New Dynamics and Strategies of China Tourism in 2021

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Tapping into the New Dynamics of China Tourism

-- Opportunities and Strategies

2021旅游业新态势解读:机遇与策略篇

2020 was a remarkably difficult year, the sudden outbreak of Covid-19 has hit many businesses around the world and brought stagnant of social mobility, particularly to the travel industry due to its nature as intensive contact economic activities. Since the beginning of the pandemic, airlines, hotels and cruise companies have experienced sharp declines in revenue, plummeting stock prices and uncertainty of their future in long run.

Overview of Domestic and Cross-border Tourism in China amid Pandemic

Since the outbreak, there has been a cliff-edge decline in domestic and outbound travel volume. Take Ctrip, China's largest online travel agency (OTA) as example, it has canceled tens of millions purchase orders, in amount of more than RMB 31 billion at the initial stage of the outbreak in early 2020. Large-scale tourism service platforms such as Ctrip, Qunar.com barely survived and many small tourism companies are out of businesses and a large number of employees are out of jobs.

Relationship between Passenger TWI and Domestic Civil Aviation Passenger Travel Volume

(10,000person-times)

Data Source: The Civil Aviation Administration released data

Orange line: Traveler Willingness Index (TWI); Blue line: Domestic passenger travel volume 

Data from China News Network shows that in the first half of 2020, there were about 1.2 billion domestic visitors, down 62% year-on-year (YoY). In the second half of the year, with the effective Pandemic control, the domestic tourism industry gradually rebounded, as of October 2020, the number of domestic routes reached 48 million passengers, accounting for 98% of the passenger flow in the same period of 2019. According to the analysis of the relationship between TWI and travel volume published by the Civil Aviation Administration, the decline and rebound of China's tourism industry shows a "V-shaped” recovery for 2020 as indicated in the chart above.

In 2019, outbound tourism accounted for 14% of the China's tourism industry, but in the first half of 2020, only 500,000 outbound tourists made the trip, down 78% YoY. In the second half of the year, cross-border tourism has no significant improvement and the second round of outbreak since December 2020 has exacerbated the negative impact.

Globally, data released by the United Nations World Tourism Organization on January 28th indicated that the outbreak had led to a sharp drop in the number of tourists worldwide, with $1.3 trillion in lost global tourism revenue in 2020, making it the "worst year in the history of tourism". Among them, Asia, hit hardest by the outbreak, recorded the largest drop of 84% visitors to the Asia-Pacific region, followed by Africa and Middle East, with a 75% drop in visitors and a 70% to Europe and the Americas, respectively.

Markets such as Hong Kong and Taiwan, which are highly dependent on international tourism and transit passengers, were severely affected. In September 2020, the total number of inbound and outbound air passenger trips in Hong Kong was down 97.9% YoY. Although these markets have been exploring "fast-track" policy with neighbor countries and regions such as Macau, Singapore and Japan to allow visit each other without 14 days of quarantine, the plan has not yet been widely implemented. In Europe, according to the report from Les Échos on January 8, Atout France indicated that revenues fell to 89 billion euros in 2020, down 41% YoY.

Data Source：Our World in Data

The latest analysis on the international travel controls released by OurWorldinData on Feb17 as shown in the chart above indicates that governments worldwide are still implementing strict travel restrictions due to domestic outbreak prevention and control needs. We can anticipate a long road to recovery for the international tourism market.

New Dynamic of China's Tourism Industry

The global economy is expected to recover slowly from a deep recession in 2021, thanks to the progress in vaccines, despite the second round outbreak has spread around the world. Meanwhile, with the normality of pandemic control policies and wide promotion of the vaccination to bring this pandemic to an end, travel industry economy will rebound along with consumers’ confidence, so to the travel companies revenue and stock prices.

The latest data analysis from OurWorldinData as of Mid-February suggests that the global promotion of Covid-19 vaccine will "normalize travel slowly" in 2021. Particularly the major global economies are expected to gradually open up their outbreak prevention and control measures in the second quarter. However since the outbreak is not yet under control globally, many countries are still reintroducing travel restrictions, such as quarantine, mandatory testing and border closures, thus international tourism market volatility will continue.

KPMG's latest China economic research report shows that China's economy is showing a growing of 2.3% YoY in 2020, making it the only major economy in the world to achieve positive growth last year. Supported by economic fundamentals combined with a rebound in China's domestic tourism market after May 2020, Accenture, the market research firm expect the domestic tourism industry more likely to show a "strong recovery" or "Pandemic coexistence" trend than a "dark moment". Accenture also believes that even with a strong recovery, demand in tourism will not reach the level of the same period in 2019 until at least 2022-2023. Similar predictions are given by most experts from the United Nations World Tourism Organization and MMGY Global, another top market research organization.

The continuous volatility of overseas markets means that cross-border travel companies should adjust their business focus and reduce costs to survive the industry winter and plan for the thrive in the future. Even though the cross-border businesses are greatly impacted, the domestic tourism development is running into a great opportunity. In long run, cross-border tourism will be open eventually, and the impact of the current outbreak will not change the traveler's dream of exploring the world and the momentum of cross-border tourism.

The New Trend of Tourism has begun to manifest in the following five aspects:

1.Domestic tourism has become the main engine of the industry

Given the spread of the pandemic internationally, in May 2020, China's central government issued the "internal circulation" guidance to address the focus on domestic consumption in order to boost future economy. During the National Day holiday in October 2020, domestic tourism consumption has reached RMB 467 bn, account for 70% of the same period in 2019. Original high-frequency outbound tourists are looking for domestic alternatives, such as the high-end unique holiday destinations.

2.Empowered by technology: Contact-free will inspire travelers’ confidence

A series of new Pandemic control measures introduced by the government, such as capacity limits at tourist attractions and real-name booking have changed consumers habit from buying tickets at tourist sites to plan and book in advance through digital payment channels. For instance, online bookings on Ctrip's platform increased 100%YoY at the first four days of the National holiday in October, hitting a record high. Many airlines and airports upgraded their contactless technology at various stages. The speed of the nucleic acid test and the use of digital certificates for the vaccination are also greatly improved.

3. Self-help Tours are getting popular

Chinese consumers’ preference also changed from large-scale group tours before the outbreak to current private self-guided tours to avoid unnecessary direct contact when traveling. At the same time, the outbreak has spawned new forms of travel: small-scale group travel, such as family travel, has become mainstream, and demand for vacations in niche destinations around the city has increased significantly.

 Photo Source from：Zannadu

4. "Leisure business travel" is the new favorite

A third of respondents believe that in the coming year, more and more business travelers will combine business and leisure by arranging personal travel on business trips, according to a market study of 200 Chinese travel agents. The outbreak has upgraded telecommuting and people may be able to move their offices to tourist destinations such as beaches or mountainous areas, any place around the world could be the office.

5.Loyalty shift

In chaotic times of uncertainty, travel prevention and control measures change on weekly basis, it's more important than ever to provide valuable information in a timely manner. By 2021, health, hygiene and safety will be the new key words of customer trust and loyalty. Better service in related areas has also become the key to the success of travel companies.

How to effectively deal with the Change-New Initiatives of Travel Companies

As travel demands diversified by the impact of Pandemic, with the gradual recovery of the tourism industry, how to identify and meet the needs of consumers while cooperating on prevention & control measures such as tracking nucleic acid test results, vaccination certificates in order to promote comfortable and safe travel experiences became the key for tourism businesses to achieve sustainable development.

According to the "New Tourism Consumption Trends Report 2019" released by Yilong and Mafengwo, two major Tourism OTAs in China, virtual reality (VR) and other technologies in the tourism industry are having significant impact on tourism industry, 95% of consumers will browse such tourism contents before travel for decision making. Travel safety became critical in 2021, travel companies with technologies such as 5G and VR are able to provide travelers an enhanced contactless experience that combines reality and virtual environments. For example, the "Digital Yunnan" APP, developed by Yunnan Province in cooperation with Tencent, has successfully integrated the online and offline travel experiences and helps develop contactless self-service travel plans by providing the necessary information.

In addition to presenting on its own platforms, through third party platforms, such as Douban.com (top social networking platform), travel companies can better share travel information, tips and interact with customers. OTAs also adopted new business model by collaborating with third-party live streaming platforms such as Tiktok and Xiaohongshu for marketing campaigns, cross-field cooperation and sales to attract users and convert online traffics to real deals.

Photo Source from：Tiktok

Travel companies can gain market share through adjustment of their value proposition and improvement of tourist experience. With new digital technologies, they are able to make better moves in restructuring product, repricing, acquisition of customers and supporting operations. They can improve automation to reduce direct contact by transforming the fundamental system infrastructure and identify customer preferences through big data analysis from the geographical, consumption level for precise marketing. They can also improve online booking, online payment and other digital functions. As such to achieve the purpose of more precise acquisition, pre-sale and service improvement. 

Favorable National relevant Industrial Policies and early Strategic Planning on International Cooperation

In addition to the above-mentioned strategies, travel companies can also leverage the relevant industrial preferential policies and plan for better transformation.

1.Snow Sports Economy

As the 2022 Beijing Winter Olympics is approaching, China has been making great efforts to prepare for it. According to the "Snow and Ice Sports Development Plan (2016-2025)" formulated by the General Administration of Sport, the total scale of the industry are expected to reach RMB 600bn in 2020 and 1 trillion yuan in 2025. As the bonus of "Winter Olympics", the number of skiers also shows a trend of rapid growth. According to the White Paper on China's Ski Industry (2019), the number of domestic ski resorts increased by 3.77% to 770 in 2019. The number of ski visitors increased to 20.9 million, up 6.09% YoY. The study shows that the number of ski visitors has doubled in just five years. The ski industry is taking advantage of this opportunity to stimulate public enthusiasm in alpine skiing. The state and local governments have introduced favorable policies to help snow sports and the industry. Tourism, hotels, ski equipment, ski clothing, real estate, food & beverage industries are all expected to benefit. The domestic ice and snow industry is embracing unprecedented development opportunities.

Data and Photo Source from：the White Paper on China's Ski Industry (2019)、CGTN

2.Duty Free  Economy

As cross-border travel affected by the pandemic prevention and control, a large number of overseas consumption have been transferred to inside China. In October 2020, the State Administration of Taxation announced 41 cases of exemption from Value-Added tax (VAT), valid from November 1st. Statistics from China Duty Free Group, a leading duty-free company, show that in 2020, sales at four Island duty-free stores in Hainan province doubled to more than RMB32bn with eightfold online revenue growing. According to data released by Hainan Province recently, driven by the sales of duty-free goods, the added value of the province's retail industry increased by 8.1% in 2020, 18.4% higher than before the implementation of the new tax exemption policy, contributing 18.2% to GDP growth. Qingdao government is now planning to replicate Hainan's duty-free economy as from the experience of duty-free sales in Hainan to stimulate consumption and economy, local companies have benefited a lot. In China, no matter in Sanya, Hainan, or cross the country, the high-end tourism retail complex integrating duty-free shopping, catering and entertainment will drive a huge potential market in the future.

 Photo Source from：Zannadu

3.Cruise Economy

In early 2020, thrilling "cruise incident” pushed the industry into the center of storm, Chinese cruise industry has been suspended nearly a year. After upgrade renovating, cruise can almost be regarded as "one of the safest places in the world" and Cross-border cruises are more focused on high-end customization and customer service.

According to the Cruise Green Book: Report on the Development of China's Cruise Industry (2020), the global cruise industry generally believes that the impact of the pandemic is temporary, and the long-term positive trend of the global cruise market remains the same. International cruises have driven the development of Chinese investments and joint ventures in cruise industry. A whole industrial chain of cruise from upstream to downstream, including cruise services, tourism, etc. has begun to take shape and become a new highlight of economic growth.

At present, China has become the world's second largest cruise customers source market, and cruise tourism has great potential for development. Take Shanghai as an example. Gaodong Town in Pudong New Area is taking the luxury cruise industry as the direction of transformation and making every effort to build a special cruise town. It is expected that 40,000 "cruise talents" will gather in the future. Shanghai Waigaoqiao Shipbuilding Co., Ltd. disclosed that it is actively building cruise that made in China.

4. Cultural tourism, sinking market and new ecological model of community

According to a survey by the China Tourism Academy in June 2020, 78.3% of respondents consider cultural experiences the main or part of their travel purpose. The Ministry of Culture and Tourism is vigorously promoting the integrated development of cultural and tourism. Nowadays, B&B landlords have become a participant in the tourism economic recovery of the community in China. Take Airbnb, the San Francisco-based company that eventually listed on NASDAQ in December 2020 as example, it was hit by the outbreak heavily and once the business has fallen by 80% with a loss of nearly $700 million and closure of business in many areas. As the pandemic control ease up gradually, more and more tourists choose B&B rather than hotels, led by the Chinese market recover in the May Day holiday. This help Airbnb unexpectedly profitable in the third quarter of 2020. The B&B Landlords recommended outdoor attractions or activities, cultural attractions, restaurants, cafes, shops or boutiques located in their neighborhood to travelers. This brings considerable economic benefits to the neighborhood and community. In addition to Airbnb, Xiaohongshu(top social networking platform) launched the "Red City Plan" to promote tourist Cities, attractions and featured B&Bs by sharing pictures from "Influencers" travel experts. In addition, Tiktok also promotes targeted tourist cities through live broadcasts and short videos. The focuses to cultural tourism, sinking market and community has become a new ecological model of tourism.

The Future of China's Businesses in Tourism Industry

With the further improvement of living standards and change of market trend, the demand for tourism will continue to increase, and the development of tourism will have considerable prospects. Research shows that by 2025, the number of domestic tourists will exceed 8.3 billion, with tourism revenue approaching RMB10trillion.

2020-2025 Forecast of Domestic Tourist Numbers and Tourism Revenue

(10,000 person-times, billion yuan)

Data Source from: Qianzhan Industry Research Institute

The Covid-19 did not change people's passion for travel, but introduced new business models such as decentralization, personalization, customization and reservation, which opened up new opportunities for tourism reboot and economic recovery. China's tourism industry has picked up faster than most countries with huge market potential. Travel companies are facing industry reshuffling, as Pinduoduo (top social e-commerce platform) and other new players began to explore the development of tourism transportation market, old OTA players such as Ctrip have built moat barriers in resources, technology and servers with the support of traffic advantages, stable back-end server system technology and user guarantee system. New players cannot easily break through with the simple traffic and price model. Travel companies need to analyze the new development trend and make corresponding actions such as take advantages of the relevant preferential policies, make digital transformation and explore the new ecology of the industry with bold innovation. Thus to build up their own competitive advantages and strive to provide differentiated products and high-quality services in order to prevail in this tourism market.