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Other than VFR (visiting friends and relatives) and student travel, whose comeback was immediate, it is business travel that is leading the recovery in China, said Steve Saxon, who leads McKinsey’s Travel, Logistics & Infrastructure Practice in China, and its travel work across Asia.
“Every single company has not seen its overseas offices for three years or its China operations – there is a long list of senior executives who want to come to China, which is an important market. Supply chain customers want to come, Chinese manufacturers want to see their customers,” said Saxon, who himself has been travelling frequently to Singapore since travel restrictions were lifted.
Steve Saxon: “Globally, we have seen a structural decline of 20% in business travel. People used to fly for day meetings, now they are doing Zoom. There is no reason why that won’t be true of China.”
There’s also a similar pattern of longer stays being seen in business trips as elsewhere when borders were first opened but Saxon said, “I am not sure that’s here to stay. There are extenuating circumstances right now. Firstly, inbound visitors have not been for a long time and they are not going to just come for a day, there are also multiple suppliers to visit. In outbound too, Chinese manufacturers travelling to Europe are staying a month because they’ve got much ground to cover, and visas are not that easy to come by.”
Anecdotally, at ITB Berlin, WiT heard reports of Chinese executives who had difficulty obtaining visas for Germany and hence entered the continent through other gateways such as Spain or Italy, and extended their trips to cover as much ground as possible.
Added Saxon, “Secondly, the friction of getting in and out is higher than it used to be – PCR tests, high air fares, people are paying a lot of money for flights.
“And thirdly, flight schedules are not fully back. Take Singapore as an example, there used to be eight flights a day and I had choices but now there are only three a day, and all in the middle of the day, so day trips or short trips are not possible.”
On the inbound front, Jackey Yu, partner in McKinsey’s Hong Kong office who leads its Travel, Tourism and Consumer practice in Greater China and Asia, said suppliers such as hoteliers are not yet fully ready to welcome back the business traveller.
“Meeting rooms are not yet back in full action and in the three years, the payments infrastructure has accelerated so much that it’s a lot of pain for inbound visitors to pay. It was bad before the pandemic, now it’s even harder for foreign visitors to pay – often, they ask their friends to pay via Wechat or Alipay and reimburse their friends.”
Saxon believes that once these friction points are corrected, and flight capacity and schedules reinstated, the business travel market will normalise and indeed will see a structural decline on par with the rest of the world.
“Globally, we have seen a structural decline of 20% in business travel. People used to fly for day meetings, now they are doing Zoom. There is no reason why that won’t be true of China. People are more accepting of remote meetings.
“In my line of work, professional consulting, we used to visit clients every single week, now we can do once every three weeks with video calls in between.”
McKinsey released a report in January, “What to expect from China’s travel rebound”, and projected that if “China’s air travel were to follow Hong Kong’s recovery curve, mainland China would see four million passengers a month by April 2023, pushing air travel back up to 40% of pre-Covid 19 levels.”
However current friction points such as passports, visas, flight capacity and different rules and regulations for different destinations are putting the lid on discretionary leisure travel spending for now.
“Twenty percent of people do not have passports, they stopped renewals during Covid and in the smaller towns, it’s even harder. Chinese also need visas to travel and China was not issuing tourist visas to foreigners, and so we have reciprocal actions being taken. For tour groups to come back, the agency needs a tourism licence and the destination has to be on the approved list.”
This week, China announced it would resume issuing all types of visas for foreigners, including the tourism visa, port visa, and multiple visa-exemption policies starting from March 15, 2023.
What’s clear though is, said Saxon, “the Chinese want to travel again”.
“It is completely clear that the latent demand is there,” he said. “Towards the end of last year when we did our last round of consumer surveys, 40% said they wanted their trip to be outside China. Every destination is seeing spikes. The VFR (visiting friends and relatives) comeback was immediate, along with student travel.”
Saxon predicts leisure travel will pick up by early summer, when international air passengers to and from China will reach 50% of pre-Covid levels.
“The countries that are benefitting the most are those with flexible visa policies, where you can apply online and have developed relationships with China. These include Thailand, Singapore, UAE and Maldives – and another wave likely to come is to Vietnam.”
Yu said that destinations should take the opportunity to showcase their new attractions as well as work with distribution agents with co-branding and co-marketing campaigns. “There is a partnership mindset right now and we have Macau, for example, working with leading OTAs on promotions such as buy one, get one free.”
Saxon said Chinese airlines have been leading the way back, rather than foreign carriers. “They have the capacity and are ready to do so. Unlike other countries, Chinese airlines didn’t fire their staff, so they were able to come back quickly.
“Foreign airlines were caught unawares by the sudden reopening and deployed their capacity elsewhere. Besides, they are making so much money in other markets, they are not in a huge hurry to come back to China.”
Another similar trend is also being seen in China as elsewhere, travellers are seeking experiences first. Said Yu, “We did five or six rounds of consumer surveys through the pandemic and we found types of trips changing a lot in recent waves, with cultural, historical and more experiential topping the list, compared with food and bucket list type places before. On top of that, travellers say they want to spend more on trips in the near future, and all related to entertainment and experience-related activities.”
This trend was also observed by Fliggy whose chief strategy officer and head of corporate development, Simeon Shi, told an audience at ITB Berlin that China’s travel consumption trend has shifted from destination-focused to experience-oriented and interest-driven, fragmenting demand significantly. He advised travel service providers to spend more time researching consumer behavior changes and ways to efficiently meet diverse needs. (Report here)
Join us at China Arising: Hello, New China, where we’ll collaborate with Travel Daily China to put together a short, power-packed event and deliver insights from Chinese travel brands on trends to anticipate. We’ll also hear from external marketers on how they are thinking of the new China for their brands. It’s happening March 30, 2023 at Padang Ballroom, Raffles City Convention Centre. Register here.
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