Not surprising, as of September, the first three markets in Asia that have recovered the fastest are those with domestic markets.
Sharing “Reboot: What Travel Recovery Will Look Like for Asia” at WiT Seoul earlier this month, Steve Saxon, partner with McKinsey, who leads the travel practice across Asia, said that in terms of domestic air passengers China is leading the recovery, followed by Thailand and Japan.
The Shenzen-based executive said that China’s domestic air passengers have in fact exceeded 2019’s. “As of September, Thailand domestic has recovered. China and Thailand, you should note, are either at zero or very close to zero new cases each day.
“Japan’s recovery domestically is less strong. And that’s driven by a larger component of business travel. But also because there has been a resurgence of Covid-19 cases in Japan which has dampened that demand. What is consistent is that the international travel is basically at zero for all of these countries.”
Looking at hotels yields a similar picture. “How is the 2020 trend versus the 2019 trend? First of all, China is leading and, in fact, in the recent October national week holidays the best part even jumped above where it did last year. Japan has had a better recovery on hotels and South Korea was looking like a good recovery up till about August.”
The key though is consumer confidence, and Saxon noted that the two standout markets where people’s confidence in their country’s economic recovery is the highest are China and India. In Australia, he noted, “People are not so confident about the recovery but actually becoming more pessimistic over time. The longer this goes on we see people getting more pessimistic about their future income, spending and savings. In Japan, we see not a lot of confidence, however, at least it’s improving at least it’s headed in the right direction.”
Looking deeper into China’s recovery, Saxon observed that the areas that were doing well were logistics, express shipments, container throughput and trucking cargo which “are all above where they were this time last year, the logistics supply chains are fully recovered”.
It is international air travel, down 95%, and cruises, which have remained flat at the bottom of the graph.
The good news is, there is significant latent demand and Saxon said that when borders do open leisure travel will be the first to bounce back, with business travel a bit more cautious.
“That’s consistent with what we’ve seen in Europe as well. In Europe, whenever a country is added to or removed from a particular list the travel immediately shoots up or drops back. There is a lot of latent demand for travel – as soon as people feel safe again and are allowed to, travel will come back quite quickly.”
Destinations on top of the “latent demand” list are South-east Asia, South Korea and Europe/Russia.
Delving into recovery phases in China, Saxon said it was seeing all markets follow a similar pattern – “the young who would come back first, then families and by now all age groups are traveling again in China. Initially they would do traveling within cities. Then they become comfortable to drive to destinations around their cities. And now in China, the longer haul domestic destinations are attractive again. Initially it was the self-guided tours coming back then it was small group tours. And now large guided group tours and domestic cruises are now allowed again in China.”
In terms of what sort of travel has come back, some themes have remained consistent – food remains popular, however there’s an increase in interest in natural landscape tours and less crowded places.
“We’ve seen a resurgence of interest in beach and resort vacations. And that’s at the expense of city breaks. We used to see visiting top cities as being high on the list that has fallen down and being replaced by natural landscapes and beaches.”
For example, in China, comparing most popular summer holiday destinations in 2020 vs 2019, there’s a significant movement westward, towards emerging destinations, more outdoors and less crowded destinations. Hainan Island has become the top destination of 2020.
Social and video have become more important than ever. Said Saxon, “During the lockdown people spent that time on online travel forums. They spent their time following key opinion leaders, they spent their time reading travel blogs. And online streaming videos became particularly popular both for destinations and also for sales themselves.
“Even after lockdown we’ve seen more interest than ever in these online digital and social channels.”
Looking at the wholesale shift to domestic tourism, Saxon said whether or not that’s a good or bad thing depends on which country you are in.
“Chinese tourists used to spend $230.8 billion more outside China than foreign tourists spend inside China. Therefore, if China’s tourism gets redirected domestically, the China tourism industry is very happy indeed.”
That follow-through is being seen in top end resorts, especially the third tier premium resorts around major tier one cities which are full. “Their revenue is higher than it has ever been because that demand which may once have gone on a weekend trip to Japan, or a short trip to Hong Kong is being redirected domestically.
“So the top end of tourism in China is doing very well as are the countries which are net exports of tourists, which include most of Europe. However, a number of other Asian destinations are net importers of tourists.”
“Countries like Japan, Indonesia and so on are unfortunately, are going to lose out if borders remained closed.”
Saxon said McKinsey was seeing broadly two different sets of recovery strategies globally, and this relates to whether lessons can be drawn from the China recovery.
“We see some countries which are basically saying look, we want to be to zero cases. And then once we reach zero cases, we will open up and allow travel to happen domestically. That has been the pattern for China. And I think it’s also the pattern we’re seeing in other countries such as Thailand, Vietnam, Australia, New Zealand, and so on.
“I think the lessons we’ve seen in China’s recovery are very relevant for these markets. So it’s going to be domestic first, it’s going to be confidence coming back quickly.
“However, there’s another group of countries which apply the following strategy more, like what I call, balance and manage, which basically accepts that there is going to be a continual level of Covid infection in the population and basically accepting that we need to live with that.
“Most of Europe, the US and India are in this category. And unfortunately, I think the lessons from China are much less relevant here. In these markets, the focus really needs to be on social distancing and hygiene and trying to be build confidence in the consumers that they won’t catch the virus on their trip or during the travel for that trip.”
“The time for digital really is now – it was before this crisis, and it absolutely is,” says Steve Saxon.
For those taking lessons from China, Saxon gave these tips.
“First of all, the most important thing is rebuilding demand quickly, get the people back and that’s likely to need some significant discounts in the short term. We saw average airfares fall domestically by 40%. We saw daily rates plummet by similar amounts on hotels. You need to stimulate the recovery and bring demand back. However, you can now start to ratchet that up again and focus again on quality and value.
“Secondly, it’s all about the domestic market, and it will be for some time. So working out how to read, innovate your destinations, so they are attractive to the domestic consumer, thinking about what your natural outdoors destinations are, which are popular in the new wave.
“The time for digital really is now – it was before this crisis, and it absolutely is. Now everyone is comfortable with digital channels, and they’re more important than they ever were.”
As to the travel bubbles opening up between “zero cases first markets”, for example, between Singapore and Hong Kong, Saxon said, assuming they are successful, that model will be expanded more broadly.”
However, he added, “it’s going to be really cautious”.
Asserting his confidence that “travel will be back”, he concluded, “You need to be responsive towards rebuilding the demand during the crisis, and investing in understanding the customer behaviour for the next normal. Everybody needs to be very agile, you don’t know which country is going to be coming back when travel restrictions are going to come down. And fast and quick decision making is going to be key.”
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