New Zealand tourism within the global environment (2014)

Understanding the macro forces shaping the global tourism market and what they mean for New Zealand’s international tourism industry is a vital component of the Tourism 2025 economic growth framework. This document provides a summary of those forces and what they mean for New Zealand. 

 

(This document was created for the launch of Tourism 2025 in March 2014. It is not updated. See Tourism 2025 - Two Years On for the latest information on the growth framework.))

Executive summary

Globally, tourism is undergoing a once-in-a-generation structural change which will have a significant impact on its future scale and composition.

Four major forces are shaping the global tourism market:

  • A strong positive change is the growth being driven by the growing middle class, which is creating new outbound markets, predominantly in Asia. According to Global Demographics, the middle class will grow by 145 million households between now and 2025. A significant volume of these households reside around the Pacific Rim and could be reached by long-haul aircraft to New Zealand.

This positive force is countered by three tough challenges:

  • the emergence of new tourism destinations
  • the forecast for slowing growth rates for tourism overall, particularly for advanced economies like New Zealand
  • strong and coordinated competition for the tourism dollar from both emerging and advanced economies

New Zealand international tourism – current state

A comprehensive summary of New Zealand’s tourism industry is provided in the State of the Industry 2013 report. In short, for the past 10 years the tourism industry has been tough:

  • arrivals growth has been modest, air connectivity is flat, average spend has reduced
  • top-line revenue has grown at less than inflation
  • visitor mix has shifted to lower average value visitors
  • international market share has been falling

New Zealand’s visitor composition is changing and our source markets are becoming more diversified. Some traditional markets show a significant contraction, most markedly the UK. By contrast, significant growth has come from China, other Asian and non-traditional European markets.

Positively, the industry has picked up in 2013 and there is a greater sense of optimism both within the industry and from commentators. It is important we build on this momentum. Strong and enduring industry alignment and cohesion around the Tourism 2025 themes and initiatives is vital.

Where do we stand on the global stage?

The growth of the middle class in emerging economies around the Pacific Rim presents our greatest opportunity, but over the past ten years New Zealand has lost share of long-haul travel. Other countries have been more effective in competing for growth. Rapid change is likely to continue, with growth of the middle class and on-going technological developments.

While our industry is starting to gain momentum, there are many things we are not well organised for and insights we need which aren’t easily to hand. Collectively we need to find new ways of adapting to change and competing with other countries so we can improve our competitive position.

Changing consumer expectations and trends

Consumer requirements continue to change. Globally, travel trends point to:

  • greater demand for more individual and authentic travel experiences
  • reliance more than ever on technology to plan, buy and review products and services
  • an ageing population base – the growing ‘silver’ travel market
  • greater  empowerment of women

These travel trends are relevant for New Zealand. At the same time we are also experiencing a fundamental change in the cultural composition of our international arrivals and this is forecast to accelerate.

Global change is giving New Zealand an opportunity to grow

Consistent with the shift from West to East, countries with high growth prospects are within our reach.  As noted in Auckland Airport’s Ambition 2020, tourism prospects will be shaped by New Zealand’s ability to respond quickly and effectively to this opportunity.  We need to be open to making the changes needed to help our individual businesses and industry prosper.  Greater alignment and cohesion will help us cope with the rate of global change, build value, and ultimately attract more investment and talent in the future.

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Photo: The growing ‘silvers market’ is a global travel trend/Arrowtown Promotion & Business Association.

Summary of key findings

  • While most New Zealand tourism businesses have a firm understanding of nominal and real growth in top line revenues, we need greater visibility of changes in visitor expenditure at an industry level.

    Recent initiatives such as the release of Regional Tourism Estimates are a step in the right direction but more is needed. We must build a much stronger view of how real tourism expenditure is trending on a monthly basis and for both key and high growth markets. This will then enable the performance of other key indicators (such as arrivals) to be assessed in the context of actual or estimated value outcomes.
  • While we may like to encourage visitors to stay longer, growth may come from shorter stay markets such as Australia and Asia. In this case encouraging visitors to do more and sustaining air connectivity with those short-haul markets will be critical to achieving economic growth targets.
    • Our competitive insight needs more focus. As a starter, the on-going monitoring and publication of market share information is critical to monitoring performance accurately.
    • At a macro level we should continue to:
      • monitor dimensions of competitiveness
      • target to preserve and build awareness for competitive advantage
      • target consumers of the future
      • monitor reputational risks for the industry, e.g. monitoring performance around environmental factors to ensure we can retain our marketing promise in the long-term
      • China presents the single largest market opportunity for our industry. Given the future importance of this market, on-going quality research on this market and market segments is critical. In terms of cultural changes, both industry and government agencies have identified the need to better understand ‘future consumers’, with an initial focus on China.
      • More than ever, we need to research and understand future markets which will be very different from our traditional markets and from New Zealand’s culture. We need:
        • development and refinement of tourism products that are culturally appropriate to these emerging markets and drive the market structure outcomes which will build value
        • to turn today’s barriers into enablers for these consumers
        • to tailor products  to the seasonal preferences of these markets

To outperform our competition, New Zealand must be more strategic than other countries at facilitating high value experiences for consumers from high growth markets.

  • To meet our aspirational goal we will need to increase our competitiveness and take market share from our competitors. We must always seek to understand our proposition relative to our competition (at the country level and for marketing campaigns). This is how the consumer will judge us. Further research on dual destination marketing would help identify the risks and opportunities of mono and/or dual approach for particular markets.

 

 

 

Forces shaping the global tourism market

The world is currently experiencing a once-in-a generation structural change which will see significant growth in the middle class over the next 15 years, the result of improving incomes in some regions. Four major forces are shaping the global tourism market:

  • the rise of new outbound markets
  • the decreasing rate of growth in international arrivals
  • the emergence and strong growth of new destinations
  • the global race for the tourism dollar

The rise of new outbound markets

In 2012 McKinsey Global Institute tried to calculate how the centre of economic gravity has moved since AD 1 and how it is likely to move until 2025. They predicted the centre of economic gravity would rapidly shift eastward, at a speed of 140 kilometres a year. The main reason for this is rapid urbanisation in developing countries, in particular, China. As people are moving into cities, many are becoming richer, driving further economic growth.

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Link to graph source

Over the next 15 years we will see the emergence of a large number of consumers around the world whose tastes will change as their living standards catch up with developed nations. 

By 2030 the Asian middle class will have exploded to represent the majority of the world’s middle class. European and North American middle class populations will stagnate and become relatively less important. The middle class in Latin America and the Middle East Africa will also grow, to a scale similar to North America. 

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Link to graph source - IMF, OECD, Brookings

Asia’s burgeoning middle-class

OECD forecasts show China and India are at the forefront of the expansion of the global middle class:

  • the Chinese share of the middle class will grow most dramatically in the period to 2020
    • India, although poorer, will overtake China by sheer volume of middle class before 2030 and has the potential to grow rapidly for some years - between 2013 and 2030 the Indian middle class may increase by over 1 billion
    • Other Asian share of the middle class will grow by more than 10%

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Link to graph source

When will the middle class travel?

Work undertaken by the Brooking Institute and published by the OECD highlights the important role the middle class plays in driving consumption and that growth in demand is driven by product differentiation, branding, and marketing.

When middle class consumers reach an income of around US$6000 per year, demand for items such as consumer durables rises. We deduce that demand for long haul travel commences as annual incomes exceed US$30,000. Further analysis is provided in Global changes gives NZ opportunity to grow.

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Photo: Asia’s middle class is exploding/Auckland Tourism, Events & Economic Development

Global demand outlook positive but rate of arrivals growth falling

The global demand outlook is positive, but the rate of international arrivals growth is falling:

  • globally, tourism represents 5% of GDP and one in 12 jobs
  • a global record of 1 billion international visitors was reached on 13 December 2012
  • growth in travel averaged 3.9% a year between 1995 and 2010
  • the UNWTO forecasts international visitor arrivals to increase by 3.3% a year from 2010 to 2030, reaching 1.4 billion by 2020 and 1.8 billion by 2030
  • the rate of growth is slowing gradually - from 3.8% in 2012 to 2.5% in 2030

Trend of superior arrivals to emerging markets continuing

Emerging economies have significantly increased their share of visitor arrivals in the last few decades, from 30% of arrivals in 1980 to almost 50% in 2010. Between 2010 and 2030:

  • international visitor arrivals in emerging economy destinations of Asia, Latin America, Central and Eastern Europe, Eastern Mediterranean Europe, the Middle East and Africa will grow at +4.4% a year, double the rate of advanced economy destinations (+2.2% a year)
    • the market share of emerging economies will increase from 47% in 2012 to reach 57% by 2030, equivalent to over 1 billion international visitor arrivals
    • the changing share of emerging economies will represent 186 million more arrivals per year by 2030

Asia Pacific emerging markets will lead new growth

The strongest growth will be seen in the Asia Pacific region, where visitor arrivals are forecast to increase by 331 million to reach 535 million in 2030 (+4.9% per year)

  • Staggering increases in inbound tourism are forecast for North East Asia (China, Korea, Hong Kong, Japan, Mongolia and Taiwan) and South East Asia (Cambodia, Laos, Myanmar, Thailand, Malaysia, Brunei, East Timor, Indonesia, Philippines and Singapore). This is consistent with a phenomenon where the closest countries to the middle class boom see significant increases in short-haul travel. South East Asia currently has similar levels of inbound tourism to Oceania – 12 million arrivals. However, the region is forecast to pass Oceania and increase to 36 million arrivals by 2030.
  • For Oceania (including New Zealand), the UNWTO forecasts below average growth of 2.5% per year to 2030. 

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Link to graph source

New destinations are emerging and growing strongly

Destination markets for international tourism have traditionally been concentrated in the advanced economies of Europe, the Americas, Asia and the Pacific. However, with rising levels of disposable income, many emerging economies have shown fast growth as tourism destinations over recent years, especially in a number of markets in Asia, Central and Eastern Europe and Latin America. 2012 examples include:

  • Myanmar +52%
  • Georgia +36%
  • Azerbaijan +27%
    • Venezuela +19%
    • Bhutan +17%
    • Russia +13%

(source: UNWTO Tourism Highlights, 2013 Edition)

This growth has been supported by several factors:

  • The liberalisation of the former Soviet Block and South East Asia, e.g. the fall of the Berlin Wall and landmark elections in Myanmar in 2012 which opened the country to outsiders.
  • The proximity of destinations to middle income growth.  According to the UNWTO, 80% of worldwide arrivals originate from the same region as their residency.
  • An explosion of physical connectivity, for example demand stimulation from low cost carriers (LCCs) is making access comparatively cheap. While LCCs have been established in the US and Europe for some time, it is only in the past decade that they have emerged in Asia Pacific, Central and South America and the Middle East. Some LCCs in the Asia-Pacific region are growing rapidly, e.g. Indonesia’s AirAsia and SpiceJet launched over 20 routes in the 12 months to August 2013 (Anna Aero, World LCC Route Launches, 12 September 2013).

The combination of these factors allows new destinations to benefit from accessibility and the ‘mystique factor’. A recent example of this is the launch of Golden Myanmar Airlines in 2013.

The global race for the tourism dollar is on

The national tourism plans examined by the project team during development of Tourism 2025 make it clear that other countries are investing heavily to build and retain share in a tourism market that is becoming increasingly competitive. The rationale for this appears to be two-fold:

  • Some advanced economies are targeting tourism growth as a way out of economic recession. This sentiment was summed up in Visit Britain Growth Strategy – Delivering a Golden Legacy July 2012:

“We are running in a global race, and the competition is getting tougher. Other countries have recognised the potential of tourism for delivering growth and jobs in a tough economic climate.”

  • Emerging economies see tourism as a mechanism to achieve quick growth and maintain momentum. For example, the Philippines has developed a strategic vision to become ‘the must experience destination in Asia’. It is calling for investment of NZ$1.4 billion in infrastructure and plans to grow tourism to10 million visitors by 2016, more than double the 4.3 million international visitor arrivals recorded in 2012. The ambition is clear and aspirational. At the same time the Philippines is geographically well-placed and has evidence of high growth.

National Tourism Plans

National tourism plans such as Tourism 2025 assess the current state of the industry, set the ambition for the future and develop a pathway to achieve that ambition.

TIA has identified around 20 national tourism plans from around the globe. It is clear that other countries have seen the importance of developing an overarching strategy and are continuing to invest in driving that strategy.

Countries with national tourism plans are further ahead in their planning and implementation than New Zealand. It is also clear that the race to win Asian visitor growth is on and there is range of strategic and tactical activity being undertaken across the globe to attract Chinese visitors in particular.

As we developed Tourism 2025 we identified themes which are prominent in other country’s national tourism plans. These include:

  • Setting out a vision for the future and key milestones, e.g. Tourism Australia’s Tourism 2020 sets out a three-stage plan:
    • Setting the foundation – 2011 to 2014
    • Seeing the results – 2015 to 2017
    • Achieving the potential – 2018 to 2020

Building a common language for the industry has been one of its first key milestones.

  • Setting an ambitious goal while acknowledging that the actual outcome will fall in a range, e.g. Tourism Australia’s Tourism 2020 goal is to reach overnight visitor expenditure of between A$115 billion and A$140 billion.
  • Organising for success is not easy but is worth pursuing, e.g. Iceland has established a tourism strategy group, acknowledging the complexity and fragmentation of the tourism industry and the need to build better alignment and cooperation.
  • The importance of tourism to the national economy, e.g. promoting a tourism culture by engaging the public as stewards and ambassadors in preserving, developing, promoting, and managing tourism resources as a source of community pride and economic empowerment.
  • The critical role of domestic tourism to the overall health of the industry and ensuring domestic tourism is integrated into the strategy.
  • The importance of developing strategies which consider both medium- and long-term outcomes, given the symbiotic nature of tourism and environmental sustainability.
  • The role of the country brand and initiatives to promote and manage the brand.
  • Benchmarking plans and products against competitors – not necessarily neighbouring countries. New Zealand is referenced in many national plans, particular those offering high-end scenic offerings like Norway and Iceland.

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Australia’s Tourism 2020 sets out a three-stage plan.
Photo: Sydney Opera House/Tourism Australia/Photographer Masaru Kitano snaK Productions

Most of the national tourism plans analysed describe objectives for product, connectivity, visitor experience, labour and skills; they contain productivity, marketing and investment objectives to varying levels, and visitor facilitation to a lesser extent.

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NZ international tourism - current state

It’s been a tough decade

Despite good efforts on various fronts, New Zealand’s international tourism sector has been flat over the 10 years to 2013:

  • arrivals growth has been modest, air connectivity is flat and average spend has reduced
  • top-line revenues have grown at less than inflation
  • visitor mix has shifted to lower average-value visitors
  • market share has been falling since 2003

These macro trends do obscure areas of positive performance, and when we analyse the aggregate figures we can identify sources of growth and value in tourism and the more recent positive trend in 2013. 

Arrivals growth modest and has not translated into revenue growth

Over the past 10 years:

  • New Zealand’s international arrivals growth has averaged 2.2% per year
  • international air capacity has grown at less than 1%, with a real reduction in direct long-haul capacity offset by an increase in Trans-Tasman capacity
  • average spend per international visitor has been reducing 5.3% in real terms per year (after removing inflation) 

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 Link to graph source - NZIER, Statistics NZ

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Link to graph source - NZIER, Statistics NZ, IVS

Improving visitor expenditure visibility

While most New Zealand tourism businesses have a firm understanding of nominal and real growth in top line revenues, we need greater visibility of changes in visitor expenditure at an industry level.

Recent initiatives such as the release of Regional Tourism Estimates are a step in the right direction but more is needed. We must build a much stronger view of how real tourism expenditure is trending on a monthly basis and for both key and high growth markets. This will then enable the performance of other key indicators (such as arrivals) to be assessed in the context of actual or estimated value outcomes.

Tourism Australia provides industry with further segmentation of visitor spend by Nationality, Age and Purpose of Visit which allows are better understanding of how value is distributed and benefits of targeting particular segments.

Visitor mix has shifted to lower average value visitors

The second key contributor to the current state of New Zealand’s international tourism sector is the structural change in our visitor mix. Over the past 10 years holiday visitors have been decreasing proportionally each year. This share of traffic has been replaced by travellers visiting friends and relatives (VFR).

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Link to graph source

On average, between 2003 and 2013 a share of relatively high-spending holiday visitors has been replaced by relatively low-spending VFR visitors.

  • the proportion of visitors on holiday has declined in every region since 2003, though Oceania and Asian proportions are relatively static between 2003 and 2013
  • VFR arrivals growth has been positive across all regions

The market composition of international expenditure has changed

The new Regional Tourism Estimates indicate that since 2009, international tourism expenditure has only seen modest growth and has become more diversified. New Zealand’s reliance on Australia during this period has increased to 35% of spend, while reliance on the UK, the USA and Japan has shrunk substantially over the period.

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 Link to graph source

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Link to graph source

Sustaining short-haul air connectivity

While we may like to encourage visitors to stay longer and do more, growth may come from shorter stay markets such as Australia and Asia. In this case sustaining air connectivity with those short-haul markets will be critical to achieving economic growth targets.

Economic contribution has been slowly but steadily declining

At the highest level, over the past 10 years there has been growth in the direct employment from tourism, but the sector’s relative contribution to the economy has declined since 2003*. 

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Link to graph source

10-year decline in market share

For most markets except Australia, New Zealand is competing for the long-haul traveller. However, we are not currently comprehensively measuring New Zealand’s share of the long-haul travellers from each market.

Tourism Australia publishes market insights on market share performance using a database compiled by Tourism Economics, which is part of the Oxford Economics group.  We have received an extract of that database which shows a 10-year decline in New Zealand’s market share. Market share is based on the share of long-haul market for each market except Australia, which is based on a share of total outbound destinations. 

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Link to source graph

The trends are concerning and show that New Zealand has been losing share of:

  • traditional core markets – UK, USA, Germany
  • newer markets – Japan, Hong Kong and Singapore
  • volume markets, which provide the majority of our growth, notably China and Australia – New Zealand had a competitive advantage for China in 2003 when it was one of a few countries which was an Approved Destination Status for Chinese travel.  By 2013 there were more than 140 countries with this status 

Market share monitoring vital

Our competitive insight needs more focus. As a starter, the on-going monitoring and publication of market share information is critical to monitoring performance accurately.

Tourism Australia faced a similar declining trajectory and now actively monitors market share with a view to protecting its competitive position using the Tourism Economics database.

Tourism Australia is also able to provide insights at the country level on how much travel is occurring out of the region, which other countries are competing for out of region traffic and forecast volumes for that segment of traffic. Read a sample of the insights being provided to the Australian industry. This database also supports the development of more robust forecasts.

2013 – growth in select visitor types and markets

More positively, there has been a clear improvement in visitor arrivals during 2013. Arrivals from January to September 2013 were up 6.0% on the prior corresponding period. Year to September the number of travellers ‘visiting friends/relatives’ has been relatively flat with growth from:

  • holiday visitors, +85,500, up 7.0%
  • other visitors, +12,000, up 4.0%
  • business visitors, +5800, up 3%

While we don’t know the value of this changing composition growth, it does point to an improving revenue outcome.

Growth in the holiday market has been positive since February 2013. Most growth has been from China and to a lesser extent USA and Australia.

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Link to source graph

Improved business volumes are primarily from Australia and to a far lesser extent Germany and China.  The UK has shown the greatest contraction in the period.  

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Link to graph source

On 1 October 2013 new laws came into effect in China which prohibit the selling of tours below cost – “Cheap Shopping Tours”. There has been some reduction in volumes in October predominantly from dual destination inbound Chinese. Mono New Zealand travel and free independent travellers continue to show strong growth.  The law change ought to result in an improvement in the quality of experience for Chinese visitors. For further information on the positive trend towards free independent travellers refer to Figure 17 China visitors to New Zealand – trends in method of travel.

Greater alignment and cohesion required around strategic imperatives

A number of initiatives are likely to have contributed to this recent positive trend.  However, this does not overcome the challenging reality that:

  • New Zealand is struggling to tap Japan and Korean market growth
  • New Zealand is losing share across its traditional, core and volume markets.

The industry needs strategic imperatives that are aligned and cohesive. This will drive improvements in our competitive position and cement a ‘turnaround’ in market share.

Being clear about our strategic imperatives will help the industry cope with the rate of global change, build value over time, and attract more investment and talent in the future.

 

 

 

Where do we stand on the global stage?

New Zealand’s global competitors are making competitive moves and refocusing their priorities towards Asia. In this section we reflect on:

  • New Zealand’s high-level competitive position
  • how New Zealand is positioned for growth

We must preserve and leverage NZ’s competitive advantage

Despite the mixed economic performance, New Zealand tourism’s brand offering benchmarks well against competitors’ brands.

In 2012/2013 FutureBrand ranked New Zealand the 5th highest country brand in the world, down 2 from 2011/2012. The most relevant rankings from a tourism perspective are summarised below:

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Link to graph source

On a global scale New Zealand tourism ranks very well on a number of important measures. The authenticity of New Zealanders and the country’s natural beauty are key sources of competitive advantage.

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Photo: Trips & Tramps

In the World Economic Travel & Tourism Competitiveness Report 2013 New Zealand also benchmarks well. New Zealand has improved its ranking from19th   to 12th of the 140 countries covered in the report. Sources of advantage highlighted in this index are New Zealand’s:

  • rich natural resources and number of World Heritage natural sites (18th)
  • rules and regulations (2nd)
  • pristine natural environment (3rd)
  • very safe and secure environment overall (9th)
  • air transport infrastructure (ranked 12th)
  • high-quality human resources (13th)

We should also consider how we can improve perceptions around other tourism dimensions for which New Zealand does not rank highly, such as food, culture, beach and nightlife.

The New Zealand government, including Tourism New Zealand, has built a strong country brand. However, there are always opportunities to improve our proposition and to manage risks.

For visitors, the 100% Pure New Zealand tourism marketing campaign tells the story of how our landscape, people and activities combine to deliver a visitor experience that is unique to New Zealand. While other countries have changed their marketing campaigns many times, 100% Pure New Zealand has endured for more than 13 years and continues to win international awards.

The government is investing in further building New Zealand Inc’s brand through the development of The New Zealand Story. This is aimed at helping New Zealand export businesses gain a competitive advantage internationally in their business to business engagements.

New Zealand’s brands are very important to our future success. Brand risks and opportunities come in several forms:

  • Business – our responsibility is to lead our individual businesses in ways that are complementary to promises made by business or made in marketing campaigns. For example, being warm and engaging, and taking incremental opportunities to green your business.
  • External events – we must manage and seek to mitigate risks associated with external events such as visitor accidents and deaths which can impact on perceptions of New Zealand as a safe and secure destination. 
  • Non-tourism industry impact – 100% Pure New Zealand is vitally important to our industry. It is impacted both by our tourism industry’s performance and by the performance and policy decisions of other New Zealand industries.

Tourism New Zealand is the lead agency managing the 100% Pure New Zealand tourism marketing campaign.  TIA also has a role collating the views of operators so the industry can contribute to policy decisions that could potentially affect tourism’s image, such as changes to the Crown Minerals Act and water quality. Individual businesses can also add to that voice, as can local government which invests significantly in regional tourism and has a role protecting regional brands.

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Photo: 100% Middle Earth/Tourism New Zealand.

Protecting the brand

At a macro level we should continue to:

  • monitor dimensions of competitiveness
  • preserve and build awareness for competitive advantage
  • target consumers of the future
  • monitor reputational risks for the industry, e.g. monitoring performance around environmental factors to ensure we can retain our marketing promise in the long-term

 

 

 

Changing consumer expectations and trends

New Zealand’s distance from markets makes travelling to our country relatively costly, so we need to deliver high-quality, high-value visitor experiences. This is not new, however consumer expectations and the composition of international arrivals are rapidly changing. High-value experiences developed for mature markets such as the UK and USA will not be enough for future consumers from high-growth markets.

Overarching consumer trends for travel

Consumers will continue to focus on their personal financial situation, time availability and the image and stability of destinations when making travel choices. Industry commentators considering future consumer trends point to:
 

  • greater reliance on technology shaping how consumers plan, buy and travel
  • growing influence of social media
  • individualism and demand for individual and authentic travel experiences
  • greater empowerment of women
  • catering for ageing populations
  • the Barbell effect (high growth in upper and low value segments)

Technology

Technology trends create both risks and opportunities for the tourism industry. To varying degrees, consumers are using online sources to review websites, search, find intermediaries, review, book and follow social media.  The use of internet and online channels varies by market. For more information see Distribution 2020, Tourism Australia  which provides a snapshot of consumer behaviour for a range of visitor markets that are relevant for New Zealand.

Social media increases both the risks and opportunities for individual businesses, depending on how consumer ready or consumer friendly the business is. Uptake is particularly high for Indonesian and Indian travellers and is forecast to increase markedly for China.

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Link to graph source

Individualism

Amadeus predicts the ‘Me Effect’ will lead to fragmentation of the travel market into ever-increasing niches, such as the female business traveller, the small business traveller and the senior traveller. This individualism is expected to be matched with an increased willingness by travellers to self-manage their travel, circumventing traditional sources of information and distribution channels in favour of a ‘do-it yourself’ approach.

This is consistent with analysis shown below of methods of travel for Chinese visitors to New Zealand. Together with significant growth in all types of travel, there has been massive growth in Chinese visitors who identify as being free independent holidaymaker. While we do not know whether these visitors have found New Zealand themselves or have been actively converted, this is a segment we are targeting. For further information on initial insights on independent holidaymakers refer to Auckland Airport’s Ambition 2020: Chinese Traveller Survey.

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Link to to graph source - TNZ, INZ

Greater empowerment of women

Looking forward, global growth consulting firm Frost and Sullivan is predicting a significant increase in female business travel.  In Asia Pacific, business travel today is dominated by men, accounting for almost three-quarters of all business travellers, particularly in Japan, Korea, Indonesia and India.

Frost and Sullivan estimates that in 2011 there were approximately 4.5 million international business trips by women across seven Asia Pacific countries. By 2030 they forecast this to increase by 400%.

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In other regions, particularly from English speaking countries, segments of women travellers are described as including women travelling:

  • without their male partners including short trips to visit friends and family or longer trips with a female friend or tour group
  • solo women travellers – adventurers travelling independently 
  • women only tours 
  • women experiencing lifestyle changes – divoreced, widowed – who are travelling along in groups with friends or daughters 
  • younger single women (20 – 35) 
  • PANKs – professional aunt no kids

In general, women travellers often look for:

  • safety – both physical and psychological 
  • comfort – comfort demands vary from person to 
  • person 
  • connections with like-minded people 
  • social interaction 
  • opportunities to purchase local crafts 
  • opportunities for education and enrichment, allowing for mental and spiritual growth 
  • value for money and no surprises 
  • female-friendly products and experiences

In terms of the travel decision, women have had an important role in making travel decisions for some time.  In general women are more likely to seek peer recommendations or advice. Picking up on earlier references to the trend towards digital particularly for informing travel decisions, women are in general more influenced by social media reviews than men.

Catering for ageing populations

The UNWTO Demographic Change and Tourism report comprehensively covers demographic changes affecting tourism.

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Link to graph source

The report contains a map of the changing age structures for key countries.  In the period to 2030 they predict dramatic growth in the European over 50s population, while during the same period the Asian population will remain mostly under 45.  However, the silver market from Asia is still forecast to be sizeable.  By 2030, Frost and Sullivan predict the following outbound leisure traveller markets over 65: China (12.6m), India (7.3m), Japan (4.5) and Australia (2.4m) (Shaping the Future of Travel in the Asia Pacific, Key Trends Report, UN Population Division).

New Zealand has seen a long-standing trend towards ageing of our visitor arrivals. This is likely to continue, though may be impacted somewhat by a changing inbound market mix.

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Link to graph source

Further insight is required on the varying travel preferences of the ‘silver market’ so that we appropriately cater to this changing and growing market. The industry will also need to consider how New Zealand adapts infrastructure and product to appeal to seniors, while at the same time building value for the sector.

CSIRO Futures, in a report on The Future of Tourism in Queensland, points out that there is diversity within older age cohorts and that there is an emerging healthy, active and mobile older age cohort. We must therefore be careful not to treat the ‘silver’ market as a homogenous group, but rather cater to the different niches within this segment.

The Barbell Effect

Frost and Sullivan identify a further key trend shaping the future of travel which they term the ‘Barbell Effect’ (Shaping the future of travel in Asia Pacific). They predict growth at both the economy and luxury ends of the spectrum.

Although there will be many more travellers from the emerging markets, they will generally be travelling on a budget. While the number of travellers from countries such as China, India and Indonesia in particular will increase exponentially, even by 2030 they will on average be much less wealthy than their counterparts in developed economies. For example, by 2030 GDP per capita in India, China and Indonesia will only be 20 - 25% of that in Australia, Japan, and Singapore.

At the same time, the number of wealthy travellers in emerging economies will also increase significantly. Frost and Sullivan forecast that by 2030, high net worth individuals (HNWIs) will grow seven-fold in China and six-fold in India, outpacing the growth of HNWI in the advanced economies of the USA, Japan and Germany (World Wealth Report 2013, Capgemini).

The cultural mix of inbound tourism is fundamentally changing

We have tried to understand how New Zealand’s changing international visitor profile is likely to affect the composition of inbound travel in the future.

Markets that we have long associated with tourism in New Zealand are called ‘traditional markets’ and include Europe, Japan and Korea. Non-traditional markets with significant ethnic, cultural and religious differences are called ‘new markets’.

Based on extrapolating NZIER forecasts to 2025, annual arrivals to New Zealand are forecast to grow on average by more than 5% for China, Indonesia, India, the Philippines and Vietnam. Other emerging new markets, like South America, are also likely to outpace growth from traditional markets.

global-enviro-fig21.jpg

Link to graph source - Statistics NZ, NZIER

Aggregate visitor arrivals from new markets are expected to grow from 600,000 in 2013 to more than 1.5 million arrivals by 2025. We are therefore entering an era where large tranches of potential visitors will require additional facilitation, such as translation assistance, if New Zealand is to deliver a world class visitor experience and outperform our competitors. Pressures the industry is already experiencing are set to get worse unless we proactively manage the growth of visitors from new markets.

Consumer requirements are dynamic

On-going research is needed to keep on top of changing consumer requirements. Available consumer research for new markets varies by country and consumer segment. High level sources of consumer research include:

  • country-level news feeds on tourism
  • Tourism New Zealand country studies and Active and Emerging Considerer studies
  • research from other national tourism agencies like Tourism Australia that are also targeting new markets
  • conference publications, e.g. TRENZ insights
  • surveys

Individual companies have invested in insights and shared these with the wider industry. Tourism New Zealand, Air New Zealand, Auckland Airport, Christchurch Airport, Regional Tourism Organisations and Convention Incentives New Zealand are among organisations that have invested in ‘China Ready’ type workshops to assist the tourism industry. Halal focused workshops have also been delivered.

Tailored research and keeping abreast of subtle market changes allows businesses to assess emerging trends and innovate in order to target markets and segments which build value. 

China – the largest market opportunity

China presents the single largest market opportunity for our industry. Given the future importance of this market, on-going quality research on this market and market segments is critical.

In terms of cultural changes, both industry and government agencies have identified the need to better understand ‘future consumers’, with an initial focus on China.

Understanding future markets

More than ever, we need to research and understand future markets which will be very different from our traditional markets and from New Zealand’s culture.

We need:

  • development and refinement of tourism products that are culturally appropriate to these emerging markets and drive the market structure outcomes which will build value
  • to ask how do these trends affect our businesses, what do we know about consumer requirements for a particular niche and how quickly can we adapt our tourism experiences and marketing to respond and benefit from consumer trends
  • to turn today’s barriers into enablers for these consumers
  • to tailor products  to the seasonal preferences of those markets

To outperform our competition, New Zealand must be more strategic than other countries at facilitating high value experiences for consumers from high growth markets.

 

 

 

Global change gives NZ opportunity to grow

New Zealand’s best growth opportunities lie around Australasia, Asia and the Americas.

Australia will always be a key market to New Zealand because of its proximity. Within Asia China is a stand-out prospect. Within the Americas, the USA remains an important key market, with emerging prospects in South America, the largest being Brazil.

We have used Global Demographics country and regional forecasts of household income to estimate when long-haul travel will be triggered.  We consider that the kink in the demand curve towards experiences such as travel will occur after consumer good needs are met.  We cannot know precisely, but we deduce that:

  • there will be strong travel within local regions first
  • long-haul travel demand might begin once annual household incomes exceed US$30,000
  • long-haul travel demand will be stronger still once annual incomes exceed US$45,000

According to Global Demographics, worldwide, households with annual income over US$30,000 will grow by 143 million between 2013 and 2025. China accounts for a staggering 50%of this growth. 

The following graphic shows the income distribution for a sample of markets. It is evident that China presents the ‘once in a generation’ target opportunity. At the same time both Japan and Korea are forecast to continue to have strong middle income households out to 2030 and it’s vital we return these markets to growth.

Within emerging markets, Brazil, India and Indonesia represent the next largest growth priorities. Brazil is forecast to have lower growth, but off a more affluent base than India.  By 2025 both countries will have approximately 20 million households with income over US$30,000.

global-enviro-fig22.jpg

Link to graph source

This pipeline of long-haul capable households informs the top of our tourism industry’s international marketing funnel.

Tourism New Zealand further refines the understanding of these markets with ongoing identification and targeting of ‘Emerging Considerers’ and ‘Active Considerers’, which represent the consumers we are seeking to convert. Emerging Considerers are individuals who would consider travelling outside their country sometime in the next three years, are members of upper or middle class, and find New Zealand appealing. Active Considerers intend to travel in the next three years and have a preference for New Zealand.

Further analysis of households within a direct aircraft reach is provided in Grow Sustainable Air Connectivity.

We are reasonably well-positioned to target growth, but must compete hard to win and look to the future

Our ability to continue to attract growth from Australia, China, USA, Japan, and Korea will make a significant difference to our growth forecast. Growth into new markets such as South America, Indonesia, and India will provide opportunities and risk diversification.

Tourism New Zealand’s Active and Emerging Considerer research provides insight at a country level into the consumer perception of New Zealand’s key tourism strengths and weaknesses. While there is a high level of similarity, this does vary by country.

global-enviro-fig23.jpg

Link to graph source

(*Of active considerers that would consider Australia, the proportion that would consider both Australia and New Zealand in one trip.)

New Zealand’s key strengths currently are that we are largely safe (crime, road, consumer protection), have reasonably good infrastructure (relatively easy to make your way around) and the people are welcoming and friendly.

We need to consider how to adapt our offering for future consumers. For example, with an ageing demographic, do we need to augment our reputation for adrenalin seeking visitors to also cater for those seeking ‘soft adventure’.

There a general preference to compete outright and convert consumers directly to New Zealand. It is important to note, however, that Australia generally has a greater visitor pull than New Zealand and has more direct air connections than New Zealand.

As we seek to build a pipeline for new markets for which direct services are currently not possible (such as India), connectivity over Australia provides an opportunity as does Australia’s considerable visitor base. We also need to consider the opportunity to convert mono Australian travellers to also travel to New Zealand.

Growing market share

To meet our aspirational goal we will need to increase our competiveness and take market share from competitors offshore. We must always seek to understand our proposition relative to our competition (at the country level and for a marketing campaign). This is how the consumer will judge us.

Further research on dual destination marketing would help identify the risks and opportunities of mono and/or dual approach for particular markets.

*Revisions to spending by international visitors

Recent upward revisions to the International Visitors Survey (IVS) series and estimates of export education will impact on a number of national tourism statistics currently published in the Tourism Satellite Account (TSA) and featured in this document.

The increase in each component will lead to an increase in the value of international tourism expenditure to the New Zealand economy. The extent of each component’s value and the timespan covered that is to be incorporated into the revised international tourism expenditure estimate is as follows:

  • the full value of the IVS revisions for each year back to year ended March 1999 (start of official TSA time series)
  • the less than 12 month’s component of the export education revisions (consistent with the definition of a tourist) from the year ended March 2004.

The overall revision to international tourism expenditure of $1.9 billion per year on average will result in an increase in international tourism’s contribution to total exports for each year of the official TSA time series.

Revisions to international tourism expenditure will also impact on domestic, specifically household, tourism expenditure. This stems from the allocation of household and international tourist expenditure within GDP changing, meaning an increase in international tourist expenditure will be offset by a similar decrease in household consumption expenditure and ultimately household tourist expenditure.

The expenditure impact on both international and household tourism expenditure has the potential to alter tourism industry ratios being the proportion of an industry’s output consumed by tourists. These ratios are used in the calculation of employment and value added estimates and any ratio changes is likely to lead to revisions in these two components across some or all years of the official time series.

The exact impact of these revisions will be determined in the release of the Tourism Satellite Account: 2014, published in October 2014.