In 1994 China welcomed 43.7 million foreign visitors, placing it 10th in the world, and accrued US$7.3 billion in tourism receipts. The People's Daily has quoted He Guangwei, head of the China National Tourism Administration, as saying that by the year 2000 China expects up to 54.7 million overseas tourists with earnings of $13-14 billion a year. The number of domestic Chinese tourists soared in 1995, hitting 600 million following the decrease in the work week to five days, according to the CNTA.
This explosion in tourism comes as China emerges as the economic powerhouse of the Asia-Pacific region, bumping Japan out of the place it has held for so long. Total trade of US$196 billion in 1994, up 18 per cent from 1993, is a broad indication of the economic importance of the country that is home to one third of the world's population.
More and more international corporations based in North America, Asia and Europe are turning their attention to China's market. At the end of 1994, 220,000 foreign investment projects had been approved worth US$95.5 billion. And the Chinese are aggressively expanding into the rest of the world. By the end of 1994, 4,600 overseas Chinese enterprises were set up in 130 countries and regions for a total investment of US$5 billion.
The nationwide average income was officially $537 a year in 1995. By adding income from moonlighting jobs in private business and black market activities, more accurate estimates place real average incomes as high as $2,500. By Western standards that is not much, but in China the work unit subsidises housing, education, health care, child care, transport and retirement, so workers' disposable incomes are very high.
This high disposable income is creating more competition for a piece of the Chinese consumer market. Among the likes of Coca Cola, McDonalds, Kentucky Fried Chicken, Microsoft, Apple, Mercedes and General Motors, the Chinese consumer is one of the most sought after in the world. The travel industry is no exception.
Demand for airline seats has reached an all-time high. China's airlines were expected to carry a record 51.5 million passengers in 1995, according to the Civil Aviation Administration of China (CAAC). That's an increase of 27.5 per cent over 1994, and 12.3 per cent average annual growth is forecast in 1996-2013. Chase Manhattan Bank expects China to spend US$100 billion on new aircraft over the next 20 years, making China the world's third largest aircraft market after the US and Japan.
By the end of 1994, CAAC had approved 727 air routes. Of these, 630 were domestic, an increase of 449 over 1980. The number of international routes has increased from 18 in 1980 to 84 in 1994. Most domestic flights are booked to capacity, but internationally China faces intense competition from airlines with newer technology, better advertising campaigns, more hard currency, and a greater understanding of passenger needs.
In most countries, deregulation and economic fluctuations have caused the numbers of travel agencies to decline each year. The opposite is true in China. The loosening of regulations on both domestic and international leisure travel by Chinese citizens and a vast increase in the number of business trips have caused an enormous growth in travel agencies. By May 1995 there were 4,368 travel agencies in China, an increase of 1,130 or 30 per cent since the beginning of 1994.
There are 180 Category A agencies, which liaise with foreign tour operators and travel agencies directly and receive foreign visitors. A further 988 Category B agencies receive foreign visitors. The 3,200 Category C agencies only handle Chinese domestic travellers.
The three largest agencies are China Travel Service (CTS), China International Travel Service (CITS) and China Youth Travel Service (CYTS). Of the 2.9 million foreign visitors received by travel agencies in 1994, 28 per cent were customers of CITS, 21 per cent were with CTS, and 8 per cent were with CYTS.
China Travel Service is representative of the other large agencies in the diversity of operations that exist under the umbrella company, China Travel Services Group of China. The group has investments in a variety of businesses that are not involved in travel. In fact, the majority of its revenue comes from sources outside the travel business.
In western terms, CTS can most readily be compared with the large travel groups in Europe, especially Germany and the UK, where there is a high degree of vertical and horizontal integration. The group has hotels, both wholly owned and joint ventures like the Hilton and Holiday Inn in Beijing, and encompasses bus and tour operators, cargo companies, property management services and duty free shops. It even has its own university. The subsidiary, China Travel Service Head Office, has more than 250 branches throughout mainland China.
Even more diverse is China Travel Service (Holdings) Hong Kong Limited. This is a division of the group, but it operates separately from the travel services in mainland China. In addition to travel services, this division owns part of Cathay Pacific Airways, a charter flight company, a bus operator, hotels and a hotel management company. Its investment company owns various tourist sites and companies involved with cargo, warehousing, exports, real estate, travel services hardware and software and business automation. It has a business computing consultancy, a construction, engineering and interior decoration service, and a suite of other companies.
CAAC and the airlines devolved from it, led by Air China, China Eastern and China Southern, have developed computer reservation and ticketing systems, departure control and international aviation accounting systems. Computer networks have been established in airline offices in 71 domestic cities and 40 CAAC agencies abroad. However, most of the reported 10,500 terminals connected to the system are in airline offices, with very few of the Chinese travel agencies having access. Most reservations are still by phone and most agencies still hand-write tickets.
The largest agencies in China are all in the planning stage of automating their processes. Some already have automated back office systems and are either planning to build their own tour operator systems or are looking to purchase off the shelf systems and hardware. CYTS will import advanced management skills and technology for its nationwide operations in order to upgrade its travel services, according to its chairman Zhang Xiqin.
China International Travel Service (CITS) caused quite a stir in China when it partnered with Jetset to modify and implement the Australian company's distribution system for the Chinese market. CTS and CITS also plan to automate their entire travel service operations, including travel agency and tour operations.
Even the second tier Category A agencies are beginning to look at automation alternatives. Cao Yawei, vice general manager of China Golden Bridge Travel Service, reports that his company intends to automate, beginning with an accounting system and then moving to the front office. Both Rosenbluth and American Express have joined forces with Chinese travel agencies to provide travel management services in China; Rosenbluth with Shanghai Spring Travel and American Express with CITS. The market is still highly regulated and the thrust to have offices in China was customer driven, but there is great potential in the business travel sector.
Business travel has increased sharply, with 2.1 million out-bound business trips by Chinese nationals in 1994. Of the total 3.7 million business and leisure outbound trips by Chinese nationals in 1994, only 1.1 million, or less than 30 per cent, were organised by travel agencies. That leaves an enormous market potential for travel agencies.
The global distribution systems (GDS) are all competing to have a piece of the transaction fees from the automation of Chinese travel agencies. Abacus, Amadeus, Galileo, Sabre and Gets recently signed distribution agreements with CAAC's Management Information System, MIS/CAAC, which hosts 25 Chinese airlines. These agreements are expected eventually to allow travel agents in China and around the world to make bookings on participating carriers.
The two year agreement between Sabre and MIS/CAAC will provide connection to 25 Chinese carriers for Sabre subscribers worldwide. Sabre will also share technology to assist MIS/CAAC in developing its own computer reservation system. Amadeus and Abacus are now connected with access for Chinese travel agents, but very few agents are equipped yet. Galileo says Chinese travel agents will be able to book flights on 50 non-Chinese major airlines from the second quarter of this year, with immediate confirmation.
'China is one of our prime target markets,' says David Brett, director of Americas, Asia and Pacific for Amadeus. But none of the GDS seem to know what the long term future holds for them in China as MIS/ CAAC controls the distribution process. 'Even though things are uncertain, we can't afford not to be there,' comments Timothy O'Neil Dunne, head of international technology for Worldspan, a shareholder in Abacus.
The benefits to the GDS subscribers outside China are clear cut. They will be able to book and ticket Chinese airlines through these connections and perhaps in future may have access to rail and tour products. But it is unclear how MIS/CAAC will use GDS in upgrading its own CRS, and more importantly how it will sell the systems in China.
Travel agencies in China also operate as tour operators and require a great deal more automation than that provided by GDS. In addition to the ability to book air, hotel and cars, Chinese travel agencies need to be able to package tours and distribute them both inside and outside China. They have to cope with a multitude of languages and currencies. The larger agencies already have back office accounting systems and, once front office automation is introduced, will require accounting systems that interface with the front office and tour operator systems.
Each GDS is hoping that it will be chosen by MIS /CAAC as the primary system after the two-year 'test period'. In this controlled environment with future potential for large transaction volumes, it is not hard to imagine that MIS/CAAC would 'sell' access to all GDS systems, retaining a portion of all transaction fees by acting as a re-seller of system connections in China.
Although MIS/CAAC is in control of the distribution network for Chinese airlines, it does not control the automation choices of the Chinese travel agencies. China National Tourism Administration is in charge of licensing and regulating travel agencies, tour operators and hotels, and an official says approval must be received from CNTA before new automation will be allowed in any travel agency. These two governmental entities, CNTA and CAAC, are not always in agreement.
China continues to modernise its economy. It has unified its dual exchange rate system, adopted a new tax system that is in line with IMF World Bank standards, and relaxed its visa regulations. It is reshaping its public enterprises, including the airlines and travel agencies, and, as it prepares for privatisation, it is encouraging foreign investment in aviation and tourism infrastructure projects.
Fuelling this trend will be the emergence of a new tourism triangle linking Hong Kong, China and Taiwan in a network of transport alternatives catering for business and recreational travellers. With the return of Hong Kong to Chinese sovereignty and the likely establishment of direct flights between Taiwan and the mainland, the desire of Chinese to travel within 'greater China' will create increasing demand for foreign travel service management, skills and technology.
China is in the mood to buy and, with billions of dollars at stake, it is encouraging dogfights among competing suppliers of technology and information systems. Travel technology companies that have patience and stamina will be well placed to take advantage.
Elaine White is chief executive of The Global Group Enterprises, a network of travel technology and management consultants.
Source: Airline Business
