The Business of International Travel

“If you travel long enough, you might run into yourself.” – Anonymous

Total international tourist arrivals are set to cross 1 billion for the first time in the year 2012, with a total spending of over $1 trillion. Despite the turbulent times, the number of arrivals has increased by 4.5% and the average spending has gone up by 8% in the first half of 2012. Over the past two decades, tourism has experienced continued expansion and diversification, becoming one of the largest and fastest growing economic sectors in the world.

Source: World Tourism Organization

Europe is the most favoured destination, accounting for more than 50% of the total number of arrivals, followed by Asia and the Pacific (22%), the Americas (16%), the Middle East (4%) and Africa (3%). Germany is the biggest spender ($84.3 billion) closely followed by United States ($79.1 billion) and China ($72.6 billion). India, at 22nd position, is the fastest growing among the top 50 spenders with a 33% increase in 2010 (an additional $3 billion spent to reach $14 billion).

Factors such as rising incomes in emerging markets and stable employment and disposable income in mature markets are expected to drive demand in the next few years.

Why travel?

Travel for leisure, recreation and holidays accounted for just over half of all international tourist arrivals in 2011. Some 15% of international tourists reported travelling for business and professional purposes and another 27% travelled for other purposes, such as visiting friends and relatives (VFR), religious reasons and pilgrimages, health treatment, etc.

Source: World Tourism Organization

Mode of transportation

Slightly over half of the travellers arrived at their destination by air transport (51%) in 2011, while the remainder travelled over the surface (49%) – whether by road (41%), rail (2%), or over water (6%). Over time, the trend has been for air transport to grow at a somewhat faster pace than surface transport, so the share of air transport is gradually increasing.

Source: World Tourism Organization

Who’s travelling?

  • Ability to travel: About 1.4 billion adults worldwide – or 30% of the global adult population – have sufficient disposable income to be able to travel abroad.
  • Income split: Globally, 69% of the trips are made by high-income travellers and 31% by low-income groups.
  • Regional variations: There are now more well-off travellers in Asia than in Europe or the Americas in relative terms. 50% of Asian outbound travellers fall into the upper income category compared to 43% in the Americas and 39% in Europe. In other words, a larger number of less well-off Europeans can afford to go on foreign trips compared to people from other regions.
  • Demography: In general, well-off travellers tend to be aged between 30 and 59, whereas low-income travellers are frequently under 29 or over 60.
  • Average spending: A well-off traveller spends an average of $1200 per trip whereas a low-income traveller spends an average of $750 per trip.
  • Duration of travel: Americans take the longest trips, just ahead of Europeans, while Asians take the shortest trips.
  • Impact of crisis: The financial crisis has had a serious impact on the mix of travellers. In the four years from 2007 to 2010, there was sharp divergence in travel patterns, with low-income groups travelling a lot less and upper-income groups travelling significantly more.

Source: IPK International

Despite differences in number of outbound trips and spending behaviour, both upper and lower income groups take the same kind of leisure travels – the most common being the sun and beach holidays.

Source: IPK International

The most important difference, however, is the amount spent on accommodation. Nearly 40% of the high income population stays in 4-5 star hotels. On the contrary, just 20% of the lower income groups stay in 4-5 star hotels and about a third of them do not pay for accommodation.

Source: IPK International

Global Trends

2011 was a year of dramatic and unforeseen events that impacted the world travel and tourism; the Arab Spring, the tsunami and nuclear disaster in Japan and the euro zone debt crisis were some of the major influencing factors. More than eight million travellers switched destinations, preferring to visit “safer” countries. In this light, the following were some of the major trends in global travel observed in 2011:

  • Contrary to the long-term trend, the advanced economies (+4.9%) posted better growth in tourist arrivals than the emerging economies (+4.3%).
  • Europe and Asia Pacific (both +6%) were the fastest-growing regions in terms of tourist arrivals.
  • European arrivals grew above expectations, despite continuing economic uncertainty, while arrivals in Asia and the Pacific increased at a slower pace over 2010, partly due to the temporary decline in the Japanese outbound market.
  • South America (+9%) continued to boost the arrivals in the Americas (+4%) due to increasing arrivals in the emerging economies.
  • Popular uprisings in a number of countries in Africa and the Middle East during 2011 took a toll on tourism in both regions. Africa (+1%) recorded only a slight increase, due to the loss of visitors in North Africa, while the Middle East saw an 8% decline in arrivals.

However, two very distinct trends have evolved that are changing the face of the global tourism industry:

1.)    Tourism has gone online

By 2015, 9 out of 10 travellers will have a mobile subscription. Hence, digital convergence, social media and smartphones are becoming increasingly important for countries and travel companies to build their brand loyalty.

Source: WTM Euromonitor International

2.)    Regional Differentiation

In this era of customization, every region is developing a unique value proposition for inbound/outbound tourism.

  • Americas: Travellers are going on mystery trips for adventure, particularly for milestone holidays like honeymoons and birthdays.
  • Europe:Luxury tourism has emerged as ethical and authentic. Customers choose providers that enable them to holiday responsibly by being environmentally responsible and focus on helping local communities.
  • Middle East: Egypt and Tunisia are rebranding to help lure back tourists, while Libya, Bahrain and Syria are yet to reach that stage. For example, the Egyptian Ministry of Tourism launched a campaign in 2011 stating: “Welcome to the country of peaceful revolution.”
  • Africa: Africa, with 489m phones, is leading the world’s growth in m-commerce, which is also boosting demand for travel services.
  • Asia: Boosted by recent economic growth in India and China, more middle-class travellers are exploring the world for the first time in the region.

Source: WTM Euromonitor International

– Shaunak Chhaparia

Shaunak is a PGP-1 student at IIM Ahmedabad and a member of the Consult Club.