Euromonitor Global Overview 2012 Final

TRAVEL INDUSTRY GLOBAL OVERVIEW 2012 February 2012
INTRODUCTION OUTLOOK 2012 TOURISM PERFORMANCE CONSUMERS IN THE DRIVING SEAT LCCS AND THE INDUSTRY SHAKEOUT HOTELS AS LIFESTYLE-SETTERS TECHNOLOGY A GAME-CHANGER
INTRODUCTION
Scope
Disclaimer
Travel and Tourism
Arrivals and Incoming Tourist Receipts
Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies' opinions, reader discretion is advised.
Hotels
Low Cost Carriers
Online Travel Retail
2012 is shaping up to be a challenging year for the travel industry where despite the strong economies in the emerging markets, uncertainty in Europe has the potential to disrupt global prosperity. However, low cost carriers and mid-priced hotels are benefiting from on-going consumer caution regarding their spending to drive growth across the globe. Evolving technology continues to impact the travel industry, putting consumers in the driving seat, alongside travel providers.
Euromonitor International
INTRODUCTION
Key findings
2012 not looking good for Europe Amid growing uncertainty about the future of the Eurozone in 2012, travel and tourism in Western Europe remains depressed, with high unemployment and continued austerity measures reducing intra-regional travel and spending. Emerging nations still The emerging nations, particularly China, are boosting global trips, as their strong lead the way economies enable a growing number of consumers to travel. Regional destinations are popular, with Chinese travellers staying closest to home. Surge in arrivals and The recent Executive Order by President Obama to boost travel and tourism is spending for US predicted to continue a recent surge seen in arrivals and spending in the US. Changes to visa procedures have been key in attracting more visitors. Social Local Mobile With the growth of mobile devices, Social Local Mobile (SoLoMo) is tipped to have a big impact on travel. Mobile applications determine a consumer's location and then push information relevant to the destination and prior needs. Impact of sustainability With sustainability becoming more mainstream in travel and tourism, Europe is leading the world with green destinations, in countries with high sustainability rankings. Low cost carriers flying Low cost carriers are driving growth in mature air markets and are becoming high strong contributors in the emerging economies.
Mid-priced and extended stay hotels Evolving technologies changing travel retail Across the globe, mid-range hotels are thriving as consumers continue to look for economies, with extended stay outlets showing resilience with business travellers. The rise in online bookings and the growth of social media in the travel industry has shifted power to the consumer, as well as boosting the profile of technology companies within the booking process.
OUTLOOK 2012
The world in 2012

2012 started with continued uncertainty in the developed markets, whilst emerging regions showed positive growth. China remains the world's economic powerhouse, with real GDP growth outstripping most other world economies. However, global economies are closely linked, and a continued downturn in Europe will have an impact on the rest of the world. The IMF has downgraded global economic growth for 2012 by 0.75 percentage points, adjusted in January 2012 from August 2011. Key risks are deteriorating financial conditions and diminishing growth prospects. The Eurozone region is predicted to show negative GDP growth in 2012, due to continued uncertainties about the future of the euro and debt levels across key countries.
% y-on-y growth
% Real GDP Growth 2011-2016

10 8 World 6 4 2 0 -2 2011 2012 2013 2014 2015 2016 Eurozone UK MENA Russia China
Key stumbling blocks include Greece, where continued austerity measures were passed in February 2012 as a condition for a further EU and IMF loan. Italy, Portugal and Spain are also at risk, with further cuts to credit ratings in February 2012 due to their increased vulnerability within the debt crisis.
OUTLOOK 2012
What lies ahead? More uncertainty

Threats to Stability Include volatility in food and fuel prices, fiscal imbalances and financial failure Credit Crunch Number of loans in EU area continues to fall raising fears of a second crunch
Inflation Down across the globe, but does this indicate a slowdown?
Unemployment Over 200 million globally, developed countries hit particularly hard
2012 and beyond

Collapse of Euro Could it happen in 2012?
Weak Demand
Consumer spending remains cautious, hindering growth
Civil Unrest Economic uncertainty could trigger riots. Very contagious, can spread across a region eg MENA
OUTLOOK 2012
Europe in existential crisis

After a positive year in terms of tourism flows Europe, the outlook for 2012 is negative. This is due to the bad shape of the economy in the Eurozone, where weaker economies, such as Italy, Spain, Ireland, Portugal and Greece, are expected to be in recession and the stronger Northern European economies are facing stagnation due to the contagion effect. Austerity measures implemented in several European countries are expected to result in lower disposable incomes and rising unemployment rates, which will affect tourism flows outbound and intra-regional arrivals. Unemployment in the Eurozone hit a record high of 10.4% in December 2011. The potential collapse of the Eurozone is also a threat, despite EU leaders' attempts to play down the possibility. 2011 saw strong growth in arrivals from emerging economies to Europe, especially Russia, China and Brazil. It is hoped that this trend will continue throughout 2012, but it is unlikely to compensate for the decline in intra-regional visitors.
Arrivals and Average Spend by Key Eurozone Countries % CAGR 2011-2016
2.5 2.0 1.5 % CAGR 1.0 0.5 0.0 -0.5 -1.0 -1.5
Eurozone
France
Arrivals
Germany
Average spend per trip
Italy
Spain
OUTLOOK 2012
UK and its Olympian challenge

The London Olympics are heavily dependent on domestic visitors, which should mitigate negative effects of the ongoing Eurozone crisis. Visitors from France and Germany remain the leading arrival countries, followed by the US. UK arrivals are predicted to grow by almost 4% in 2012, to reach 29.4 million arrivals
UK: Arrivals 000 Trips 2011-2012
France Germany US Ireland Spain
By 2016, numbers are expected to have recovered to pre-crisisNetherlands Italy 2007 levels. Displacement of visitors is a major concern, but there is still growth in arrivals expected for 2012 and 2013. Visits from the BRIC nations are growing due to these countries' strong economic development, but numbers remain low. The long-term tourism legacy from the Games remains uncertain. Hotels chains have expanded, particularly the budget players. Transportation links have improved, but UK Airport Departure Duty and the EU's Emissions Trading System may hamper future arrivals.
Poland Australia Belgium India Russia China Brazil 0 1,000 2,000 000 trips 2012 2011 3,000 4,000
OUTLOOK 2012
10
Middle East rising

Arab Spring countries are expected to witness a rebound in 2012, but volatility continues to cast a shadow over the region. The UAE will continue to benefit from consumers seeking out destinations deemed to be safer, at the expense of North African destinations like Tunisia and Morocco.
Arrivals and Average Spend by MENA Key Country % CAGR 2011-2016
UAE
Instability continues in a number of countries, particularly Egypt, Syria and Bahrain. Despite the overthrow of the government in 2011, Egypt's protestors continue to demand democratic reform. The Middle East experienced a "double dip" in tourism arrivals, with sharp falls in 2009 and 2011. Arrivals fell by more than 7% in 2009 and again in 2011, by close to 8%, while 2010 saw an 8% increase. The Middle East is an important source region for world travel and tourism, not just because of the rapidly growing number of trips taken abroad, but more importantly, because of the high purchasing power of consumers in countries like Saudi Arabia and Kuwait. Outbound travel continues to support growth in the air transportation sector, and the large regional players, like Emirates Airlines and Qatar Airways, are still among the fastest growing global airlines. However, smaller players are threatened by the current conditions across the region.
Saudi Arabia
Morocco
Egypt
MENA -5 0 5 10 % CAGR Average spend Arrivals 15
OUTLOOK 2012
11
Best and worst case scenarios for Egypt

Egypt: Arrivals % Growth in Best and Worst Case Scenarios 2012-2016
40% 30% 20% 10% 0% -10% -20% -30% 2012 2013 2014 2015 2016
Best case scenario Worst case scenario
Egypt: Departures % Growth in Best and Worst Case Scenarios 2012-2016

20% 15% 10% Best case scenario 5% 0% -5% 2012 2013 2014 2015 2016 Worst case scenario
OUTLOOK 2012
12
Russia in with a sporting chance

Sporting events galore Russia is to be the host for the World Athletics Championships, the Rugby Sevens World Cup and the Universiade in 2013, Winter Olympics in 2014, and then the Football World Cup in 2018. These events should boost Russia's profile as a tourist destination. Much of the current focus remains on outbound Russian tourists. Online sales demonstrate rapid growth Online sales in travel and tourism are demonstrating rapid growth in Russia. Growing internet penetration, combined with the recession, stimulated online searches as travellers seek bargains. Transportation is benefiting from this online growth, with Aeroflot and LCCs such as Sky Express showing good growth. Charter airlines still dominate for passengers carried. Visa barriers restrictive Visitors from most countries require a visa to enter Russia, which must be obtained in advance. There are on-going talks with the EU regarding changes to the visa process, with a UK trade delegation visiting in February 2012.
Civil unrest With presidential elections scheduled for March 2012, there is significant potential for civil unrest before and after the event. However, recent protests in 2011 about the State Duma elections were peaceful, indicating increased tolerance within the country.
Russia: Air Passengers Carried by Category % Growth 2011-2016
30 25 20 % growth 15 10 5 0 2011 2012 2013 2014 LCC 2015 2016 Charter Schedule
OUTLOOK 2012
13
China marches onwards and upwards

Dynamic economic growth has led to rapidly increasing disposable income levels among Chinese consumers. Together with increased awareness of improved quality of life, Chinese consumers are keen to spend more on travel and tourism. As a result, total outbound tourist expenditure is expected to continue its strong growth, with shopping and accommodation being key focus areas over 2011/2016. Strategic tourism plan A new strategic tourism plan was established by the China State Council at the end of 2009, which aims to speed up the development of tourism and further promote the service industry. Domestic tourism is very powerful, aided by visits from close neighbours, Hong Kong and Macau. Weaker firepower If a second global recession occurs, China is in a much weaker position in 2012 than in 2008, with a looming housing market crisis. Despite tightening credit to ward off inflation, China now has weaker fiscal firepower which will badly impact the global economy.
China: Outbound Tourism Expenditure by Category 2011/2016

Shopping
Other
Food
Accommodation
Entertainment
Excursions
Travel within country 0 10 20 30 US$ billion 2011 2016 40
OUTLOOK 2012
14
Where are Chinese travellers going?

Not surprisingly, destinations within Asia Pacific are the most popular for Chinese tourists. Shopping and gambling are strong attractions for mainland Chinese visitors to Hong Kong and Macau. Hong Kong also benefited from the expansion of the Individual Visit Scheme, allowing multiple entries to Hong Kong by Shenzhen residents since 2009. Arrivals from China increased by 3 million since the launch of the scheme. Strong business ties, as well as the Chinese diaspora, have made the US a key destination for Chinese travellers, and the most popular outside Asia Pacific. Group tours of Europe are popular, with France receiving the most Chinese visitors. It is the most popular country among Chinese luxury travellers, according to the Hurun Research Institute. Aeroports de Paris rolled out the red carpet for Chinese tourists in January 2012 for Lunar New Year. The company decorated its airports, made announcements in Mandarin and Cantonese and hired Mandarinspeaking officials.
Arrivals from China and Incoming Tourist Receipts 2011 Country 1. Hong Kong 2. Macau 3. South Korea 4. Taiwan 5. Thailand 6. Singapore 7. Malaysia 8. US 9. Vietnam 10. France Arrivals from China '000 2011 13,055.2 7,672.2 2,182.7 2,149.9 1,680.0 1,639.5 1,225.0 1,098.0 1,026.7 1,020.0 Incoming tourist receipts from China US$ million 2011 21,591.2 13,732.6 2,425.4 1,583.0 1,057.2 1,560.4 291.2 961.1 610.6 650.2
TOURISM PERFORMANCE
16
Global slowdown leads tourism into the danger zone

The global recovery faces numerous challenges in 2012. The continued strain in the Eurozone, combined with the knock-on effect in other developed economies means that consumers and businesses across the world will find it tough in 2012. Growth is slowing down Growth in average spend by global arrivals will show limited growth of 1% in 2012, after a drop in 2011. Minimal increases are expected over the next five years. Growth in arrivals is predicted to slow slightly in 2012 from the previous year, and will continue to hover around the 4% critical zone. However, the number of people travelling will show a rise to reach over 1.2 billion arrivals, a global record. Not all gloom and doom However, growth is expected in all areas of travel and tourism on a global level. The world is increasingly looking to the BRIC nations for this expansion, as they are tending to show the dramatic growth necessary to help compensate for the decline in Europe. In addition, business travel is showing a stronger performance than leisure in terms of arrivals which helps boost spending.
World Economic and Tourism % Growth Performance 2011-2016

5
3 % y-on-y growth
-1
-2 2011 2012 GDP 2013 Arrivals 2014 2015 2016 Average spend
TOURISM PERFORMANCE
17
Polarised performance for regional arrivals

Western Europe will continue to struggle, showing growth of less than 1% in 2012, down from over 4% in 2011.The crisis in the Eurozone continues to impact tourism, with intra-regional visitors decelerating. Asia Pacific remains the strongest performing region, with growth of over 6% expected for 2012. The increasing numbers of Chinese travellers tend to stay close to home, with Asian destinations benefiting from their arrival. Regional destinations remain popular, as independent travel is not mainstream, and only limited international itineraries are available through online travel agents. North America is predicted to show steady growth over the forecast period, due to the recent Executive Order issued by President Obama to promote the US as a destination.
Arrivals by Region % Volume Growth 2011-2016

8 7 6 % y-on-y growth 5 4 3 2 1 Asia Pacific Australasia Eastern Europe Latin America Middle East and Africa
0
2011
2012
2013
2014
2015
2016
TOURISM PERFORMANCE
18
Regional spending under pressure

Spending shows a far more complicated future, with minimal growth expected in all regions over the next five years. Whilst Western Europe is expected to recover from the dramatic fall in spending seen in 2011, growth will remain virtually non-existent though to 2016. Pressure on prices, combined with falling or stagnating incomes will limit spending on travel.
Australasia, home to the highest average spend, is predicted to show a decrease as long haul travellers cut back their travel duration, or continue to economise on a long stay trip. North America is likely to be the region showing the highest growth in average spend between 2011 and 2016, as a result of proactive tourism policies from the US government.
Average Spend per Arrival US$ by Region 2011/2016
3,500 3,000 US$ per arrival 2,500 2,000 1,500 1,000 500 0 Australasia North America Asia Pacific Western Europe Latin America 2011
Middle East and Eastern Europe Africa
2016
TOURISM PERFORMANCE
19
Outbound spending potential shifts East

Potential for Outbound Spend per Departure by Key Country 2011-2016
14 12 10 % CAGR 2011-2016 8 6 4 2 0 France -2 -4
-6 -4 -2 0 2 4 6 8 10 12 14
India
China Russia
US UK
Brazil
Germany
Average outgoing tourism expenditure per departure % growth 2012
Note: Size of bubble reflects average outbound spending per departure US$ 2012
TOURISM PERFORMANCE
20
Formula for destination success

The US, China and Turkey are all predicted to perform well in terms of growth in visitors and receipts over 2011-2016. Turkey has shown solid growth since 2005, boosted by infrastructure developments and a wide range of source markets including both Western and Eastern Europe, as well as the Middle East. The country continues to expand its tourist offerings, with a focus on winter sports and religious tourism. The US reaped the benefits of recent Open Skies agreements, the most recent being with Brazil in 2010. The country also improved the visa processing capacity for arrivals from China and Brazil, two countries with high demand for US visas, and whose visitors are high spenders. Brand USA is responsible for the international marketing of the country abroad, and will launch its first campaign in the spring of 2012.
Largest Increases in Incoming Tourist Receipts US$ 2011-2016 Country US China Turkey South Africa India Japan Hong Kong Macau South Korea Malaysia
Largest Increases in Arrivals 2011-2016 Country US China Turkey Saudi Arabia Hong Kong Thailand Russia Singapore Malaysia UAE % CAGR 2011-2016 5.3 5.4 6.9 10.4 6.2 5.9 4.8 5.3 3.0 7.3 Absolute trips 2011-2016 18,413.5 16,874.0 13,092.8 8,286.3 7,622.7 6,115.0 5,939.5 5,908.5 4,116.5 4,092.2
% CAGR 2011-2016 7.0 6.3 12.1 12.9 10.9 10.9 8.8 6.1 9.7 7.1
Absolute US$ 2011-2016 60,258 26,972 10,963 10,434 10,328 10,012 8,883 8,284 8,222 7,446
TOURISM PERFORMANCE
21
City stars with appeal

Increased urbanisation is assisting in the strong pull of cities for business and leisure visitors. The world is rapidly becoming more urban, with the annual growth rate for urbanisation at 1.9% for 2010-2015. Asian cities dominate in arrival numbers, with London the only non-Asian city in the top five. Hong Kong benefits from a vast number of visitors from the Chinese mainland, who account for over 60% of all visitors to the territories. The strong Asian economies, combined with a growing tourism dynamism assisted in this Asian strength. Two Turkish cities are present in the top 10, Antalya and Istanbul. Istanbul showed impressive growth of 20% between 2010 and 2011, with a new wave of tourists arriving from the Middle East, Asia Pacific and Eastern Europe. Kuala Lumpur also saw a significant rise, of 16%, aided by low cost carrier development, as well as new hotel openings in the city, including properties by Accor, IHG and Starwood opening in 2011.
Top City Destination Ranking 2011 City

Hong Kong Singapore London Kuala Lumpur Bangkok Antalya Shenzhen New York City Istanbul Guangzhou
Rank
1 2 3 4 5 6 7 8 9 10
Arrivals 2011 '000 21,830 19,818 15,106 13,315 12,357 12,052 10,895 10,038 9,765 8,876
% volume growth 2010-2011 9.3 2.2 2.7 16.0 12.5 13.3 6.8 3.5 20.2 8.9
TOURISM PERFORMANCE
22
Where is it going wrong?

Soft target for austerity measures The recent Executive Order issued by the US president, recognised the benefits that travel and tourism can bring to a country in terms of revenue and employment. However some countries chose to use the travel industry as part of their austerity measures.
Air Passenger Duty
The UK continued with its unpopular Air Passenger Duty, which is scheduled to rise again in April 2012. Passengers will pay according to the distance from London Heathrow, ranging from 13 for a flight of 2,000 miles or less, up to 92 for further than 6,000 miles for the reduced rate category.
The ETS was implemented in January, aimed at cutting carbon emission by levying a charge on flights within EU airspace. The EU estimates that the ETS will add between 2 and 12 for each passenger. There has been criticism from many countries, including the US, Canada and China, with the latter banning Chinese airlines from joining the scheme, and from increasing fares or adding new charges due to the tax. Venice, Rome and Florence implemented the unpopular hotel tax in 2011, which is pegged to the star rating of hotels. Visitors are charged per night, per star rating, for a maximum of five nights. A long-running plan for a similar bed tax in Edinburgh was abandoned in January 2012. The Australian government passed legislation in 2011 to introduce a carbon tax, which will provide the foundations for a national emissions trading scheme. This is likely to impact airlines, with the resulting charges passed onto passengers.
EU Emissions Trading
Hotel taxes
Green tax in Australia
TOURISM PERFORMANCE
23
BRICs refresh sources of outbound demand

With their economic strength and growing middle classes, travellers from the BRIC countries are being wooed by tourist boards across the globe, keen to capture this rapidly expanding source market. Russia and China stay close to home Travellers from Russia and China tend to visit autonomous regions or former provinces. Linguistic and historical links are strong, enabling tourists to meet easily or visit family and friends. India and Brazil go further afield Travellers from Brazil and India are more adventurous, with the US and Singapore being the number one destinations, respectively. The top three for India are all shopping destinations, with Singapore and the UAE also hosting large Indian expatriate populations. The return of the 10-year US visa for Brazilians stimulated outbound demand, combined with the strength of the real against the dollar.
BRICs Top Three Outbound Destinations 2011 1. US 2. Argentina 3. France 1. Hong Kong 2. Macau 3. Taiwan
Brazil
China
1. Singapore 2. Thailand 3. UAE
1. Ukraine 2. Finland 3. Kazakhstan
India
Russia
TOURISM PERFORMANCE
24
The million+ departure club 2012

China continues to dominate growth in departures, with over 30 million additional outbound travellers expected between 2011 and 2016. Russia and India follow, with more modest rises of 17.4 million and 11.4 million travellers, respectively. Many middle class are using their growing disposable incomes to travel overseas. Newcomers high up on the list include Taiwan, whose travellers benefit from short haul flights to regional destinations. Saudi Arabia entered the top 20, home to a young population who like to visit nearby Arabic-speaking destinations, such as the UAE and Lebanon.
Outbound Departures Forecast Absolute Increase 2011/2016

China Russia India US Turkey Taiwan Canada UK Malaysia Sweden Japan Australia Argentina Hong Kong Saudi Arabia Philippines UAE Mexico Thailand 0 5 10 15 20 25 30 35
Absolute growth, departures million
CONSUMERS IN THE DRIVING SEAT
26
Shifting power to consumers

Technology facilitating change The changes in technology, with internet and mobile access connecting more consumers, has shifted the power towards travellers. Interactions between travel providers and consumers has never been greater, leading to changing relationships between the two to become more consumer-centric. The reliance on travel intermediaries for advice and purchase has declined as a result. The wealth of information online also encourages users to ask their social circle for recommendations. As smartphones become de rigeur in developed economies, consumers are able to be in touch with travel providers at all times. Instant two-way communication is now standard for travel professionals in these countries.
Mobile Phone and Internet Users 2011/2020 Region Mobile phone users Internet subscribers Mobile phone users Internet subscribers '000 2011 '000 2011 '000 2020 '000 2020
Shifting consumer loyalty An effect of the recession was the loss of consumer loyalty. Many travellers simply opted for the best price when faced with a choice of providers. Direct suppliers fought against this with loyalty cards and now intermediaries are as well. The interactive nature of social media such as Facebook and Twitter means that brands are now accessible to consumers. In this two-way dialogue, companies seek brand loyalty, and consumers provide feedback on services, as well as reviews. Emerging consumers, different needs? The emerging markets are embracing new technologies, and the vast number of consumers are likely to drive product innovation.
Developed nations Emerging nations

1,186,800 4,303,777
335,421 447,304
1,372,697 6,252,234
395,706 623,290
27
Travel and the price/quality ratio

Bargain-hunting With continued economic uncertainty, travellers across the globe are changing their attitudes to cheap travel. Bargain hunting is popular and does not necessarily reflect a drop in status, with quality remaining a key factor in the purchase. Cost-conscious travellers continue to use online sites to find the best deals. Gone in a flash Travel companies started using flash sales as a means of encouraging sales. Discounts are available for a limited period of time, often through a member-only site, run by a third party, destination or provider. New business models The surge in mobile applications is creating new business models for travel users, often available only through smartphones, and providing simple but new functionality to travel bookings. Hotel Tonight is a mobile-only booking app for last-minute deals on hotel rooms for that night only. Appi Holidays is a holiday search by facilities or features, available via the website or a mobile app.
How Important Are the Following Factors/Descriptors to You When Considering Purchasing a Product or Service?
100%
80%
% respondents
60%
40%
20%
0% Strong brand name Recommended by friends and family Not at all important/unimportant Availability Price Quality Important
Neither important nor unimportant
28
The sociability factor

Social media fabric Social media can engage customers if it is managed successfully, using platforms such as Facebook and Twitter to communicate. Social media is not all about sales, but about brand awareness, engagement of users and building customer loyalty. Content can assist in reaching new customers, as well as retaining existing ones. The role of opinion leaders and word of mouth is key for social media marketing. Going SoLoMo Touted as the next big thing for travel, social local and mobile (SoLoMo) could change the way consumers access information. Mobile applications can detect a consumer's location and then push information according to the location and prior needs of the consumer. To get started, travel providers need a mobile website with up-to-date local content and location-based offers; accurate listings on local mobile directories; and mobile interactions via SMS, geolocalisation and social media.
Google's Five Stages of Travel
Dreaming
Planning
Booking
Experiencing
Sharing
Source: Google
29
Luxury: Heritage rediscovered

Stripped back Luxury consumers are in a good place post-recession, with renewed confidence. The dynamics of luxury travel are changing worldwide, as it encompasses a younger consumer base, who prefer brands with voice and personality. Conspicuous consumption bowed out, replaced by demand for quality at the best value, the rarest experience on offer. New destinations include Myanmar and Papua New Guinea, which are distinctly lacking in tourism infrastructure, but can provide the crucial "local" factor. Luxury travel is being redefined by experiences rather than brands. Brands are still important, but are now selling a less conspicuous message, with heritage and longevity important to consumers. Customisation
Increased demand for customised luxury travel services is a concern for travel companies, as it is time consuming and involves higher operational costs. However, offering differentiation secures a future which the mass market may not have.
Consumers from emerging markets are more tied into brands and status, with many experiencing the fruits of consumerism for the first time.
Global Luxury Hotels vs Luxury Goods Sales % Growth 2010-2011 % value growth World 2010-2011 Luxury hotels 4.4 -0.3
Green concerns and social responsibility were Luxury goods embraced by the rich, with products now allowing these consumers to salve their conscience while still indulging.
30
Demanding sustainability as standard

There has been a greater integration of sustainability into mainstream travel and tourism, but it still comes at a price. Responsible travel is almost a pre-requisite for luxury tourism, but price does not impact the luxury consumer in the same way as it may impact those with smaller travel budgets. Countries in Europe lead the way in sustainability, with Rwanda the only non-European country in the top 10. Scandinavian countries feature strongly in the list, with Sweden leading the world. However, none of these destinations is renowned for budget tourism. France is the most popular tourist destination to appear on the list, with a world ranking of ninth in terms of sustainability. How do ethics fit in? With destinations such as Myanmar and North Korea slowly opening up to tourism, consumers need to weigh up moral issues with their desire to travel. Human rights are not always respected and in Myanmar, tourism has been closely linked to forced labour and tightly controlled by the military. Sri Lanka recently lifted a travel ban to the north of the country where previously foreigners were not allowed to visit. Human rights organisations state that the ban was in place to avoid human rights monitoring during the civil war.
World's Leading Countries for Travel and Tourism Sustainability Arrivals '000 World Economic Forum Country 2011 Sustainability Ranking Sweden 9,771 1 Switzerland 12,777 2 Denmark 6,230 3 Germany 28,101 4 Austria 22,289 5 Norway 5,033 6 Finland 3,773 7 Rwanda 723 8 France 78,970 9 Netherlands 11,373 10
Source: World Economic Forum, Euromonitor International
31
Consumers changing demands

Travel Categories Value % CAGR Historic vs Forecast 2006-2016
Reviewing 2006/2011 and examining the five ahead indicates the changing consumer demand for different travel categories. Once billed as a resilient success story, spas struggled during the global economic crisis and will be outperformed by medical tourism and leisure cruises in the difficult years ahead. The value of rail travel is predicted to carry on growing, with consumers opting for its greener credentials, as well as ever-shortening journey times and relatively hassle-free procedures. Medical tourism is predicted to show solid growth, as consumers continue to opt for medical procedures overseas in order to save costs.
Rail
Medical tourism
Leisure cruise
Shopping
Spas
Leisure packages -4 -2 0 2 4 6 8
% CAGR growth 2006-2011 2011-2016
Popular treatments include dental, cosmetic, orthopaedic, obesity and fertility. Latin America and the Middle East and Africa are expected to be key growth markets.
LCCS AND THE INDUSTRY SHAKEOUT
33
LCCs apply pricing pressure around the world

Low cost carriers (LCCs) are driving growth in mature air travel markets and are becoming strong contributors in the emerging economies. The US remains the world's leader by value for low cost carriers and is set to remain so over the next five years. However the developing nations of Brazil, Philippines and Indonesia are set to experience substantial growth in value, as low cost flying becomes increasingly mainstream in Asia Pacific and Latin America. Leading players include Air Asia Indonesia and Lion Air in Indonesia, and Azul and Gol in Brazil. LCCs in China and India are also predicted to grow in value, doubling in size over 2011-2016. The LCC category in India is vibrant, with at least eight LCCs operating. Indian carrier IndiGo started international flights in 2011, after completing five years of domestic operations, and is well placed to take advantage of turmoil at Kingfisher and Air India.
Low Cost Carrier Value Sales US$ Million by Key Country 2011/2016
35,000 30,000 25,000 US$ million 20,000 15,000 10,000 5,000 0 US Brazil Philippines Indonesia Australia 2011
UK 2016
China
India
Mexico
Germany
34
Stimulating capacity
The Philippines will lead the world in airline capacity growth over Fastest Growing Airline Capacity by 2011-2016. The country is ideally positioned for growth with Country % CAGR 2011-2016 expatriate workers seeking cheap air fare home. Cebu Pacific and Actual Capacity Zest Air are the leading LCCs, but face increasing competition growth in Country % CAGR from AirPhil Express, a subsidiary of Philippines Airlines. capacity Vietnam is expected to show substantial growth as LCCs become increasingly established. It is still a fairly recent concept, boosted by the global economic crisis, as existing travellers sought to economise on transportation costs. The leading LCC is JetStar Pacific (part owned by Qantas), which competes directly with Vietnam Airlines. Local newcomer VietJet Air started domestic operations in December 2011.
2011-2016 '000 people 57,670 56,844 48,234 166,039 40,004 52,489 7,799 56,828 11,779 40,294
Philippines
Vietnam Indonesia India Sweden
22.4
16.4 12.6 12.2 11.0 8.7 8.6
India is predicted to show the highest increase in actual capacity between 2011 and 2016, with over 166 million new seats. The Turkey domestic market is already the world's fifth largest by seat capacity New Zealand but is very competitive, with seven airlines serving the major Thailand routes. With price a key driver for LCCs, it is likely that there will be further consolidation or exits in India, following MDMR and Paramount, which suspended services in 2009 and 2010, respectively.
8.4
8.4 7.8
South Africa Malaysia
35
Air trends to watch

Middle East giants Second generation Asian LCCs
The Middle East big three Emirates, Etihad and 2012 will see a number of legacy airlines Qatar Airways continue to thrive, expanding establishing LCCs. These include Thai Airways' across the globe and placing orders for new planes. Smile, Singapore Airlines' Scoot, and Peach, a joint Emirates launched new routes in 2012 to Dublin, venture between ANA and First Eastern Investment Company. Rio de Janeiro and Buenos Aires from its hub in Dubai. Etihad started flying to Tripoli, Chengdu and Dusseldorf from Abu Dhabi. Qatar Airways touts Helsinki, Perth and Kigala as for 2012. Many LCCs in Asia Pacific have a younger online audience than other regions, largely due to the highly web-centric models adopted.
Africa focus
Long haul low cost fails again
Both Air Asia and easyJet founder Stelios Haji Air Asia X announced in January 2012 that it Ioannou have shown interest in establishing a low would stop its long haul flights to Paris, London, cost carrier in Africa. Delhi and Mumbai. While there are existing LCC operations in South Africa, Kenya and Nigeria, as well as in North Africa, the market is still relatively undeveloped. Reasons for the exit include the Air Passenger Duty in the UK, the European ETS, poor European economic conditions, high fuel prices, Indian airport charges and visa difficulties for Malaysians. However, JetStar and Scoot are both eyeing low cost long haul, so there may be another try.
36
Threats and opportunities for LCCs

STRENGTHS WEAKNESSES
Push for business
Renewal of fleets
Going under
or rescued
easyJet is among the many LCCs actively pushing for a larger share of business travellers. The airline recently launched a flexi-fare product aimed at corporate travellers.
OPPORTUNITIES
Aeroplane purchases are The recent demise of Despite growth in up, the biggest of which is Hungarian flag carrier European air traffic, Norwegian Air Shuttle Malev and budget players, weaker airlines face announcing plans to buy Air Australia and Spanair being taken over or 222 aircraft by 2020. illustrates the tough going under, with Air Southwest Airlines is operating environment for Berlin recently rescued upgrading with the new airlines including budget. by funds from Etihad. Boeing Sky Interior.
THREATS
Innovation
New routes up for grabs
Policies and relations
Unfair advantage
Air Baltic became the With struggling airlines first to offer car sales in going under, new routes the sky with a specially are becoming available to designed Mini Cooper, as stronger competitors, well as its Air Baltic bag, widening their reach which avoids baggage across regions. charges for one year after purchase.
Airlines are facing an Striking workers from increased threat of Spanair accused Ryanair industrial action from air of having an unfair crew and ground staff, as advantage in the concerns about job subsidies it receives security and wages rise. from airports. These include lower taxes and ground handling rates.
HOTELS AS LIFESTYLE-SETTERS
38
Mass market takes over from luxury as growth driver

Hotels in the Middle East and Africa showed a dramatic decline in sales in 2011, due to the effects of the Arab Spring. Hotels in Egypt, Tunisia and Bahrain saw demand fall as tourists stayed away due to the civil unrest. This fear was contagious, with unaffected destinations such as the UAE also declining. North America witnessed strong growth in the budget platform, as consumers opted for lower prices and low frills on a long-term basis. Budget hotels in the US gained one percentage point in value share at the expense of luxury properties. Mid-range hotels performed well in Asia Pacific and Latin America, as the booming economies in China, India and Brazil boosted business and leisure stays. Whilst luxury properties led out of the recession, mid-price outlets are performing strongly as competition and pressure on incomes impact consumers.
Hotel Price Platforms % Value Growth by Region 2010/2011

20 15 % value growth 10 5 0 -5 -10 -15 -20 Asia Pacific Austraslasia Eastern Europe Budget
Latin America Mid-priced
Middle East and North America Western Europe Africa Luxury
39
Hotel trends to watch

National market customisation InterContinental Hotels Group (IHG) confirmed the launch of a new upscale hotel brand in China in 2012 to enhance its competitive positioning within highend hotels and capitalise on the promising Chinese market. As of January 2012, IHG had signed 12 contracts for the new brand in China. After its debut, there are plans to roll the brand out in Singapore and Hong Kong, with the aim of becoming the number one brand for Chinese travelling abroad. Boutique hotels on-going popularity The growing preference for "authentic" and experiential travel has led hotel groups to cater to the shift in consumer preferences by creating more unique properties. As a result, there continues to be growth in these types of hotels and the launch of new boutique/lifestyle brands. In addition to attracting high paying travellers, these hotels can be more profitable, with their positioning and pricing more like a luxury hotel without the associated operating costs. The potential of the boutique/lifestyle niche continues to grow, as travellers demand unique holidays, of which hotels are an integral part. Growing global affluence and a more demanding Generation Y will contribute to a permanent shift to hotels that are lifestyle driven. Care needs to be taken, as cutting edge design may alienate consumers or need to be updated more frequently as fashion tastes change.
Specification for the Indian market also occurred, with the budget hotel, Premier Inn, adding conference and banqueting facilities to properties in Bangalore and Delhi. Accor brand, Ibis, also customised its properties, adding restaurants and gyms in India.
New formats Extended stay hotels showed resilience through the downturn, with properties offering discounted rates for long stays and providing kitchen facilities for guests. Key outlets include Residence Inn by Marriott and Staybridge Suites by IHG.
40
Threats and opportunities

Continued growth in emerging markets
WINNERS LOSERS
Emerging markets continue to be the focus for chain expansion, with China and India leading the way in new openings. Brazil, with an eye on global sporting activities in 2014 and 2016, is also seeing great dynamism. Hotels are continually enhancing their online presence to boost overall distribution, as well as stay in touch with customers. Roomkey.com was recently launched by six hotel companies as a hotel search engine.
Technology to stay ahead
Brand reputation damaged by discounting
Discounting through online travel agents, vouchers or flash sale sites potentially can damage brand reputation, which is difficult to regain.
Rate erosion
Hotels continue to face significant rate erosion from online travel agents and multi-channel distribution. With increased rate transparency, hotels will find it difficult to put up prices.
TECHNOLOGY A GAME-CHANGER
42
Online travel retail: Battleground for the booking

The rise of online bookings and social media in the travel industry resulted in a shift of power from travel companies to technology players and, especially, consumers themselves, who have acquired a much more central and active role. The leading countries in online travel retail are all located in the advanced economies, with the US leading the way by a substantial margin.
Online travel agencies are quickly reaching the top positions among travel retailers. Expedia, Priceline, Sabre brands and Orbitz were all among the top 10 global travel retailers in 2011.
Consolidation is significant, with two new important players created in Europe in 2011: Odigeo and BCD Holdings.
When absolute growth is looked at over 2011-2016, the US still dominates. However, China and India are poised to grow rapidly, with their absolute growth estimated at nearly U$S5 billion each. With the emerging economies already home to 78% of the world's mobile phone subscribers in 2011, the direction of future growth is clear.
Online Travel Retail Sales US$ Million and % CAGR by Key Country 2011/2016
120,000 100,000 80,000 US$ million 60,000 40,000 20,000 0 US Japan Germany UK Retail sales 2011 China Canada India France Retail sales 2016 24 20 16 12 8 4 0 % CAGR
43
Online trends to watch

Apple, Google and Facebook Internet TV OTA links with the high street
These technology companies are key Online purchasing from Expedia, Orbitz and Travelocity players in travel, and are increasingly Internet TV will become more all affiliated with high street travel widespread as travel companies retailers to cater for customers influential in the booking process. embrace the concept. who want assistance in using 2011 saw Google launching into the online travel services. Viewers will be able to watch search process, with Google Hotel travel programmes and Finder and Google Flights. The OTAs are tapping into a immediately book for the same customer segment who are either Facebook plays a diverse role, from destination or hotel, with not able or not willing to buy targeted advertising to building online. loyalty and brand promotion through companies building upon the emotional connection provided High street travel agents are able its Like function. by the programme. to stay in the increasingly The iTravel application is Apple's competitive market, albeit playing first official foray in travel, and will a more consultative role. soon be launched. iTravel integrates Mobile booking transportation booking, check-in and Google predicts that 8% of Expedia launched a rewards social networking, turning an iPhone mobile users will be booking programme designed to keep into an electronic ticket and travel customers returning to the site, travel from their smartphones agent. instead of booking with direct in 2012. suppliers like hotels and airlines.
44
Threats and opportunities

Evolving technologies
Mobile applications are changing some online travel retail sites' business models.
WINNERS LOSERS
Geolocalisation and NFC technology are key in developing personal travel applications and services. Opportunities in one region of the world are available to everyone due to the global nature of the internet. The BRICs are very active in social media.
Global village
Moving too fast?
The speed of changing technologies may alienate consumers and deter those who prefer a slower paced sales process. Despite the hype, global offline sales still account for the bulk of travel sales. Disagreements between suppliers, OTAs and technology companies are becoming more commonplace. With brand reputations allegedly being damaged by flash sales and discounting, direct suppliers are more assertive with OTAs.
Disputes
REPORT DEFINITIONS
45
Data parameters and report definitions

2011 figures are provisional and based on partyear estimates. The forecast period under review covers the period 2011 to 2016, inclusive. All US dollar data cited in this report, historical and forecast, at national, regional and global level are shown at fixed 2011 exchange rates. As such, any impact from currency and/or exchange rate volatility are discounted. Arrivals refers to international tourists visiting another country for at least 24 hours not exceeding 12 months, and staying in collective or private accommodation for leisure, business, visiting friends/family and other (religious, medical, education etc). Measured in trips. Incoming tourist receipts are classified as payments by international inbound tourists, including fares paid to national carriers for international transport and any other prepayments made for goods or services received in the country of destination.
Departures refers to the number of residents that travel abroad from their country of residence to another destination country for leisure or business purposes. Residents include students residing abroad for a period of over 12 months. Destination reflects the main departure destination recorded at the country of residence. Measured in trips. Outgoing tourism expenditure is spending on travel and tourism products and services by outbound tourists abroad, including their payments to foreign carriers for international transport. Definitions for industry-specific and other terminology/abbreviations used in this report: CAGR compound annual growth rate IMF International Monetary Fund MENA Middle East North Africa ADR average daily room rate RevPAR revenue per available room LCC low cost carrier OTA online travel agent
REPORT DEFINITIONS
46
Category definitions
Hotel outlets that provide lodging include independent and chained operators as well as all company owned, leased, managed and franchised outlets. Aparthotels are included. Rail covers travel by passenger train, excluding freight and car transport. Includes cablecars. Covers what is spent on rail in that country by both international and domestic tourists. Online travel retail sales include traditional travel retailers including travel agents, tour operators and exchange service providers that have a web platform for sales. Also includes online travel agents, brokers and intermediaries. Cruise includes sales of cruises through tour operators and travel agents. Includes flights and other pre-paid products/services such as spas, food, drinks, entertainment, excursions etc. Package holidays include traditional package holidays which are fixed by tour operators and travel agents and include transportation, accommodation along with a choice of food options. Includes dynamically packaged holidays.
Luxury: includes luxury, upper upscale and upscale chained and independent outlets and their corresponding sales. Includes 4 to 5 stars.
Mid-priced: includes mid-priced chained and independent outlets and their corresponding sales that may or may not serve food and beverages. Includes 3 stars. Budget: includes budget chained and independent outlets and their corresponding sales. Includes 0-2 stars. Tourism expenditure on shopping includes spending by international and domestic tourists on food and non-food purchases. Duty-free is included. Air transport includes schedule, charter and low cost carriers. Excludes all transit.
Spas include destination spas, hotel/resort spas, and others.
47
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TRAVEL INDUSTRY GLOBAL OVERVIEW 2012 February 2012

Travel and Tourism

Arrivals and Incoming Tourist Receipts

Low Cost Carriers

Online Travel Retail

The world in 2012

% Real GDP Growth 2011-2016

What lies ahead? More uncertainty

2012 and beyond

Consumer spending remains cautious, hindering growth

Europe in existential crisis

UK and its Olympian challenge

Middle East rising

MENA -5 0 5 10 % CAGR Average spend Arrivals 15

Best and worst case scenarios for Egypt

Best case scenario Worst case scenario

Egypt: Departures % Growth in Best and Worst Case Scenarios 2012-2016

Russia in with a sporting chance

China marches onwards and upwards

China: Outbound Tourism Expenditure by Category 2011/2016

Travel within country 0 10 20 30 US$ billion 2011 2016 40

Where are Chinese travellers going?

Global slowdown leads tourism into the danger zone

World Economic and Tourism % Growth Performance 2011-2016

Polarised performance for regional arrivals

Arrivals by Region % Volume Growth 2011-2016

Regional spending under pressure

Middle East and Eastern Europe Africa

Outbound spending potential shifts East

Average outgoing tourism expenditure per departure % growth 2012

Formula for destination success

City stars with appeal

Top City Destination Ranking 2011 City

Where is it going wrong?

Air Passenger Duty

Green tax in Australia

BRICs refresh sources of outbound demand

1. Singapore 2. Thailand 3. UAE

1. Ukraine 2. Finland 3. Kazakhstan

The million+ departure club 2012

Outbound Departures Forecast Absolute Increase 2011/2016

Absolute growth, departures million

CONSUMERS IN THE DRIVING SEAT

Shifting power to consumers

Developed nations Emerging nations

CONSUMERS IN THE DRIVING SEAT

Travel and the price/quality ratio

Neither important nor unimportant

CONSUMERS IN THE DRIVING SEAT

The sociability factor

Google's Five Stages of Travel

CONSUMERS IN THE DRIVING SEAT

Luxury: Heritage rediscovered

CONSUMERS IN THE DRIVING SEAT

Demanding sustainability as standard

CONSUMERS IN THE DRIVING SEAT

Consumers changing demands

% CAGR growth 2006-2011 2011-2016

LCCS AND THE INDUSTRY SHAKEOUT

LCCs apply pricing pressure around the world

LCCS AND THE INDUSTRY SHAKEOUT

South Africa Malaysia

LCCS AND THE INDUSTRY SHAKEOUT

Air trends to watch