With more Chinese travelers, budget airline bets on hotels

What a difference five years makes.

In 2010, Chinese outbound travel reached a new high, recording more than 57.4 million overseas trips. This year that number will likely double to more than 110 million trips.

The numbers are difficult to ignore and they are attracting new players to the hospitality space and creating unlikely bedfellows. Across Asia, hotel investors are looking to tap into the huge outbound Chinese market.

In Japan, for example, one real estate company is partnering with a Chinese airline to build new hotels and meet rising demand for accommodation from outbound Chinese tourists.

A deal between Shanghai Sprinter International Travel Service (Group), famous for its budget airline Spring China, plans to work with Japan’s Sun Frontier Fudousan to build a low-cost hotel near Naoya’s Chubu Centrair International Airport by the first half of next year. The hotel would be the first of several.

The deal, unique in the type of partners, could be the beginning of a trend.

The Data
A recently published report by the Fung Business Intelligence Centre (FBIC) Global Retail & Technology and China Luxury Advisers (CLA) suggests that the number of outbound Chinese tourists will double once more in the coming five years. The report predicts that by 2020 the global travel market will include 234 million Chinese travelers spending more than $420 million internationally, compared with $229 this year.

The report primarily focused on the impact of Chinese travelers on the retail sector, but also includes many interesting data points for the global hotel industry. Of particular note, the average Chinese traveler in 2020 will be more likely to spend money on themed travel and independent journeys, marking a move away from the group shopping tours that were once the only way the average Chinese traveler could visit most North American and European destinations a decade ago.

The methodology used by FBIC and CLA involved a survey of more than 1,000 Chinese travelers that focused on net monthly household income, number of international trips taken, travel destinations and shopping behavior for the 12 months beginning May 2014. The resulting data was combined with FBIC proprietary projections of current and future spending by Chinese travelers beyond the PRC’s borders.

Traveler Habits
Although the overseas spend of Chinese travelers will still be the highest on the planet and the gap with American overseas tourist spending will continue to grow, the importance of higher-end Chinese travelers will increasingly be counterbalanced by the swelling numbers of new middle-class travelers, many leaving their country for the first time.

“We expect overall spending by Chinese tourists to maintain rapid growth, but we think growth in the average spend per tourist will moderate in the coming years, reflecting the increased number of middle-income tourists travelling overseas,” the report’s authors wrote.

These travelers should naturally gravitate toward the type of hotels that Shanghai Spring and Sun Frontier plan to build.

The partners expect to launch their first co-branded Spring Sunny Hotel by next June in Aichi Prefecture. The deal calls for an investment of around $164 million to build another three to five properties, but the locations have not been set yet.

“The goal is to encourage Chinese tourists to visit Japan by creating hotels that offer high-quality services at low prices,” China Spring Chairman Wang Zhenghua told reporters in Shanghai.

“It is the first time for Sun Frontier Fudousan to do business with a Chinese company, and we are expecting to have stable earnings from out hotel assets,” Hirayama Shigeki, investor relations manager for the Japanese real estate company told Hotel Management.

There are not enough hotels in Japan, because inbound needs are increasing so rapidly. There is a shortage of accommodations. We can provide services required by Chinese tourists, and it will include Japanese hospitality, restaurants with a rich menu, and language support.”

China’s outbound MICE market also appears likely to receive a boost from new trends in Chinese corporate culture, according to the FBIC/CLA report. This year the potential of Chinese corporate incentive trips was on display when a Chinese company treated 6,400 employees to a trip to Paris.

“Greater propensity for businesses to sponsor incentive trips for their employees, including recent high-profile groups in Europe and the United States,” the report said. “With employers picking up their employees’ travel costs, individuals will have a greater propensity to spend money on shopping.”