Shaping The Future Of Travel In Australia - Amadeus

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Shaping the future of travel in AustraliaThe big FOUR travel effectsJanuary 2013

Shaping the future of travel in Asia Pacific 2ContentsForeword3The challenges and opportunities for Australia4The Me Effect: the fragmentation of the travel market into ever-increasing nichesThe visit friends and relatives (VFR) for AustraliaThe independent travellerThe Generation ‘S’ (Senior)The small business travellerThe female business traveller567788The Red Tape Effect: the breaking down of barriers to travel within the AsiaPacific RegionThe need for liberalisation in Australia for travel around AsiaThe emerging travel marketsGrowth in travel to emerging markets10The Leapfrog Effect: technology & infrastructure changing travel behaviourIncreasing use of mobile devices for travelThe collaborative travellerThe potential of rail13141516The Barbell Effect: growth at the upper and lower ends of the travel marketThe rapid growth in emerging marketsAustralia needs capacity to catch the growthThe need for capacity at the budget end of the marketThe need for greater budget airline infrastructure1718192020The challenge for Australia: the big FOUR travel effects:21AppendixOur approachContributors222222111112

Shaping the future of travel in Asia Pacific 3ForewordWe live in what has been widely termed as the Asian Century, as Asia Pacific undergoes ahistoric transformation, regaining the leading position in the global economy that it lastheld before the Industrial Revolution. If the current growth track is continued, by 2050Asia’s per capita income could rise 600% in purchasing power parity (PPP) terms to reachsimilar levels to that now enjoyed by Europeans. And by the middle of the century perhapssome three billion Asians will enter the ranks of the global middle-class, joining what weterm the “consuming class” with enormous implications for the global economy.1These changes will have a fundamental impact on Australia across many aspects of itseconomic, cultural and social lives, but among the most fundamental impacts will be onthe travel industry – both inbound and outbound.This report follows on from Amadeus’s Asia Pacific-wide report on “Shaping the future oftravel in Asia Pacific: The big FOUR travel effects” which looked at the trends impactingthe travel industry across the region over the next two decades, based on research inseven countries. In this report we focus specifically on the Australian market, identifyingwhich are relevant to Australia and what the implications of these will be for the travelindustry in Australia, comprising the ecosystem of providers such as transportationcompanies (airlines, cruise liners and the like), accommodation and entertainment providersand intermediaries such as travel agents.Australia faces a number of challenges in exploiting the market opportunity for travel thatAsia Pacific represents. Over the past five years Australia’s share of international arrivalsfrom Asia Pacific destinations has declined from 1.98% to 1.78%, impacted by Australia’srelatively high costs, uncompetitive exchange rate, visa restrictions and lack of capacity.2However greater understanding of how the face of the Asia Pacific traveller is changingwill enable the travel ecosystem in Australia to be better prepared for the opportunities ofthe Asian Century.David BrettPresident,Amadeus Asia PacificOf course, these different effects and the various statistics will be of varying relevance todifferent elements of the industry – and I would encourage any interested party to reviewand draw their own conclusions.The points this research and white paper undeniably highlight, however, are the opportunitiesthat Asia Pacific now has to regain the leading position on the global stage that reacheswell beyond travel, but which it is inextricably linked to.Happy reading!Asian Development Bank (ADB): Asia 2050: Realizing the Asian CenturySource: PATA, Annual Tourism Monitor 201212

Shaping the future of travel in Asia Pacific 4The Challenges and Opportunities for AustraliaTravel is one of Australia’s most important industries, with tourism generating about 32 billion annually.3 However Australia faces anumber of challenges in remaining relevant as a travel destination over the next 20 years. Over the past five years, international arrivalsto Australia have increased at an average growth rate of only 1% per year, only one-third of the growth rate of the overall Asia Pacificregion. Many of Australia’s main markets for inbound travel – such as the UK, USA, Japan and Korea - have witnessed declining visitornumbers over the past decade, with the slack yet to be taken up by emerging markets such as India, China and Indonesia. This is a resultof factors including weak economic conditions in many of the traditional source markets, high costs in Australia, a strong exchange ratemaking Australia more expensive as a travel destination, and lack of capacity in terms of facilities such as airports and hotels.At the same time, the changing face of the Asia Pacific traveller provides opportunities for Australia – with new markets for travellersdeveloping and new segments of travellers emerging – but in many areas action is needed if Australia is to exploit these opportunities. Inthis report we highlight some of these major trends, and the implications for travel in the Australian context:The Me effectThe Leapfrog effectThe fragmentation of the travel market into ever-increasing nichesTechnology & infrastructure changing travel behaviourThe emergence of new segments of travellers such as the VisitFriends and Relatives traveller, the female business traveller andthe small business traveller who will be travelling to Australia inmuch greater numbers than before.The rapid development of technology – enabling travellers tobehave in different ways.The Barbell EffectGrowth at the upper and lower ends of the travel marketThe Red Tape effectThe breaking down of barriers to travel within theAsia Pacific RegionThe growth of emerging travel markets driven by liberalisationand economic growth across the region.Australia’s Tourism Industry, Reserve Bank of Australia, 20113As growth in the travel market is increasingly concentrated at thetop and bottom ends of the travel market, this offers opportunitiesin both segments but particularly for budget providers such ashotels and airlines.

The Me Effectthe fragmentation of the travel market intoever-increasing niches

Shaping the future of travel in Asia Pacific 6The Me Effect“We are seeing the Amazonification of the world: this means that servicesuppliers are having to customise their offerings more and more to theneeds of specific individuals (segments of one). So a hotel needs to tailorits offer to each customer, based on the customer’s profile and past behaviour.”Puneet Mahindroo,Ex-Corporate Director of Reveneue Management and Global Distribution, Taj Hotels, Resorts and PalacesOur study observed the increasing individualism of travellerswho will require a greater degree of flexibility in their travel inthe future.India is now, for example, the largest source of permanentmigrants to Australia, and this creates a spurt in demand forVFR travel. Already 33% of Indian visitors to Australia are travellingfor VFR reasons.5The Visit Friends and Relatives (VFR) opportunity for AustraliaThe VFR traveller often behaves differently from the standardvacation traveller – often travelling for longer periods forexample and not using hotels but lodging with friends or relatives.Significant growth in the numbers of VFR travellers will continueto be an increasingly important reason for travel. For exampleVFR travellers already account for 17% of Chinese visitors toAustralia - the fastest growing segment of the inbound Chinesemarket.4 With families and close social relationships becomingincreasingly internationalised, we believe that this will becomean increasingly important reason for travel, especially fromcountries with large diasporas such as India. Our researchshowed visiting friends and relatives is the main reason forleisure travel for 20% of travellers across the region, with a particularly high incidence among Indian travellers, 43% of who stateVFR as the main reason for leisure travel.With relationships across the region becoming increasinglyinternationalised, Australia is likely to be a significant location forVFR travel, particularly for travellers from India, Indonesia andSingapore, as these are countries where a relatively high numberof travellers have close family members living in Australia.Table 1: Proportion of travellers with close family members in Source: Survey of 1,531 Asia Pacific Travellers, August 2012Tourism Research Australia, China Snapshot, 2011Tourism Australia, India 2020, 201245Singapore15%“100 million living abroad from India,so visiting relatives is still critical.”Ankur Bhatia,Director, Amadeus IndiaVFR is also increasingly important for outbound travellers fromAustralia. Our research indicated that 34% of Australian leisuretravellers quote VFR as the main reason for travel - ahead of allother Asia Pacific markets except India. Almost half of Australiantravellers have close family members living overseas, with theUK, Continental Europe and the USA the most common locations.A strong majority of these travellers indicate that they are likelyto visit these overseas family members in the future - indicatinggrowing demand for VFR travel.

Shaping the future of travel in Asia Pacific 7The Me EffectThe independent travellerThe Generation ‘S’ (Senior) opportunityOur research showed in Australia 41% of business travellers and60% of leisure travellers are currently making their own travelarrangements, generally via the internet, with the proportionwho believes that they will do so in the future rising to 44% and65% respectively. Travellers in Australia are on average makingleisure travel bookings 17 weeks before travel and business travelbookings eight weeks before travel. The average period betweenbooking and travel for Australian travellers is currently thehighest in the region but we expect this average to fall substantially as Australian travellers increasingly self-manage theirtravel.In Australia the number of over 65s will increase by 76% from justunder 4 million in 2011 to almost 7 million by 2030, creating ahuge growth in the number of senior travellers. Conversely theworking age population (20-65) will increase by just 12%, limitinggrowth in both leisure and business travel among this age group.Travel providers and intermediaries will need to increasinglycater for the needs of the senior traveller, and this provides anopportunity for travel agents as our research showed almost 40%of over 65 travellers state that they will use a travel agent infuture for travel arrangements, compared to only 15% of 18-30year old travellers.For Australian travellers, flexibility and lower costs are the mainreasons for making their own bookings online. Despite thegrowth in self-management of travel, there will be a continuedrole for travel agents for more complex itineraries or for travellerswho feel more comfortable receiving advice. Our researchshowed the main reasons that Australian travellers will continueto use travel agents are the support that agents offer with morecomplicated itineraries, and the lower fares that agents aresometimes able to access.Table 2: Proportion of travellers likely to use a travel agent in future by age group(Australian Leisure Travellers)“We see a continued survival androle of retail presence for travel agents.While other channels for distributionof travel will be important, there willbe a continuing need for a retailpresence given the complexity of thetravel product.”Jayson Westbury,CEO, Australian Federation of Travel AgentsFor inbound travel to Australia, independent travel will alsobecome more important. From emerging markets such as China,many first-time or inexperienced travellers generallyprefer to travel as part of a structured group that includeslocal language-speaking guides. However as they become moreexperienced, travellers will increasingly opt to make their owntravel arrangements rather than use a structured itinerary.PATA Tourism Monitor, 2012618-3015%31-4927%50-6523%Over 6539%Source: Survey of 1,531 Asia Pacific Travellers, August 2012These demographic developments will also generate changes inthe composition of inbound travellers to Australia. An exampleis Japan, which was in the past a key inbound travel market forAustralia, accounting for around 10% of international arrivalsfive years ago. However over the past five years arrivals from Japanhave fallen by 42%6 , despite overall departures from Japan to allAsia Pacific destinations remaining roughly static. With asignificant ageing of the Japanese population the structure ofoutbound travellers is changing – with fewer business travellersand older travellers generally preferring more “Japanese-friendly”destinations such as Korea.While the seniors market represents a large and growingopportunity for travel providers, the challenge will be in successfullymonetising it.

Shaping the future of travel in Asia Pacific 8The Me Effect“The seniors market is alreadywell-established in Japan but thechallenge is making money. Seniorsimpose greater costs on service providersbut to date charging extra for theseservices is problematic. Hence withseniors a greater portion of the customermix service providers need to find waysto recoup the extra costs imposed.”Mr. Okada,EVP Alliances & International Affairs, All Nippon AirwaysThe small business travellerWhile small-to-medium enterprises (SMEs) account for a majorityof employment across the region, they currently generate a minorityof business travellers – accounting for less than 20% of businesstravellers while accounting for over 80% of total employment inmost markets.7 Travel by small business employees and theself-employed in Australia is already more widespread than inother countries in the region, reflecting Australia’s relativelydispersed domestic market and the consequent need for smallbusiness employees and the self-employed to travel to meetcustomers and business partners. However, our research showedthe majority of small business and self-employed travellers expressthe desire to travel more often in future and this will thereforecontinue to be a growth market.“Perth will become increasingly moreof a business and tourist destinationfor Asian markets-reaping therewards of advanced infrastructureinvestment from the mining industry.”Sari Vahakoski,Managing Director, Amadeus AustraliaSources: Survey of 1,531 Asia Pacific travellers and national statistical offices7We anticipate that small business travellers and the self-employedwill account for a greater number of business travellers bothinbound and outbound from Australia over the next two decades.Small businesses in Australia are increasingly likely to do businessin Asia – both in finding new markets and in seeking suppliers andbusiness partners. And conversely, despite its relatively smalldomestic market and isolation, trade liberalisation is likely todrive travel to Australia by small business travellers fromacross the region. This may particularly stimulate centres suchas Darwin and Perth which geographically are closer to somemajor Asian cities than they are to Sydney and Melbourne. Withimproved flight capacities from budget carriers, small businesstravellers from these centres will increasingly be able to travel toAsian markets.The female business traveller“Overall the women’s market is a hugegrowing one for the travel industry,but the industry remains male-dominatedand has yet to understand the psycheof the woman traveller. Solo travel isa growing trend among women,particularly from countries whereEnglish is spoken. Younger womenare increasingly confident travellingon their own or in small groups.Women make most travel decisionsanyway and are more likely to makedecisions based on social media – e.g.reviews. So the social media channelwill become increasingly importantfor travel.”Siew Hoon,Editor and Founder, Web-in-Travel

Shaping the future of travel in Asia Pacific 9The Me EffectThe growth of the female business traveller is a consistent trendacross the region. Although women account for a minority ofbusiness travellers in all countries, the numbers will grow asmore women enter the mid-senior management ranks wheretravel is required.Figure 1: Business travellers by lia0%20%Male40%60%80%100%Figure 2: International business departures by women, 2011 – 2030FemaleSource: Survey of 1,531 Asia Pacific Travellers, August 2012Australia already has a higher penetration of female businesstravellers than other markets (except China) at 40% of all businesstravellers. With females now representing well over 50% of allgraduates in Australia, we anticipate that the proportion of femalebusiness travellers in Australia will continue to grow, includingcontinued growth in international business departures by women.(Mio) 232%3433.131211 891%109At the same time, the number of incoming women businesstravellers to Australia is likely to grow significantly, as womenbecome more represented in senior management ranks in manyof Australia’s Asia Pacific trading partners. As with the smallbusiness traveller, the female traveller presents opportunitiesfor travel providers in Australia to gain share by adapting theiroffering to the individual needs of women travellers – not just interms of the physical aspects of the offer (women-only floors,female friendly restaurants, etc.) but also in the way that theyreach and communicate with the female traveller. Women usedifferent processes to men to make travel decisions – for examplegreater reliance on peer recommendations or advice – so respondingto this will be critical for travel providers to win over this growingsegment of travellers.8765431 71% 288%2 24% 25%Australia2011China2030Source: Frost & Sullivan estimatesIndia 32%Indonesia Japan Korea Singapore

The Red Tape Effectthe breaking down of barriers to travel withinthe Asia Pacific Region

Shaping the future of travel in Asia Pacific 11The Red Tape Effect“Travellers want more convenience.Visa processes - get rid of the redtape. This will help boost travel.”David Brett,President, Amadeus Asia PacificThe need for liberalisation in AustraliaFigure 3: Outbound departures by country, 2010Australia1%30% 7.1India12%13.0SingaporeJapan16.6138% 7.3Indonesia4%China57.42% 6.225%Korea12.5Total (millions)As Percentage of PopulationAsia Pacific economic integration and the liberalisation of traderestrictions across the region, such as Free Trade Agreements,have stimulated intra-regional economic activity, with Asiabecoming increasingly important to Australia as a tradingpartner.However, restrictive visa policies still remain a major impedimentfor many travellers to Australia, with visitors from countries suchas India, China and Indonesia needing to apply for a visa beforetravel. Our research identified that 12% of Indian and 7% ofChinese business travellers identified difficulties in obtaining avisa as the main impediment to business travel. Visa issues arealso a significant issue for many Australian business travellers,with 10% reporting this as the main impediment to more extensivebusiness travel.The emerging travel marketsThis economic integration will drive a huge increase in travellernumbers, especially from the emerging economies. Put simply,many more people will both have a need to travel, and will beable to travel. In emerging economies the number of outboundinternational travellers each year as a percentage of the populationis tiny when compared to developed countries – for examplethere were only 13 million outbound international departuresfrom India in 2010. This is only around 1% of the total Indianpopulation, and by way of comparison this is 6 million moreinternational departures than was generated by Australia– whichhas 1/50th of the population.Sources: WTO Compendium of Tourism Statistics, UN Population DivisionNote: A single individual can have multiple departures during a year,hence departures in some countries can exceed 100% of the populationAs economic growth and the increasing integration of the regionbreaks down the financial and regulatory barriers to travel, weanticipate significant increases in travel to and from the emergingeconomies. Given their huge populations, even a relatively smallincrease in the percentage of the population that travels willcreate huge increases in actual numbers of travellers. Thesechanges will drive a different composition of travellers to Australia,with travel from traditional markets, such as Japan and Korea ,declining and travel from emerging markets, such as India andChina, increasing. This trend is already apparent with double-digitgrowth in visitor arrivals from China, India and Indonesia.Table 3: CAGR in international arrivals to Australia by Source, 2007 – -6%Singapore4.8%Source: PATA, Annual Tourism Monitor 2012For Australia, the strong growth in travel from these developingmarkets represents a huge opportunity for travel providers suchas hoteliers, airlines and cruise liners in Australia – but significantbarriers remain to exploiting the opportunity. Australia currentlyaccounts for less than 1% of arrivals to Asia Pacific destinationsfrom China – and Australia’s market share of arrivals from Chinahas actually fallen over the past five years.

Shaping the future of travel in Asia Pacific 12The Red Tape EffectAlthough Australia’s market share of arrivals from India andIndonesia has grown slightly, the growth has been marginal andAustralia still accounts for less than 3% of arrivals to Asia Pacificdestinations from these countries. Lack of direct travel options,limited accommodation, high costs and time-consuming andexpensive visa processes are major barriers to travellers fromthese high growth countries.Growth in travel to emerging marketsGiven its importance to the global economy – increasingly as asource of demand and not just supply – China will become anincreasingly important inbound travel market. For Australianbusiness travellers, China (including Hong Kong, Macau andTaiwan) continues to become an increasingly significant destination,accounting for almost 20% of arrivals to Asia Pacific destinationsfrom Australia.“In terms of travel patterns the nextdecade will be dominated by Chinawhich will be the key destination forboth business and leisure travel growingfrom what is still a relatively smallbase. China is making huge investmentsin infrastructure and with the growingimportance of China as a market anda source of supply travel to China(business and pleasure) will growexponentially. The main challenge islack of English skills, but the Chineseare developing these and will workthis out. Australia is in a box seat tobe an important part of the Chinasuccess story.”Jayson Westbury,CEO, Australian Federation of Travel Agents8Concur, Understanding Duty of Care in Relation to Business Travel, 2012With Australia becoming an increasingly uncompetitive locationfor resource extraction, we anticipate that Australian companieswill increasingly investigate new markets such as include PapuaNew Guinea, Mongolia, and Myanmar. In all three of these countriesinbound arrivals from Australia are growing rapidly from a smallbase - 9% in Papua New Guinea and 11% in Myanmar.“In mature markets like Japan, Australia,Singapore etc. inbound and outboundgrowth will be marginal. Howeverthere will be strong growth in moreobscure markets like Papua NewGuinea, Mongolia, and Indonesiadriven largely by their resources.”Mark Dougan,Managing Director, Australia & New Zealand, Frost & SullivanWith increasing travel to these developing markets, Australiancompanies will need to place a greater focus on their duty ofcare – their responsibility to ensure the safety and well-being oftheir employees when travelling to countries or regions thatmay be less secure than more traditional business travel destinations.Almost half of Australian businesses have no specific code ofpractice that informs employees what they must do if theirhealth, safety or security is threatened, and only 46% of employeessay that their employer provided information and communicationspecific to contingency plans that would cover unexpectedeventualities. 8 Many organisations in Australia, particularlysmall-to-medium businesses, are not providing employees withdetails such as travel insurance or emergency points of contactwhen on business travel.

The Leapfrog Effecttechnology & infrastructure changing travelbehaviour

Shaping the future of travel in Asia Pacific 14The Leapfrog Effect“Travellers will increasingly wish tointeract via a mobile device. In somecountries such as Indonesia, Thailandthey have skipped the fixed internetphase and moved direct from faceto face contact to contact via amobile device (tablet, smartphone,etc). Agents and travel providerswill need to provide mobile solutionsor become irrelevant.”Mark Dougan,Managing Director, Australia & New Zealand, Frost & SullivanAs outlined in a previous report, “From Chaos to Collaboration”9 ,an emerging set of technology and infrastructure changes willhave a transformative effect on travel over the next 20 years.Asia Pacific, often with little to no legacy systems, processes andinfrastructure, has the opportunity to leapfrog, and indeed learnfrom, legacy processes and technologies, for example, in place inNorth America and Europe, particularly through the growth of‘intermodal’ travel.Increasing use of mobile devices for travel“Mobile will change the future of travelin Asia. 3G / 4G is very closely linkedto the use of mobile. As a traveller today,roaming charges are a big factor inthe use of mobile apps for travel. Aspeople travel more and more, theywill need to be more accessible anddoing more with their phones, evermore integrated into daily tasks.”David Brett,President, Amadeus Asia PacificThe move from standard mobile phones to smartphones isparticularly strong in Australia, where the majority of thepopulation now use these devices. However in Australia, despiterelatively high smartphone penetration overall (over 40% of thetotal population), our research shows use of smartphones tomake travel arrangements and bookings is the lowest in theregion with only 27% of business travellers and 6% of leisuretravellers currently using their device to make travel bookings.Easy access to a computer, small screen size and securityconcerns are the main reasons that Australian travellers are notcurrently using smartphones to the same extent as travellers inother Asia Pacific countries.Figure 4: Proportion of travellers who use smartphones for travel-relatedarrangements and bookings (2012)60%50%40%30%20%10%0%Singapore Korea Japan IndonesiaLeisure TravellersIndiaChinaBusiness TravellersSource: Survey of 1,531 Asia Pacific Travellers, August 20129“From Chaos to Collaboration: how transformative technologies will herald anew era in travel” published by Amadeus, 2012Australia

Shaping the future of travel in Asia Pacific 15The Leapfrog EffectUse of tablets to make travel arrangements and bookings is increasing, with 21% of business travellers and 9% of leisure travellers nowusing these devices during their travel. With 20% of Australianhouseholds now having at least one tablet10 , usage of these devicesduring travel will increase as travellers become less concerned aboutnetwork reliability and security. Our research showed that, althoughstill a small base, leisure travellers are starting to use tablets morethan smartphones to make travel arrangements at 9% and 6%respectively. This is mainly to research travel products such as airlinetickets and hotel rooms.Our research showed that social media is changing the way thatpeople gather information about their trips, including the waythat they make bookings and transact with travel providers. Useof social media during travel is now extensive with 65% ofAustralian travellers using social media either occasionally orfrequently during travel. Unsurprisingly, it is younger travellerswho are the most avid users of social media. Our research indicated that 84% of younger travellers aged 18-30 use social mediaeither occasionally or frequently during travel, compared to 24%of over 65 travellers.As the user experience improves and as users gain more confidencein the usage of mobile devices for travel, we anticipate that usage inAustralia will increase. Usage when overseas is often hindered by thevery high data roaming charges that are incurred when roaming onan overseas operator’s network – but increased availability of freeWiFi in many overseas destinations is likely to ameliorate this issue,and we anticipate that usage of mobile devices in Australia willcontinue to grow. The roll-out of the National Broadband Networkshould also contribute to providing more reliable wireless broadbandaccess across Australia, further stimulating usage of mobile devices.Figure 5: Proportion of travellers who use social media during travel by agegroup (Australia)Only 50% of tourism providers in Australia currently have bookingfacilities on their web-sites (and 20% of providers have no web-site atall). Without an online presence that involves booking functionality,and without a web presence optimised for mobile devices, Australiantravel operators will increasingly lose out to the regional travelgrowth happening within the mobile world.Initiatives such as the Australian Tourism Data Warehouse11 haveproved valuable in stimulating an online presence by Australiantourism operators, and giving smaller operators greater exposure totravel wholesalers, retailers and distributors. However the rapidevolution of online travel distributi

future for travel arrangements, compared to only 15% of 18-30 year old travellers. Shaping the future of travel in Asia Pacific 7 The Me Effect "We see a continued survival and role of retail presence for travel agents. While other channels for distribution of travel will be important, there will be a continuing need for a retail

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