Latent demand in India - China - Vietnam - Indonesia point to underlying strength, according to Abacus' mid-year snapshot of the Asian travel industry. The results show sustained demand across the region even as rising fuel bills increased real costs for travellers.

"The first half of 2006 has been a real test for the travel market, and the continuing growth shows we have come through with flying colours. We're seeing an active and vibrant market with relatively inflexible demand even though airlines have been forced to pass on rising fuel costs to the traveller," says Abacus International President and CEO, Don Birch.

"The rise of India and China, supported by a build up of latent demand in hotspots such as Vietnam and Indonesia and the impact of low cost carriers (LCC's) are all making their impact felt in the emerging picture," Mr Birch says.

"These factors have evolved from being the subject of industry conjecture over the past few years to rapidly become a real and measurable market reality," he says.

Leadership position

The Asian region is consolidating its position as one of the most dynamic regional travel markets in the world, driven by some of the highest rates of economic growth.

IATA figures for the six months to June 2006 show an overall 6.2 per cent growth in revenue passenger kilometres (RPK) for Asia Pacific over the corresponding six months from 2005. This placed the region third fastest grower after the exceptional performance of the Middle East (17.3 per cent) and Africa (7.6 per cent).

"Even more significantly, Asia-Pacific is the most profitable region for the global airline industry with IATA projecting 2006 net profits of positive US$1.7 billion against a backdrop of an overall global airline industry loss of US$3 billion for the year."

The region had relatively high and improving passenger load factors achieving a 73.8 per cent passenger load factor on the back of RPK growing at approximately twice the rate of new capacity. 

India was a prime mover during the period (with a marked increase in domestic travel), while other growth players China Vietnam and Indonesia provided underlying confidence to the market, although Thailand and Malaysia experienced some turbulence.

India on the move

"Abacus' statistics show that in travel terms, India is making some progress towards fulfilling its "Incredible India" marketing moniker, with new classes of leisure and domestic traveller adding to the nation's existing strengths in corporate travel.

While India's total market for domestic travel grew by a remarkable 24 per cent YTD June 2006, Abacus itself grew domestic booking numbers by more than three times that rate over the period.

Domestic traffic is poised to keep growing at 25 per cent per annum from 2005 to 2010. India will also add five million additional passengers every year and the market size will grow to 50 million by 2010 according to CAPA (Centre for Asia Pacific Aviation).

"Economic reforms, annual growth rates of 7+ per cent and unprecedented growth in the software and back-office service sectors have created a new, younger and wealthier middle class which will eventually be larger than the entire population of the United States as the 45 per cent of Indians under the age of 20," Mr Birch says.

14 bilateral agreements signed by India during 2005 under its Open Skies policy are beginning to translate into more foreign airlines routing into India and previously purely domestic carriers being permitted to fly abroad - generating more seats and driving competitive fares despite increased fuel charges.

"A recent report by InterVISTAS on the economic impact of Air Service Liberalisation found typical traffic growth of 12 - 35 per cent subsequent to liberalisation and a number of situations resulting in 50 per cent plus growth providing some idea of the potential unleashed by these changes in India," Don Birch said.

"On paper, India has some very promising developments in airport infrastructure with Bangalore and Hyderabad in line for new international airports. As many as 30 smaller airports will be re-positioned as international airports (e.g. Nagpur, Gaya) eventually creating more exit and entry points for travellers depending on the ability to drive through these changes which the jury is still out on," he said.

The industry serving this market is getting more sophisticated with travel portals such as MakeMyTrip.com, and IndiaTimes.com starting to impact on the traditional travel agents. Portals such as these now make up more than 5 per cent of Abacus' business in this market, up from a practically nil just a year ago.

"We expect rapid growth in India's online travel market with more than 100 million internet users expected by 2007/8 and IAMA (Internet and Mobile Association of India) projecting travel and related services to account for more than 55per cent of all online purchases," Mr Birch said.

The Low Cost Carrier (LCC) category is very dynamic in India, with three existing low-cost operators helping to maintain the momentum of traffic growth and develop new destinations while a further five start up operations are lined up for 2006.

It is projected that LCCs will increase their market share to 30-35 per cent in 2006 and will likely to push the bounds further with Centre for Asia Pacific Aviation projecting that this  category will capture 60-70 per cent of the Indian market by 2010.

Other sectors of the travel market are well poised to capitalise on the increase in air travel with HVS International reporting 40,000 hotel rooms currently under planning or construction to enter the Indian market by 2009.

In other developments in this region, Abacus recorded more than 50 per cent growth in FIT bookings for the neighbouring Pakistan market, making it the star market in South Asia for YTD June 2006.

China's charge

Latest Abacus figures show a compound average growth rate of 37 per cent over 2003 to 2006, including 12 per cent YTD growth in May 2006 consistent with the 12 per cent growth rate for the total Global Distribution System (GDS) market in China over this period.

China total departures 1999-2004 (in 000's)

Chart source: 1999-2003 from National Tourism Association, WTO, 2004 from Euromonitor

There has been a marked increase in the proportion of private outbound travellers from just 39 per cent in 1993 to 80 per cent in 2004, and a corresponding decline in the proportion of business travellers as the Chinese Government has greatly widened the number of countries with Approved Destination Status (ADS) for organised Chinese tourist groups. As part of this relaxation of Chinese Government rules about "private travel" traveller can now sponsor themselves.

The impacts of these moves are shown in the performance of the China to Philippines market which increased by 245 per cent in fourth quarter 2005 (PATA), a nearly 25 per cent increase in the number of travellers through Beijing Airport in the year to April 2006 (Beijing Capital International Airport Company) and projected14 per cent annual growth for China's Aviation market over the next five years (Globalysis Ltd).

In China there are close to180 million urban households, with per capita disposable income growing by 9.6 per cent growth from 2003 to 2004 alone (National Bureau of Statistics). We are seeing the emergence of the no-child household by choice and a new generation of Chinese on the east coast with more time and money to focus on the ‘4c's' of career, condominium, car and club membership with considerable positive upside for travel.

China GDP continues to grow in the range of 8-10 per cent with a continued huge inflow of Foreign Direct Investment (FDIs); a growing "made-in-China" advantage. positive WTO Commitments, further liberalisations and more developed legal and financial frameworks in the pipeline.

Reflecting these positive factors, international inbound arrivals were up 1.8 per cent off a massive base of 28.2 million in 2005 in YTD May 2006 figures from PATA.

Hong Kong

Abacus achieved CAGR of 15 per cent over 2003 to 2006, with marginal growth in YTD May 2006 while the total GDS market in Hong Kong grew at 8 per cent over this period.

South Korea

Abacus achieved CAGR of 37 per cent over 2003 to 2006, including 42 per cent YTD total booking growth in May 2006 ahead of a 33 per cent growth rate for the total GDS market in Korea over this period.

Taiwan

Abacus achieved CAGR of 15 per cent over 2003 to 2006, with 6.5 per cent growth in booking numbers YTD May 2006 while the total GDS market in Taiwan grew at 5 per cent over this period.

Vietnam

Abacus achieved nearly 9 per cent growth in FIT bookings in this market, although the overall market grew even faster than this, especially on the performance of Pacific Airlines the fastest growing domestic carrier as this market grew to more than 1.5 million in-bound arrivals (+12 per cent) YTD May 2006 (PATA). Developments in this market are consistent with a long term trend towards more interest-based rather than destination-based travel in the region with Vietnam offering many opportunities for unique activities such as cultural/heritage and adventure tourism. The World Travel and Tourism Council is projecting sustained travel demand growth of 7.5 per cent a year over the next decade.

Indonesia

WTTC figures point to Indonesia being a major growth force in the tourism and travel industry for the year ahead with the local travel and tourism economy's current 7.3 million jobs expected to increase to nearly 10 million by 2016 and a steady 5-6 per cent per annum growth across a broad range of travel indicators over the coming decade.

Cambodia

LCC's such as Jetstar Asia and Air Asia are making strong inroads against traditional carriers as PATA recorded a YTD May 2006 growth rate of nearly 19 per cent for inbound international travel for this market.

Singapore

In many respects Singapore is the archetype of the travel market of the future, characterised by high internet penetration, willingness of consumers to make purchases online, low cost carriers stimulating purchases online and travel agents
adopting online strategies. Reflecting this Abacus itself is focusing on online strategies, assisting and encouraging travel agents to invest in technologies and online stores. The advent of the integrated resorts will further spur inbound traffic into Singapore which PATA figures show to have grown by 14.6 per cent YTD May 2006.

Several markets were impacted by political factors during the first half of 2006

Malaysia

With strong customer segments including workers, seamen, students, soldiers, Group, Leisure, Corporate/Business and Government travellers Malaysia boasts a very strong domestic booking segment of about 11 million segments while the international booking segment generated about 5 million segments.

The tourism industry in Malaysia has been emerging rapidly, and is now the second highest income generator for Malaysia. i.e. RM30 billion with about RM170 million allocated to the tourism Industry by Government of Malaysia to stimulate travel.

Both inbound and outbound Tourism were setback by almost 30 per cent because of high airfares due to fuel surcharges imposed since 2005, together with admin charges and airport taxes. Consumers are reluctant to travel overseas with a poor response to first quarter travel fairs such as MATTA and MATF (MH Fair). To stimulate travel the Ministry of Tourism is also conducting aggressive marketing campaign outside Malaysia for 2007.

LCC's have definitely stimulated travel for the lower income group. Six million people have already travelled on Air Asia since it started operation four years ago and the LCC aircraft fleet will increase gradually to 100 aircraft from current fleet of 30 aircrafts.

The Malaysian Government rationalised routes effective 1 August 2006 allowing Air Asia to focus on domestic operations while the national carrier Malaysia Airlines (MAS) concentrates on international routes. This is likely to see a major cut in the number of domestic routes flown although we note the teething problems apparent in the agreement between the parties.  Air Asia in particular is doing various promotion campaigns in local newspaper and TVs by offering airfare as low as RM9.99 per sector to boost load factors.
 
The government continues to build good infrastructure such as airport, road and highways and private sectors building more five star hotels, etc. Overall, Malaysia's Tourism industry will continue to grow by about 5-10 per cent annually in-spite of rising airfares for both international/domestic.

Thailand

While Abacus' Thailand booking numbers were up 5 per cent for YTD June 2006 the country's uncertain political climate is hampering the travel market's previously strong recovery from the effects of Tsunami. Abacus estimates the total market will shrink by up to 30 per cent due to political uncertainty. A curtailment of spending by the caretaker Government is affecting the travel industry both directly, via constraints on government officials travelling, and indirectly via the curtailment of major infrastructure projects and spending generally, suppressing economic activity.

With the next general election set for October 25 there are still fears this may be postponed due to ongoing constitutional issues.  This is gravely detrimental to the travel industry as a whole as people cannot plan or are in no mood to plan for holidays this year-end.  

The prolonged terrorist attacks in the south, a popular holiday destination, will continue to hurt the inbound market.  Phuket, Hadyai and the rest are not optimistic about the inbounds this year.  

A recent increase in bird flu reports has caused concern to locals and foreigners alike with some erosion of trust of the Government's positions on this issue.

Although, the Thai people are adjusting to the increasing fuel costs, as in other markets, it has certainly dampened the spirit and the willingness to spend.  Surcharges on airtickets are increasing, offsetting the benefits of the lower fares offered.  
 
Other countries to be affected by political instability and perceived safety risks in 2006 include Bangladesh, Sri Lanka, Nepal, and the Philippines.

About Abacus International
Singapore-based Abacus International is the Asia-Pacific's leading travel facilitator with around 11,000 travel agency locations in 24 markets.  www.abacus.com.sg