China’s Middle Class: From Labor to Leisure

Written By Daniel Allen on May 14, 2007 at 5:52 am | In travel, consumer, technology, China

Chinese outbound and inbound travel sectors set to experience rapid growth over the next few years.

Trend Description

The world is becoming increasingly fascinated by all things Chinese. Over the next decade China’s travel and tourism industry is set to become the second largest in the world after the US. Already accounting for almost 34 percent of Asia’s tourist arrivals, China is the key regional driver in this sector, with the number of overseas tourists projected to increase at least 10 percent per year. This development is underpinned by the continued relaxation of government regulations following WTO access, plus Beijing’s hosting of the Summer Olympics in 2008.

China received 124 million inbound travelers in 2006, ranking fourth in the world, according to statistics recently released by China National Tourism Administration (CNTA). This figure includes arrivals from Hong Kong, Macao and Taiwan. According to the CNTA, China accrued US$33.5 billion in tourism income last year, ranking sixth in the world, and inbound tourism has already become China’s biggest service trade area. The number of inbound Asian travelers grew steadily last year, and the growth of new markets such as Europe, North America and India has been accelerating. The development of inbound tourism boosted construction of infrastructure, hotels, restaurants and shops.

Regulatory restrictions that have prevented foreign travel companies from expanding into China are expected to ease as the government creates a friendlier environment for foreign players. In January this year the CNTA announced that foreign travel agencies would be permitted to set up branch offices nationwide from July, as part of a WTO commitment to open the tourism sector by 2007.

China is also the fastest growing outbound tourism market in the world, and by 2020 it is estimated that more than 100 million Chinese will make outbound leisure trips annually. Travel is becoming increasingly accessible to growing numbers of Chinese as a result of rapid economic growth and easier access to foreign visas. Two-thirds of the US$6 billion that Chinese consumers spent on luxury products last year was spent outside China.

Foreign travel agents and hoteliers are increasingly eyeing up China’s outbound market, intensifying competition for the Chinese tourist dollar. Outbound travelers are starting to give more than just their credit card a work-out, as increasing numbers look for destinations that complement new sporting interests. This represents a massive future market for sports manufacturers who are already hot on the trail of budding fitness enthusiasts. Chinese travelers are a key online demographic, and increasing numbers are checking out possible destinations and making holiday arrangements via the internet.

Case Studies

Founded in 1999, eLong is one of China’s leading web-enhanced travel service companies. Headquartered in Beijing, eLong is currently the second largest travel provider in China, providing consumers with access to hotel rooms, airline tickets, and vacation packages.

eLong utilizes a centralized modern call center and web-based distribution technologies to provide its services. Through its nationwide 24-hour, toll-free call center, Chinese and English language websites and extensive reseller network, eLong provides its customers with consolidated travel information and the ability to book rooms at discounted rates at over 3,000 hotels in more than 278 cities across China and air tickets in over 50 cities across China.

eLong’s travel revenues increased 43 percent year-on-year to RMB256.0 million (US$32.8 million) in 2006, and total revenues increased 39 percent year-on-year to RMB264.5 million (US$33.9 million) over the same period. In April 2007 eLong announced that it had appointed its Chairman, Henrik Kjellberg, as interim CEO. Kjellberg is also the President of Expedia Asia Pacific, a division of Expedia Inc.

Image source: eLong

Ctrip

Founded in 1999, Shanghai-based Ctrip is China’s largest travel website providing hotel and flight booking and tour reservations. The company’s net profits rose by 31 percent in 2006 to US$38 million, boosted by strong sales. Total revenue for 2006 was US$100 million, up 49 percent year-on-year.

Last year Ctrip.com launched a “last minute booking” service to meet the demands of users. With this new service, passengers can now book flight tickets 90 minutes ahead of their flight’s departure, compared to the previous time of 3 hours. Ctrip recently announced plans to branch out into inbound travel this year to tap the expected tourism boom over the next few years. A survey conducted by Ctrip last year showed that 85 percent of Chinese travelers prefer using e-tickets when booking airline trips.

In January 2007 Ctrip and Microsoft’s MSN China website formed a partnership allowing Ctrip access to MSN China’s 20 million young, affluent subscribers. Ctrip will help MSN China to build its online travel channel where MSN users and visitors can book hotels, plane tickets and holidays through net-based services. Ctrip also formally launched a new VIP service in March 2007 called Shang Lu Tong, targeting global Fortune 500 companies who operate businesses in China.

Image source: Ctrip

Kuoni

Kuoni Travel Holding Ltd. is one of Europe’s leading tourist travel corporations. The company generated a total turnover of over $US3 billion in 2006 with a worldwide workforce of over 7500 employees. Kuoni opened offices in Beijing and Shanghai in 2005, and another office in Guangzhou last year. The company’s long-term goal is “to help further accelerate the strong growth in the Chinese market through the licence we have secured to conduct outbound operations, and thereby benefit from the sizeable potential we see in Chinese travelers to Europe.”

Image source: Kuoni

Tui China

Tui AG, the world’s leading tourism group registered in Hanover and Berlin, encompasses 81 tour operator brands throughout Europe with around 22 million customers per year. TUI China was founded in late 2003 as a joint venture with the state-owned China Travel Service (CTS) – it was the first foreign travel agency with a majority shareholding in the Chinese tourism industry. The company’s business model is predominantly focused on the inbound and tour operating fields, offering holiday packages to a wide range of Chinese destinations.

Image source: Tui China

Trend Impact

Online consolidators Ctrip and eLong continue to steal market share from traditional agencies in China. William Bao Bean, a research analyst at Deutsche Bank, recently commented that growth in online travel bookings is likely to continue this year, fueled by economic growth, increased internet access and the government-mandated changeover to paperless ticketing.

Air travel and tours have been seen as the growth drivers for the industry and more traditional travel agencies and global players are predicted to move into the e-commerce arena and set up operations to test the waters. With strong cash assets, leading online consolidators may acquire “real” travel agencies to strengthen their customer positioning, distribution channels and product offerings.

Although online payment is still in its early stages, and despite some initial technological teething trouble, the increased penetration of credit cards and popularity of e-ticketing should continue to work positively for both overseas and domestic online travel companies. Following market deregulation growing numbers of overseas travel companies will look to set up operations in China to exploit both the rapidly developing outbound and inbound travel sectors.