1. Talking Growth at The Hotel Summit 2014 Lee Jamieson
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2. Emerging and Frontier Markets 11 Andrew Tessler Oxford Economics, Commissioned by Amadeus 3. Rebuilding UK Tourism BRIC By BRIC Franziska Brandenburger
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4. Appealing To BRIC Visitors Top Tips for UK Hoteliers
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5. How To Attract Overseas Visitors to UK Hotels James Frost
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If you are a hotelier searching for robust business solutions, then the Hotel Industry Magazine On Series is written specifically for you. Each book collates our most popular and useful perspectives on a given issue faced by hoteliers – creating an unrivalled resource of actionable intelligence for hoteliers.
Hotel Industry Magazine On Growth in 2014-15 First published internationally in 2014 by Jamieson Media Written by Franziska Brandenburger, James Frost, Lee Jamieson and Andrew Tessler This publication is based on original articles, content originally published in Hotel Industry Magazine and ―Shaping the Future of Travel‖ Digital Web: www.hotel-industry.co.uk Twitter: @hotel_industry Facebook: www.facebook.com/hotel.industry Jamieson Media Hotel Industry Magazine and hotel-industry.co.uk are published by Jamieson Media, a UK Registered Partnership Website: www.jamiesonmedia.co.uk Email: contact@jamiesonmedia.co.uk VAT Registration No: 127 7969 65
As part of our long-term strategy to diversify Hotel Industry away from a traditional print publication, we have developed a new series called Hotel Industry Magazine On... Each issue curates our best content on a specific topic to provide you with a single source of intelligence to bring about positive change in your business. We have a raft of new titles like this in production ... and we are looking for Each issue brings improved benefits new partners! to both our readers and partners: If you would like to partner with us by Clarity for readers: Unrivalled sponsoring a forthcoming issue, please contact me. intelligence on a single topic
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The Hotel Summit is here again, and I will once again be opening the event with a presentation on the key issues facing the UK hotel industry in 2014. How things have changed! At last year’s summit, I spoke about concerns in the hotelier community that supply will outstrip demand in in the post-Olympic landscape. It seems that we finally have the answer to that question! This year I will be focusing on the potential for growth in the UK hotel sector, and this very special edition of Hotel Industry Magazine has been produced in partnership with The Hotel Summit to bring you reliable forecast data and ideas on how you could monetise it. In truth, The Hotel Summit is the perfect place to begin this conversation. Now in its 15th year, the event uses a one-to-one appointment format to enable delegates to review potential suppliers, network, discuss future projects and discover the latest market intelligence on core issues. And while we are on the topic, I should point out that the invitation for delegates is totally complimentary and includes overnight accommodation, all meals and refreshments, seminar attendance, personalised, pre-arranged appointments itinerary and evening gala dinner. To book, contact Emma Fludgate on 01992 374068, e.fludgate@forumevents.co.uk or book here: http:// www.forumevents.co.uk/forum/Hotel-Summit/hotel-summit-maydelegate-book.html
The Case For Growth The case for growth in the long term is overwhelming. Chapter Two of this special issue explores the role emerging markets will play in driving growth, but what exactly can UK hoteliers do to capitalise on this growth? ... That is the focus of the final two chapters! Recession changes everything: it purges the market of non-essential value and forces businesses to become leaner. Consequently, as we emerge from recession, we have found that the global travel landscape is different. Smart hoteliers are making changes to adapt their businesses now in anticipation of future growth. Looking at the global picture, demand for international hotel stays has outpaced demand for domestic stays since the recession, suggesting reduced domestic hotel spending is the new normal. At the same time, overnight visitor flows for Asia are set to grow nearly four times faster than Europe’s over the next ten years – but Europe will remain dominant. This global trend will force the UK market to evolve. For example, the volume of international visitors is forecast to return to pre-global financial crisis levels of 32.6million in 2014. This will be coupled with a spending hike from international visitors of 4.2% this year to reach a record-breaking £21.5bn. Focus on China The theme that threads throughout this special issue of Hotel Industry Magazine is the growth in Chinese tourists to the UK – a segment that UK hoteliers have traditionally been pretty poor at encouraging in the past. Since last year, there has been a 40% increase in the tourist visas issued in China and 200 million Chinese nationals are predicted to travel abroad annually by 2020.
Over to You So, that is the context for growth; what you do with it is up to you ... but Chapters Three and Four contain some advice. But one thing is for sure: you shouldn’t do nothing! The market has changed, and so must you. If you would like to join us at The Hotel Summit, please contact Emma Fludgate on 01992 374068, e.fludgate@forumevents.co.uk or book here: http://www.forumevents.co.uk/forum/Hotel-Summit/ hotel-summit-may-delegate-book.html ■■■
In a major industry study written by Oxford Economics and commissioned by Amadeus, it was forecasted that travel will grow by 5.4% per annum over the next 10 years, outpacing global GDP. In this chapter, republished from Amadeus and Oxford Economics’ research, we bring you the evidence to support the case for growth in the UK hotel industry.
Emerging markets have already emerged in air travel Non-OECD countries accounted for 44% of global air traffic in 2013 and we forecast this to rise to 51% in the next ten years, driven primarily by the expansion of large emerging markets, especially China. Non-OECD air traffic is increasingly independent of mature Western markets, with ―South-South‖ journeys accounting for 40% of global air traffic in the past five years. At the heart of this trend is a rapid expansion in Chinese travel Our model suggests that China may overtake the US as the largest source of outbound travel spend in the world in 2014, with China’s share of global outbound travel expenditure set to rise from 1% in 2005 to 20% in 2023.
This is shown in Chart 2.3, as China leaves other emerging markets in its wake in terms of global market share. China may also surpass the US as the world’s largest domestic travel market by 2017 (Chart 2.12). Our forecasts of future travel expenditure in emerging markets are driven by expectations of consumer spending, employment and overall GDP growth. China’s boom is also underpinned by a unique cultural and behavioural shift, whereby a new and very large generation of Chinese individuals is expanding its overseas business interests and engaging in cross-border tourism in a manner unprecedented in previous generations. The potential market for outbound Chinese tourism could more than double to 220 million households in the next decade.
According to a survey of 3000 Chinese travellers by Hotels.com Chinese International Travel Monitor, the average outbound Chinese tourist in 2013 earned a salary equivalent to US$18,000. We estimate that around 100 million Chinese households currently earn that level of income, which gives a sense of scale to the potential market place. According to our Global Cities 2030 forecast, and adjusting for inflation, our analysis suggests that number could rise to 220 million by 2023. There is an emerging generation of Chinese that is increasingly aware of the outside world and has it within its means to go visit. Chinese government initiatives are making it easier to travel overseas, reducing red-tape around passport applications and proactively promoting outbound tourism. For the first time, the twelfth five year plan published in 2012 explicitly aimed to ―actively encourage the development of outbound tourism.‖ China’s travel sector is a large, diverse and evolving marketplace. The clichéd Chinese tourist on a whistle-stop package-tour and eating in Chinese restaurants is rapidly evolving. Chinese travellers are increasingly opting for non-Chinese hotels and restaurants (although interviewees noted that more could still be done to cater to Chinese and other emerging market travellers through better provision of TV, newspaper and other services in their native language). Younger, more educated and sophisticated travellers are demanding richer experiences from overseas travel, researching and organising trips themselves over the internet and social media networks. According to a hotel survey in 2013, almost two thirds of Chinese travellers said they preferred to travel on their own rather than as part of a group; almost half bypassed travel agents and booked their accommodation directly with the hotel. Shopping still accounts for one third of the traveller’s budget, according to a recent report by the China Tourism Academy, but the share is slipping.
Chinese outbound business travel will also expand rapidly in the next decade as more and more Chinese businesses expand overseas, procuring international goods and services and engaging in the global production chain. We forecast Chinese trade flows to double in the next decade and outward foreign direct investment flows from Chinese firms to more than treble, to over $250bn (current prices) (Chart 2.5). There is a strong linear correlation between these factors and outward business expenditure.
Other emerging economies will also play an important role The growth story is not exclusive to China. Our forecasts show a number of large emerging markets, driven by rising wealth and changing consumer habits, expanding their international air traffic
flows and outbound travel expenditure over the next decade. The standout performers are Russia, Brazil, India, Indonesia and Turkey. Chart 2.6 shows average annual growth rates in air traffic in these countries (on a 5 year rolling basis). Following rapid growth over the past decade, we expect each of them to average more than 5% annual growth over the next 10 years. In line with that expansion, outbound travel spend is forecast to multiply over the next decade. We forecast Russian outward travel spend to rise from around US$50bn in 2013 to over $100bn in 2023. Similarly, we expect Brazil’s outward travel spend to double, and India and Indonesia’s to roughly treble in that time period (see Chart 2.7). ■■■
Euromonitor International’s Franziska Brandenburger explains why the future of the UK hotel industry lies with the BRIC nations. 2012 put the UK on the map – and many expect the events of last year to positively influence incoming tourism over the next two years. As business and leisure travel from Europe and the US to the UK is on the decline due to the economic climate and turmoil in the Eurozone, companies operating in the travel and tourism industry are paying more attention to travellers from the BRIC nations. The first half of 2012 saw sharp increases in incoming travel to the UK, especially from Thailand, South Korea, Brazil, South Africa and India, which is proof that the travel and tourism industry needs to start focusing on travellers from emerging markets. Industry experts believe that Chinese travellers are the most important inbound tourists to business from the BRICs, followed by Brazil, Russia and India. Chinese Middle Class Fuel Spending Discretionary spending is rising across all income levels in the BRIC markets, but it is the feted middle classes, and their growing propensity to travel, that have opened up opportunities for hotels in particular. In particular, China’s rising levels of disposable income have spurred the growth of the Chinese middle class. According to analysis by the Carlyle Group: ―By some estimates, the
country’s persistent growth will bring nearly 100 million households into the middle and affluent classes. [This trend highlights] strong growth in aggregate consumption, as millions experience rising incomes and consumption shifts from the bare essentials to more discretionary items.‖ Per capita annual disposable income currently sits at £2,151, with 7.1% projected annual growth between 2012 and 2020, amongst the highest growth rates in the world. Russia Russia is one of Europe’s largest consumer markets with rapidly rising consumer expenditure and annual disposable income levels. Russia is also one of the world’s largest and most rapidly expanding luxury markets, driven by an increasing number of super wealthy. This dynamic market is set to continue its solid growth. In 2012, Russian per capita annual disposable income stood at £4,833, with it predicted to grow by 3.1% annually from 2012 to 2020. The country was hit hard during the economic and financial crisis in 2009, which means that regular Russians will search for greater bargains, while the very rich will continue their high-spending lifestyles. Brazil Against the backdrop of economic slowdown, Brazil's disposable income and consumer expenditure levels have remained robust on
the back of high employment and a burgeoning middle class. Brazilians now enjoy strong purchasing power and more room for discretionary spending, with a large section of the population having moved out of poverty and low-paid labour over the 2005-2012 period. Brazil’s annual disposable income per capita stood at £5,212 in 2012 and is set to grow by 3.7% annually over the next eight years. Visas Hinder Travel One hurdle constraining growth in inbound flows from the BRICs is a need for travellers from Russia, India and China to obtain a visa to enter the UK. This really limits the UK’s ability to compete head to head with other European destinations. Further planned increases in Air Passenger Duty (APD) in 2013 pose another threat and will particularly affect passengers on long-haul flights. Industry experts believe that Brazil and India will be the BRIC countries most affected by the APD hike as these countries’ tourists will most likely avoid travelling to the UK. The UK has the highest rate of air tax in the world, almost 400% more than the majority of EU countries. The strength of sterling against the euro is also an important factor taken into account by foreign travellers when deciding whether to visit the UK. While the Chinese Yuan strengthened against the euro in 2012, the exchange rate with the pound sterling stayed relatively stable, boosting inbound flows to Europe from China. UK Strategy Implementing appropriate strategies to court these visitors will have a significant impact on arrivals and consequently the performance of well-prepared businesses. Leading hotel chains should be looking to adapt to the specific needs and tastes of tourists from BRIC nations to benefit from this potential.
Visitors from Russia and China in particular are often fascinated by the British monarchy, its traditions and etiquette, so attractions and tours related to the royal family are also expected to do well. And while London will be the key beneficiary, it is believed that, given the long-haul nature of visits, the opportunity extends beyond the capital. Consequently, other areas of the UK that gear up appropriately will benefit, as BRIC travellers, taking longer holidays than many from closer geographies, take the time to tour around the country and make the most of their trips. VisitBritain is particularly targeting Chinese tourists to increase visitor spending in UK hotels by £500 million and create 14,000 new jobs by 2015. Clearly, the future of the UK hotel industry lies with BRICs, and many of leading hotel groups like Hilton and Starwood are introducing Chinese-friendly services to capitalise on the opportunity. These include Chinese restaurants, staff fluent in Mandarin and Chinese, as well as Chinese programmes available on TV. Beyond BRIC UK hoteliers should also pay attention to the second tier of emerging tourism economies, also called SLIMMA nations, which include Sri Lanka, Indonesia, Malaysia, Mexico and Argentina. In particular, visitors from Mexico, Argentina and Indonesia with growing disposable income levels could become the next powerhouses of the travel and tourism industry. How prepared are you? ■■■
Hotel chains should be looking to adapt to the specific needs of tourists from BRIC nations—specifically China. Here are our Top Tips:
Hire staff fluent in key BRIC languages
Offer BRIC language programmes and films on TV
Introduce BRIC-themed menus
Work towards accepting BRIC payment card schemes
Case Study: Ritz London The Ritz London’s decision to accept China’s largest payments card scheme, China UnionPay, and the hiring of Mandarin-speaking receptionists, led to a 17% increase in the number of Chinese guests, accompanied by a 25% increase in their spending in 2011.
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Data shows that a long-awaited recovery is finally underway in the UK hotel industry – but to support this, the sector needs to rethink its approach to attracting overseas visitors. We ask WorldPay chief marketing officer, James Frost, to explore the issue and reveal how accepting international payments can help. The UK hotel sector saw ―strong, sustained and far-reaching growth‖ last year and the good news is there’s more to come in 2014, according to new data from AM:PM. However, the market watcher’s latest industry insight also reveals that success this year is far from guaranteed. The UK still lags when it comes to attracting overseas customers and offering them a truly first class experience. With more and more international visitors spending large sums when they travel, hotel owners need to be more proactive in getting a piece of the action. Growing Market First up, the good news. The latest AM:PM Hotel Bulletin for Q4 2013 reveals a hotel sector growing in both demand and supply. The 11 regional cities studied recorded an average 8% increase in RevPAR (revenue per available room), while in London it was 6% up on the same period in 2012.
Supply is looking pretty healthy too with 29,000 hotel rooms in the active pipeline, of which around half are in the budget sector. VisitBritain recently forecast a growth in the volume of international visitors of +2%,to return to pre-global financial crisis levels of 32.6million in 2014. What’s more, it also predicted a hike in spending from international visitors of 4.2%this year to reach a record-breaking £21.5bn. Visitors from emerging markets such as China, the UAE, Malaysia and Russia were all singled out as big spenders in WorldPay’s recent Rules of Attraction report last year and the same is likely to be true in 2014. Hotel owners would do well to anticipate spikes in demand coinciding with key international holidays – for example during the Chinese Golden Week holiday period of early October, or Eid-al-Fitr on 28th July after the end of Ramadan. Focus on China The UK hotel sector has traditionally been pretty poor at encouraging greater numbers of Chinese visitors. Even so, pressure group the UK China Visa Alliance states that some 284,000 tourist visas were issued in China from October 2012 to September 2013. This is an impressive 40% increase from the same period in the previous year. With 200 million Chinese nationals predicted to travel abroad annually by 2020 – up from 106 million in 2013 – there’s a huge market up for grabs. Visitor numbers are also likely to get a further boost in the UK after Home Secretary Theresa May announced that Chinese wishing to travel to the UK would soon be able to apply for a British tourist visa with the same form used by European ―Schengen‖ countries. What’s more, Scottish hotels in particular will see a spike in
international visitor numbers this summer as Glasgow hosts the Commonwealth Games in July, which may have a positive knock-on effect all over the UK. Focus on High Yield Guests However, we often ignore international visitors in favour of more ―sophisticated‖ domestic customers. We stereotype those from abroad as low spenders or one-off customers when neither is true. This mindset needs to change. The revenue potential from millions of foreign visitors to the UK is huge, and their potential spend both on and in hotels is high. To reap the benefits of foreign guests, there are a number of measures hotels can introduce to cater for these visitors and give them the best possible service. A common criticism made by foreign tourists is that they can’t pay with the card they’re used to using back home. Another is that billing is made in the currency of the country they are staying in, making it difficult to work out quickly how much they’re being charged. These may sound like small quibbles but in the battle for the hearts and minds of a growing number of wealthy tourists, they could make all the difference between them choosing your hotel or a rival’s. Dynamic Currency Conversion Dynamic Currency Conversion (DCC) is an easy way for hotel owners to allow their international customers to pay in their own currency – saving them the potentially high service charge levied by their card issuer when paying in sterling and providing more certainty and transparency on costs. WorldPayoffers DCC via its myCurrency service with a guarantee that
the rate of exchange applied to a myCurrency transaction is the same or better than that offered by the customer’s bank on the same day. It automatically detects an eligible overseas-issued card and offers the cardholder the choice of paying in their domestic currency. Another way to improve the overall experience for international visitors, and improve your chances of increasing revenue is to accept payments from some of the more popular card providers outside of the UK. One of the biggest names is China UnionPay – China’s only homegrown card provider. Over 140 countries now accept these cards as growing numbers of retailers and hotel owners begin to realise the business benefits of welcoming Chinese tourists. Similarly, for US travellers to the UK, hotels should think about accepting Amex, Diners Club and Discover cards. Your payment provider account manager should be first port of call. DCC services are available through many payment providers on a single supplier model, like WorldPay’s myCurrency, or as a separate service. The advantage of the single supplier approach is that a hotel owner need only manage one relationship – reducing overheads and costs, and allowing you to concentrate on your core business. More Options Of course, there’s more to capitalising on and catering for foreign visitors than just payments. Social media monitoring can help you better understand the needs of international visitors and setting up a presence on foreign platforms – like Sina Weibo or Renren in China – could give you an edge over your competitors. It goes without saying that multi-lingual staff and signage in the hotel
are also increasingly expected by overseas visitors. Staff training is also a good idea to avoid potentially embarrassing cultural misunderstandings. It might all seem like a lot of work, and certainly some of the above steps may only be possible for larger UK hotels. However, the good news is that the UK is firmly on the map when it comes to international customers. It’s now up to us to make sure their stay in 2014 is not just a one-off. ■■■