations with which they have greater cultural affinity, that are easier to travel to and offer excellent value for money.
What demand there is for Europe remains dominated by the business sector, including the ‘business - tour’. This combines an ostensible business purpose with leisure activities such as shopping and sightseeing. As the participants are generally sponsored by their companies or partners abroad, normal marketing practices do not apply – as in the incentive travel market, demand tends to be dependent on commercial caprice and government edict.
The ADS leisure tourist still represents a small share of total Chinese travel to Europe.
Fewer than 30 foreign NTOs are established in China and, of these, 17 are European. Nine European - NTOs have fulltime offices, including five which have offices in Shanghai as well as in Beijing. The remainder either share an office (the Scandinavian Tourist Board represents Denmark, Norway and Sweden in Beijing and Shanghai), or are represented through their respective embassy, consulate, or local chamber of commerce.
Perceptions of Europe
According to the surveys, trade interviews and focus groups carried out as part of the research for this study, the Chinese market is normally marked by regional differences in consumer behaviour. But the outbound travel market for Europe appears relatively homogeneous. There was no marked difference in the responses between the major visitor-generating cities. This simplifies marketing and advertising campaigns, which usually have to be adapted to suit the region in which they are being launched.
Furthermore there is a strong perception of Europe as a unique destination, albeit with different regions and individual features. This has obviously been enhanced as a result of the Schengen visa and the euro.
What Sells?
The favourite activity for Chinese visitors is shopping; this is preferred to visiting historic monuments.
The Chinese travel trade interviewed for the purposes of this report felt that the features that best sell European itineraries are shopping, scenery, local customs, dining and outdoor activities. The European travel trade added brandname shops and the British royal family to this list.
Both the travel trade and consumers suggested that marketing campaigns focus on traditional media sources and emphasise the diversity of Europe. Visual references should be to the more ‘obvious’ European iconic images such as the Louvre, Eiffel Tower and Colosseum.
What Does not Sell?
The strongest negative associations among Chinese are that Europe is “arrogant”, “expensive” and “lacking understanding of Chinese visitors”.
Chinese agents felt that features to avoid are long coach journeys, small countries and a plethora of churches and museums. European operators mentioned remote countryside, customer service and high prices as features that put Chinese clients off visiting Europe.
This desire to have the positive features of escorted touring without the unavoidable shortcomings is common to many markets.
When asked what Europe could do to be more welcoming to Chinese tour groups, respondents mentioned simplifying the visa application process, better quality Chinese food, a greater choice of itineraries, promotional and informational materials in Chinese and increased flights.
Conclusions
Currently, available data on the Chinese market in European destinations is poor. Individual countries must try to differentiate between Chinese visitors and ‘other Asians’. Information from visa issuing authorities would also be very useful for the travel trade in China, as well as for suppliers. Europe is perceived as an expensive destination, so it is important to devise some way of increasing the prestige of visiting Europe so that price becomes less of a constraint. If the goal for the industry is more visits from the Chinese middle class, this has to be seen as a long-term project.
Despite increased use of the internet and of information channels such as television and newspapers, word of mouth has genuine authority in Chinese culture. A rumour that a particular visa-issuing office is asking personal questions can be sufficient to deter waves of groups from entering a country. One attack on a Chinese individual can blight a destination. How this can be countered by European NTOs remains a difficult question to answer, as it is not easy to allay fears without attracting attention to them.
More effort must be made to make Chinese groups feel welcome. One negative impression that is gaining ground is the perception that Europe is unfriendly and lacking in understanding. One way of countering this is to ensure that more information is available in Chinese to visitors – in particular, explanations as to European customs and mores.
The Chinese market to Europe is currently neither large, in terms of actual volume or short-term potential, nor easy to tap. The short-term prospects for Europe as a destination remain uncertain. But as China grows into being an economic super-power, finding a way to appeal to the potential Chinese visitor is one of the most pressing questions facing the European travel industry.
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