PM Perspectives: Chinese Tourism Growth Creates Online Travel Tailwinds

 In Market and Investment Insights, Market Insights, Podcast

A surge in overseas travel by Chinese nationals is expected to create long-term tailwinds for travel companies, especially those with exposure to the burgeoning online market, says Portfolio Manager Garth Yettick.

Key Takeaways

  • The number of Chinese nationals traveling overseas is forecast to reach 230 million over the next five years, from 130 million in 2017.
  • Chinese tourists spent $258 billion, the equivalent of the GDP of Finland in 2017, a number that is expected to reach $462 billion, or the GDP of Belgium, within five years.
  • Surging overseas tourism is set to benefit online travel companies, along with the mobile payments businesses of several e-commerce giants.
  • In Part Two , consumer goods analyst Greg Kuczynski assesses the impact on luxury brand owners.

Yettick: We are in the midst of a multi-decade trend where the Chinese are starting to travel, and travel in very large numbers.

The 130 million Chinese travelers compares to 20 million peak travelers coming outbound from Japan in the height of the Japanese travel boom in the 1990s.

The $258 billion spent by international travelers from China in 2017 is roughly equal to the GDP of Finland. We expect that to grow to $462 billion over the next five years, which is roughly the size of the GDP of Belgium.

Chinese travelers spend an average of $2,000 a year on outbound travel for those who do travel. And already given the large number of outbound Chinese, the total spend by Chinese travelers exceeds any other country in the world.

So what is driving this? There has been three major shifts. One, we have seen a rapid increase in the number of Chinese people who have the means and desire to travel.

Secondly, there has been a simplification in the visa process, and as a result, a number of other countries have reciprocated by simplifying the process for Chinese to get visas into their countries. We have also seen a dramatic simplification of the passport application process in China. It is now just a one-day visit rather than a multi-step process, as it had been in the past.

The most popular places for Chinese to visit are Hong Kong and Macau. But outside of that, South Korea and Japan are big destinations. But there are also a number of elevating destinations, such as Thailand, Indonesia, Malaysia, Vietnam and even Cambodia. They also tend to go to Europe for a lot of vacations as well as the Western part of the United States and Canada.

We think the biggest beneficiary of this travel trend is Ctrip, which owns a company called Qunar, and together they control more than 60% of the Chinese online travel market. We expect that market to grow even faster, as there continues to be a shift from offline to online booking of travel, and we think they are going to continue to consolidate their market share leadership. And we expect that in addition to growing revenues, there is going to be an opportunity for them to significantly grow their operating margins and profitability based on this trend. And we expect this trend to continue for five to 10 or more years.

The Chinese travel market is so attractive and so large that it does attract a lot of competition. Alibaba’s affiliate, Alitrip, now referred to as Fliggy, is aggressively targeting the lower end, and Meituan-Dianping, the leading offline to online services company in China, is also attacking that low-end hotels market in China.

Ctrip is especially strong for business travelers and upscale leisure travelers, who love the services and offline as well as online capability that it provides.

Alipay and WeChat Pay are the two leading mobile payment platforms in China, each with over 500 million users. As Chinese travelers travel abroad, they are used to paying with those very convenient platforms and they are coming to expect in places that they go that they can pay with those services. We have seen the City of San Francisco, the City of Vancouver in Canada, and others, many others, work to adopt those payment platforms in their cities to serve the needs of these Chinese travelers abroad.

Chinese online payments are far more advanced than we see in the West. Chinese online payment transactions are over 60% of the world’s volumes and the reason that the adoption has been so widespread there is partly because credit cards don’t exist in China for the most part. We have been basically bypassing that step of financial development by just moving straight to a seamless mobile payment option.

It is going to be really important for overseas vendors to accept these mobile payment options if they are going to service Chinese customers as well.

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C-0818-18974 12-30-20