Report OverviewRecent growth in international tourism expenditure has mainly been driven by a handful of emerging markets. Today, China alone accounts for one-fourth of all international tourism expenditure despite just 8.7 percent of Chinese holding a passport, indicating that room for growth in the country is still significant. Emerging outbound markets are strongly correlated to economic and social developments in their respective countries, where a strong middle class often results in a higher overall travel spend. Infrastructure and political stability are also essential and strongly related to economic development. Countries such as China, India, Indonesia, and Brazil, which have a very low number of international departures compared to their total population, are likely to be large sources of future growth. Minimal growth in any of the markets can have a big impact on the tourism industry for the mere sizes of the markets. Travel correlation between economic growth and international tourism expenditure has been also shown in recent years as oil prices have declined. Countries relying on oil exports, such as Brazil and Russia, have experienced pressure on their economies, which has also been reflected in their travel expenditure. China, on the other hand, has seen its move toward free trade bring increase the living standards of many of its citizens even though the country is still effectively controlled by the communist party. By looking at how these markets have grown historically we can determine which countries still have room for growth and at what point they might reach saturation.
What You'll Learn From This Report
- Overview of global International Tourism Expenditure
- Tourism’s shift from developed to emerging markets
- Key markets with potential for growth
- Travel related developments in the markets
- Growth potential of the markets
- Saturation level of the markets
- Rajesh Magow, Co-Founder & Chief Executive Officer-India, MakeMyTrip
Global travel expenditure in perspective
On a global level, international travel expenditure (ITE) has roughly tripled over the past two decades growing from just $462 billion in 1995 to $1.3 trillion in 2015. This growth is strongly correlated with economic development around the world. Globalization and free trade have also allowed for more cooperation between governments, ultimately playing a major role in the issuance of visa and immigration agreements among countries.
Global ITE grew at a CAGR of 5.8 percent over the past two decades seeing just three years with negative growth. Expenditure declined in 2001 (-2 percent), 2009 (-11 percent), and 2015 (-3 percent). The downward trending years coincide with global economic downturns namely the early 2000s recession, which affected mostly Europe and the United States between 2000 and 2003, the global financial crisis in 2008 and the oil crash in 2015. The 2001 and 2009 crises mostly affected the developed world. During the same timeframe the U.S. and Europe made up the majority, roughly 70 to 85 percent, of all international travel expenditure. A growth in ITE from emerging markets may also make the travel industry more “crisis-proof” due to simple diversification.
The largest travel outbound markets
We observe a significant shift in the rankings of largest outbound countries with emerging countries pushing into pole position. Economic growth has increased living standards globally along with demand for travel.. Looking back at 1995 outbound travel was mostly dominated by developed countries with Germany, the United States, the United Kingdom and France in the top five by international travel expenditure. The only Asian country to make it into the top 5 countries by ITE, was Japan.
Overall, the growth trends between 1995 and 2005 remained unchanged. The big five markets remained on top and growth rates at the country level stayed more or less even. While U.S. ITE grew by 61 percent the share of total ITE remained at 13 percent indicating that growth over the decade was likely spread throughout the world.
A further ten years later, the picture looks very different. Germany and UK data suggest that these markets have reached saturation, growing only five and seven percent respectively over 10 years. The largest growth came from China, which from 2005 to 2015 saw an increase in ITE of 1,243 percent, growing at an average CAGR of 31 percent over the past decade.
Robust demand growth from China significantly altered other countries’ share of global ITE. In 2015 China accounted for 21 percent of all ITE while the U.S., although growing by 46 percent over the decade, saw its total share drop from 13 to 11 percent.
Travel’s shift from traditional markets towards emerging markets
While China has grown at unprecedented rates, other countries are also starting to accelerate their economic growth and consequently their ITE. Over the past decade, travel expenditure has begun shifting from developed markets to emerging markets. Traditionally, countries part of the OECD (Organisation for Economic Co-operation and Development), mostly developed countries, made up the vast majority of ITE. Between 1995 to 2005, OECD members accounted for 74 to 79 percent of all travel expenditure while just making up 17 percent of the world’s population.
The landscape has begun to change due to the economic growth seen in emerging markets, particularly China. In 2005, non-OECD members accounted for just 25 percent of travel expenditure. By 2015, the figure reached 49 percent, amounting to $672 billion growing year-over-year in the past decade of which $292 billion come from China alone.
OECD Members: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.
Developed countries tend to have a high ITE per capita while emerging markets have a low ITE per capita. The opposite is observed when looking at ITE per departure. On average, spend per capita in the world today totals $186 and in the OECD region the figure is $545. The gap shows that there is still significant room for growth particularly in non-OECD member countries, where the ITE per capita amounts to just $110.60. We explore relationships between ITE per capita, ITE per departure, and Gross National Income (GNI) per capita in the individual country sections.
While still ruled by the Communist Party of China (CPC), China saw an economic boom after the death of Mao Zedong in 1976 as the country took a stronger free-market approach, allowing free pricing in the marketplace. Between 1978 and 1995, the Chinese economy grew at nine percent per year. The economic growth has continued since and today China is one of the largest promoters of free trade. The Fraser Institute’s Economic Freedom Index ranks China as the 113th freest country in the world with a total of 6.45 points out of 10. The major drivers of China’s economic freedom index are its low inflation on currency and the freedom to trade internationally. The major drawbacks are government enterprises and investments, government spending and the control over the movement of capital and people.
Today China has one of the lowest misery indexes at just 4.5 according to the CATO Institute. The misery index is calculated by multiplying the unemployment rate of a country by the annual inflation rate to portray how the average citizen is doing economically, as high unemployment reduces total income and high inflation reduces purchasing power.
Misery Index = Unemployment * Annual Inflation
China has often been accused of manipulating its currency to stay artificially deflated, to allow the country to boost exports. While we are not in a position to speculate on potential currency manipulation, an undervalued currency would make it more expensive for citizens to partake in international travel as their currency would be less valuable outside of China. Having an undervalued currency could also lead to some citizens deciding to travel domestically rather than internationally. China also has a central bank, controlled by the government, which regulates how its citizens can bank and limits international wealth transfers.
According to the China Outbound Tourism Association, 62 countries currently have visa-on-arrival or visa-free travel policies for Chinese passport holders. Nonetheless, according to data collected by the U.S. International Trade Administration’s National Travel & Tourism Office, the largest number of tourist arrivals in the U.S. came from neighboring countries, Canada and Mexico, followed by the UK and Japan. China came in at number five, with just shy of three million travelers entering the country in 2016. While there were fewer Canadians, Britons, and Japanese tourists in 2016 over previous years, the number of Chinese tourist arrivals to the U.S. increased by 14.7 percent over previous years. In Iceland, Chinese arrivals increased by 40 percent in 2016 over 2015, according to the China Outbound Tourism Association.
China also operates an Approved Destination Status (ADS). An ADS is a status issued by the Chinese National Tourism Association which grants Chinese citizens travel approval to destinations. Chinese citizens can only travel to destinations without an ADS for business reasons. The European Union as a whole received ADS in 2004, the U.S. in 2007, and Canada in 2010. Countries without ADS are not permitted to be advertised nor sold by Chinese travel agencies, and some claim that the government often blacklists countries that hold ADS when there are political tensions.
Chinese Outbound Travel
China became the largest market by ITE in 2014, surpassing the U.S., although only a small fraction of Chinese possess a passport. ITE jumped from just $3.6 billion in 1995 to $292.2 billion in 2015.
China only moved from a one-child to a two-child policy in 2016, and a combination of improved sanitation and rural healthcare accessibility have caused life expectancy to skyrocket. In 1960, Chinese people could count on living to the age of 43; as of 2015, that age is 76, according to the World Bank.
Travelers aged 60 or older comprise around 20 percent of the customers of Chinese mega-OTA Ctrip, and the company expects this segment to continue to grow in years to come. Moreover, this demographic is full of big spenders, taking into account the fact that it’s still only the richest of Chinese who can afford to travel. In an interview with CNN’s Business Traveller, Wolfgang Arlt, Director of the Chinese Outbound Tourism Research Institute, noted that older travelers could spend upwards of USD$5,000 to $7,000 on the trip and upwards of $10,000 or more on shopping once in their destinations.
China has also seen its airline capacity increase over the past decade, going from 1,137 commercial airlines in 2007 to 3,207 in 2017. The government is also looking to significantly increase the number of airports throughout the country. According to a statement issued by the National Development and Reform Commission and the Civil Aviation Administration of China in early 2017 a total of 136 new airports will be built by 2025. As of 2015 the country had 207 commercial airpots.
Travel Expenditure Analysis
China has been growing not only in terms of total ITE but also by number of departures. Yet looking at the growth in ITE on a per capita basis compared to ITE per destination the country still shows a vast divide between the two. In 2015 spend per departure amounted to roughly $2,500 while spend per capita was at just $213. The vaster the gap between the spend per capita and spend per departure the more unlikely it is that the average citizen participates in international travel at all. In saturated travel countries, the spend per capita can be higher than the spend per departure, indicating that on average everyone participates in international travel at least once per year.
Contrasting the spend per departure with GNI (Gross National Income) per capita shows the percentage of GNI a typical departure makes up. In saturated countries such as Germany, France and the United Kingdom, a departure typically makes up between four and six percent of GNI per capita. In China, in 2015 spend per departure made up 31 percent of GNI per capita, thus making up just under one-third of the average Chinese income. With a low GNI per capita, it’s unlikely a citizen will be able to, or willing to, spend one-third of their annual earnings to participate in international travel.
Although China is already the largest outbound market, we believe China still has a large potential for growth in ITE. ITE is hold back due to just 8.7 percent of Chinese holding a passport and the average wage still not allowing for international travel. If the country maintains its current state of economic growth travel expenditure could easily continue growing at the rate it has over the past years.
CAGR growth projection
Over the past decade CAGR was at 25 percent when excluding China’s methodology revision in 2013, which bumped the year-over-year growth for 2014 to 83 percent. China has significant room to grow considering the low passport penetration and the fact that departures make up nine percent of the total population. In developed countries the departures are often more than 100 percent of the population, indicating that on average everyone travels abroad at least once.
It’s highly unlikely that China will continue growing at 25 percent CAGR over the long term. Nevertheless, we do believe China is able to sustain a 15 percent CAGR over the next five years. In that scenario, Chinese ITE could approach $1 trillion by 2024. China will likely see a boom in departures and the average spend per departure shrinking.
What a saturated market may look like
To get a projection of what a saturated Chinese market may look like we can project today’s per capita travel expenditure of developed market and project this upon China. At OECD per capita spend it would be worth $752 billion and $1 trillion at European Union per capita spend.
The projection is purely based on today’s travel spend of developed countries and would require China to become a developed country with significant improvement in living standards for the whole population. However, countries such as South Korea have demonstrated that such growth is achievable in short periods.
South Koreans have both a strong GNI per capita as well as and one of the strongest passports in the world, ranking at number 4 according to the Passport Index. “Power” of a passport is measured by the number of countries it allows visa-free access to. With a growing GNI and overall stable economy, the country is likely to continue its strong growth in travel expenditure it has seen the past 20 years.
South Korea is among the most stable countries in Asia. The country has a low misery index at just 5.5, a high GNI per capita, and a very strong passport. South Korea went from a $280 billion GDP in 1990 to a 1.4 trillion GDP in 2016. This growth has been particularly beneficial for individual citizens; the country ranks as the 42nd most economically free country in the world according to the Fraser Institute’s Economic Freedom Index. South Koreans enjoy a strong currency with the freedom to hold foreign bank accounts and foreign currencies without any limitations.
South Korean Outbound Travel
In 2015 South Korea saw nearly 20 million departures with a total travel expenditure of $27.5 billion. The average spend per departure was $1,427 and the spend per capita was $540, a disparity of 264 percent.
Around a third of the Korean population traveled abroad in 2016 and international travel is predicted to continue growing. Contributing social and economic factors include increases in vacation time and a steadily increasing GDP (and subsequent increase in consumer confidence). South Korea represented Asia’s third largest outbound travel market, after China and Japan respectively. While Korean travelers are far more likely to travel to Asian destinations, these travelers have the means and the motivation to travel more globally.
Outside of Asia, the United States is of particular interest to outbound travelers from Korea. According to the U.S. Department of Commerce, the U.S. is the most popular non-Asian destination for Koreans, who spend around USD$4,900 per trip. In a paper published in the Journal of Economics, Business and Management, researcher Young Seaon Park found that Korean tourists traveling to OECD countries (all of which have moderately high to highly developed economies) are less price-sensitive than when they are traveling to non-OECD countries
When looking at motivations for travel, it’s crucial to note that Koreans by and large live in cities — roughly 82 percent of the population resides in urban areas. This provides a huge opportunity for destinations with natural beauty. A 2008 article in the Journal of Travel & Tourism Marketing found that “Koreans are primarily motivated to travel to Australia for the chance to experience natural environmental settings. According to the U.S. Department of Commerce, the abundance of national parks in the U.S. was also among the key motivating factors for Koreans traveling to the States.
We’re also seeing a shift away from packaged tourism to independent, self-planned travel among Korea’s outbound travelers. According to a 2015 report by consumer market analysis group Mintel Academic, “Outbound travel is becoming more sophisticated as South Koreans transition from taking group package tours to embracing more free independent travel.”
On infrastructure, South Korea has also seen constant growth over the past 10 years in terms of total commercial planes, up from 200 planes in 2007 to 361 in 2017. The country has total of 25 airports with Incheon International Airport, in Seoul, handling 57 million passengers in 2016 compared to 2006 where it saw a total of 28 million passengers.
Travel Expenditure Analysis
While South Korea still has a clear gap between spend per departure and spend per capita on ITE, it has become narrower year-over-year. With its strong position in the world economy and a growing GNI, we predict it to be very likely that the gap will continue to narrow.
Spend per departure makes up five percent of GNI per capita, which is on par with saturated travel markets such as Germany, France, and the United Kingdom.
South Korea’s departures make up 38 percent of the population, indicating that the market is already mature compared to other Asian countries where departures make up less than 10 percent of the population. However, it also shows that there is still significant growth potential in the South Korean market.
CAGR growth projection
Over the past decade, South Korea saw an outbound travel expenditure growth of six percent CAGR, boosting travel expenditure from $16.9 billion to $27.5 billion in 2015. If the country retains a growth rate of five percent year-over-year, it would likely reach EU spending levels by 2023. Even with a more conservative year-over-year growth of three percent, the country should reach an expenditure of $40 billion by 2028.
What a saturated market may look like
South Korea shows that it’s already a strong outbound market, with a higher per capita spend on travel than the average OECD country. However, with the country’s strong economic development and constant growth rate over the past few years, the country will likely catch up with European Union spend per capita in the upcoming decade.
India’s economy has been strictly controlled by the government ever since it gained independence from the UK. Only in the late 20th century, the country “jettisoned four decades of economic isolation and planning, and freed the country’s entrepreneurs for the first time since independence.” India’s average growth rate tripled as it moved toward a freer economy and has been growing ever since. Today the country ranks 112 in economic freedom according to the Fraser Institute’s Economic Freedom of the World: 2016 Annual Report.
Indian Outbound Travel
While India has seen significant growth in travel expenditure over the past few years, with its low GNI per capita and low passport penetration, India is still at the very infancy of its ITE. By population alone, India is likely to become one of the top countries in travel expenditure, yet economic development in the country, which is strongly controlled by the government, will play a vital role in the future development of ITE in the country. The country has a high misery index of 17.1, and according to data from the Ministry of External Affairs just under 5.5 percent of the population held a passport in 2017
The United Nations World Tourism Organization (UNWTO) has predicted that India will account for around 50 million outbound tourists by the year 2020. While economic challenges continue to make it difficult for the vast majority of Indians to travel abroad, even those with the means to travel internationally come across major roadblocks when trying to do so, primarily when it comes to obtaining visas. The U.S. offers 10-year tourist visas to Indian passport holders with family residing stateside, and travelers to the European Union can obtain Schengen visas through a single European country’s embassy. These visas allow for travel throughout the European Schengen Zone without having to apply for visas to each individual country, ideal considering that the majority of travelers to the continent prefer to visit multiple countries during their trips.
Interestingly, and in sharp contrast to other major Asian outbound tourism markets such as China and Korea, Indian outbound tourism tends to be focused more outside of Asia than within it. According to 2015 statistics from the Indian Department of Tourism, The U.S. accounted for the highest number of outbound departures in 2013 and 2014, followed by the UK. Neighboring Sri Lanka came in third, while Russia, Canada, France, Australia, and Germany followed. Interestingly, more developed Asian economies such as Japan, China, and Singapore attracted more Indians than even neighboring Nepal, which Indians can easily visit overland without a passport — a driver’s license or voter ID card is enough, so long as it bears a photograph.
It’s notable that the way Indian tourists travel overseas differs from other markets. Factors such as India’s geographical distance from Europe and North America, generous annual vacation policies, lower salaries and cost of living compared to other major economies, and motivations for travel have a strong impact on expenditure, length of stay, and accommodation choices. A large number of Indian travelers go overseas to visit friends and family, many staying upwards of three or four weeks during their trips, foregoing hotel rooms in favor of staying with loved ones, and generally spending less than their outbound counterparts from other more developed Asian markets.
Indians commercial airline fleet is also conservative given the size of the country. The country currently only has 75 airports however the government has committed to building a further 175 over the next 10 to 15 years. Infrastructure such as air is vital for international travel and the rise of low cost-carriers on the Asian continent can play a vital role in facilitating international travel – if the countries have sufficient airport capacity.
Travel Expenditure Analysis
Although travel spend has seen significant growth over the past 20 years, given the disparity between spend per departure and per capita, travel appears to still only be an option for the wealthy. The spend per capita on international travel in India lies at just $13.51.
Looking at the percentage of average income spend per departure in 2015 made up 54 percent of the GNI per capita. India also has a relatively low, although rapidly growing, GNI per capita at just $1,600.
The underdeveloped state of the Indian outbound travel market can also be observed in its number of annual departures. In 2015 departures made up 1.5 percent of the population. When considering that those who travel abroad are more likely to do so more than once a year, the actual number of Indians partaking in international travel could be well under one percent.
CAGR growth projection
The Indian market has seen an average year-over-year growth of seven percent over the past decade. Even when projecting a CAGR of 15 percent the Indian outbound market would still be worth just $71 billion by 2024.
What a saturated market may look like
India is a likely candidate to seeing a tourism boom like China did. However, the key requirements for such a boom are a relatively free government and strong economic growth, as we learned from China. Fir now the Indian outbound market is still in its infancy.
If India had a spend per capita equal to that of the OECD countries, total outbound expenditure would amount to $722 billion today. If Indian expenditure per capita were to reach that of, it would still amount to $278 billion.
Today Indonesia is ranked 79th on the Fraser Institute’s Economic Freedom Index. Similar to India, the country has seen substantial growth over the past few decades. In 1995 the country had a GDP of $200 billion which in 2016 reached an all-time high for the country, just below $1 trillion. In 2016 the GNI per capita amounted to $3,440. The country has a 17.5 misery index.
Indonesian Outbound Travel
The Indonesian market has also grown significantly over the past 20 years. Tourism expenditure doubled over the past 10 years up to $9.8 billion in 2015. Over the same timespan average income almost tripled increasing access to international travel across the board.
Indonesia’s growing economy has created a more stable middle class with a greater ability to engage in discretionary spending. In contrast to China and some of the more developed economies, where older travelers play a significant role in fueling outbound tourism, the Indonesian population skews young and the majority of Indonesians are of working age (20–60). Visa’s Global Travel Intentions Survey 2015 found that Indonesians traveled for leisure 33 percent more than in 2013 and spent 30 percent more on their overseas travel expenditures than they had in 2013.
The availability of international flights will likely have a large impact the country’s burgeoning outbound tourism industry. Indonesia’s national air carrier, Garuda, has in the past been deemed unsafe by a number of potential destinations, but was recently cleared by the U.S. Federal Aviation Administration to begin flying to the U.S., reducing the need for layovers in Singapore or elsewhere in Southeast Asia. The U.S. has taken steps to streamline the process of visa applications for those traveling in groups, getting visa processing times down to under a week, while allowing Indonesians who have previously visited the U.S. to participate in the Interview Waiver Program.
Markets looking to attract Indonesian tourists will have to anticipate a few cultural scenarios. The vast majority of Indonesian passport holders are practicing Muslims; many follow a halal diet and will need assurance of proper dietary and religious accommodations. The Philippines Department of Tourism has announced a Halal Tourism Program to help certify restaurants and related establishments. As noted in the MasterCard-Crescent Rating Global Muslim Travel Index 2017, Muslim travelers may also require bathroom facilities where hose-style washing devices or other bidet facilities are available in order to maintain religiously prescribed personal hygiene standards. The availability of family-friendly activities is also important. In today’s political and social climate, it’s also important to take steps to ensure that Muslim travelers feel safe from potential violence and verbal abuse, particularly when traveling to areas where negative stereotypes about Muslims prevail.
Indonesia has more than 230 airports in 2011. Due to the 17 thousand islands which make up the Indonesian archipelago airports are vital and therefore Indonesia has such a high airport penetration even when compared to larger countries such as India. Commercial airline capacity has also more than doubled, from just 304 in 2007 to 672 in 2017.
Travel Expenditure Analysis
While the country has seen significant economic development, the disparity between travel spend per capita and departure remains very high. In 2015 spend for departure amounted to $1,198 while spend per capita was at just $37.96. The disparity indicates that, currently, travel is still a luxury for the average Indonesian.
While in 2005 the average international departure made up 95 percent of the average Indonesian income, over the past decade the figure has plummeted with the average spend per departure in 2015 making up 35 percent of the average income. While still a high percentage at over one-third of the average Indonesian income, the figure is likely to continue decreasing over the next years making travel more accessible for Indonesians.
Indonesia already has a higher penetration rate compared to India when it comes to percentage of departures in relation to total population. Nevertheless, the number still remains low at just 3.17 percent.
CAGR growth projection
Over the past decade, Indonesian travel saw a nine percent CAGR. Similar to the Indian market, Indonesia could see a boom in outbound tourism if economic and political circumstances allow. Even at a 15 percent CAGR over the next five years, Indonesia would only reach $26 billion in 2022.
What a saturated market may look like
Projecting an OECD per capita spend on Indonesia would make the market worth $142 billion, compared to $10 billion today. The figures show the country’s immense growth potential.
Russia’s economy boomed after President Vladimir Putin took over for Boris Yeltsin in 1999, and travel expenditure followed that trend. In 1999, Russia had a total travel expenditure of just $7 billion; by 2014 travel expenditure peaked at $55 billion. However, after almost two decades of significant growth, the Russian economic crisis saw travel expenditure in 2015 drop by 30.5 percent.
Russian Outbound Travel
As in most other countries, there is a strong correlation between GDP growth and travel expenditure growth, which is also observable in recent years with a strong decline due to the Russian financial crisis.
Recovering from the economic crisis will be vital for Russia’s outbound travel market. However, Russia is already sending large numbers of tourists out into the world and the future looks bright. The ruble has started to bounce back, as have crude oil prices, and the Russian economy made its way out of recession in the spring of 2017. That said, outbound tourism continues to ebb and flow based largely on restrictions put into place by the government.
According to Russia’s Federal State Statistics Service, Russians made around 4.292 million outbound trips in 2014, decreasing to 3.439 million trips in 2015. The most popular destinations included nearby Finland and Turkey, though travel to the latter dropped dramatically in 2015 and into 2016. In 2015, a Russian fighter jet was shot down by Turkish forces over the border with Syria, causing the Federation to swiftly impose travel bans. The bans were lifted in August of 2016 and Russians have once again started descending upon Turkish cities and shores. A similar situation occurred in Egypt in the same year, when a flight from Sharm el-Sheikh to St. Petersburg crashed, spurring the Kremlin to immediately halt flights between the two countries, which has remained in place well into 2017.
The bulk of Russian tourism continues to take place within Europe, North Africa, and Asia, along with Turkey and Finland. A large numbers of Russians also visit neighboring Kazakhstan and Ukraine, along with sea-and-sun destinations such as Egypt (where many people working in the hospitality industry are proficient in Russian), Greece, and Thailand. In the first quarter of 2016, tourism from Russia into Greece grew by 135 percent according to the Russian Tour Operators Society reported by ITE Travel & Tourism. While this can be obviously attributed to the Turkey travel ban and safety concerns regarding travel in Egypt, ITE points out cultural factors such as a return to religiosity in the Federation — many Russian tourists may be attracted to Greece’s Orthodox holy sites. EU destinations including France and Spain are also popular owing to relaxed visa requirements and new flight routes from Moscow and St. Petersburg.
Travel Expenditure Analysis
While travel expenditure boomed, the gap between expenditure per capita and per departure saw no significant change. In fact, travel expenditure has grown much faster than the number of departures, indicating that rather than more people traveling, those who do are spending more.
Russia’s growing GNI per capita, up until 2014, did narrow the percentage of income spent on an average departure. Pre-crisis, the percentage had been stable at eight percent, yet rose to 10 percent in 2015. GNI per capita also fell sharply from $14,420 in 2014 to $11,600 in 2015.
Russia has a fairly high percentage of departures compared to other non-OECD countries, however, the country saw a decline due to the economic crisis. In 2013 departures made up 38 percent of the population; by 2015 the number fell to 24 percent.
CAGR growth projection
Although the country saw a sharp decline in recent years, it still averaged a CAGR of 10 percent over the past decade. The crisis will impact CAGR in the near future. If the country regains previous growth figures it could reach up to $75 billion outbound travel expenditure by 2022.
What a saturated market may look like
Russia is already a well-established country on the outbound travel front. Even though the country has seen a significant fall in GDP over past years, once the economy recovers there is still room for growth in the Russian market. If Russia reached spend per capita at OECD levels the outbound market value would double.
Turkey’s economy grew significantly beginning in the 21st century, going from $200 billion GDP in 2000 to $857 billion in 2016, almost peaking at $1 trillion in 2013 where it reached $950 billion. Today it has a GNI per capita of $11,180.
Turkey has a customs union with the European Union since 1995, and Germany, the United Kingdom, Italy and France are among its largest export partners.
Probably the biggest political factor that will impact the future of Turkey’s outbound tourism market comes down to the European Union. Turkish and German officials have been working on agreements to help slow down the flow of migration into the EU in light of the Syrian refugee crisis, under a number of conditions, one of which is that the EU allow visa-free travel for Turkish citizens within the Schengen Area.
On Sunday the 8th 2017 the U.S. government suspended visa services in Turkey. Turkey also suspended U.S. visas shortly after, thereby putting an indefinite halt on tourism between to the U.S. and Turkey. In 2015 189,485 from Turkey visited the U.S. and just 37,000 U.S. nationals visited Turkey. The suspension is not likely to have any major effect on Turkey’s ITE as people will just change where they travel to. Due to the low number of travelers between the two countries it will also have no major financial impact on either country.
Turkish Outbound Travel
Turkey spent $5.9 billion on outbound travel in 2015, with an average spend per departure of $649.75. With a misery index of 30.7 and a very controversial political climate. The country has a relatively strong passport but also has strong diplomatic alterations with foreign nations.
The Turkish Ministry of Tourism has been collecting data of returning Turkish citizens since 2003 via an Arriving Citizens Survey in order to better understand outbound tourism among Turkish travelers. The most recent survey findings indicate that in Q2 2017 (April-June), the number of Turkish citizens traveling abroad increased by 12.7 percent over the same period in 2016, totaling in at 2,294,588 people.
According to a report by the Travel & Tourism Intelligence Center, outbound tourism from Turkey is rising, growing by 11.9 percent in 2015. The firm attributes this growth to an increase in disposable income — the country’s middle class grew to 41 percent in 2010, up from only 18 percent in 1993, while the income levels of the country’s bottom 40 percent of owners has grown nearly on par with the growth of population, according to the World Bank. The report also attributes growth to active destination marketing strategies deployed in the country, citing Tourism Malaysia, who reopened their Istanbul offices in 2013 and held media events in the country, as contributing to this growth.
Airline connectivity will also play a large role in the country’s outbound tourism growth. In the past year, the country’s national carrier — Turkish Airlines — has dropped flights from Istanbul to destinations across Europe, Asia, Africa, and the Middle East, including Genoa, Rotterdam, and two Russian cities. At the same time, they’ve added routes to popular outbound tourism destinations such as Zanzibar, Havana, Phuket, and The Seychelles. This could indicate a shift away from catering to inbound tourism, which has declined due to a number of political reasons, including weakened ties with Russia and political unrest within the country that has resulted in it appearing as an unsafe destination.
Travel Expenditure Analysis
Turkey still has a large disparity between spend per departure and per capita. While the spend per departure in 2015 was $649.75 the spend per capita was just $72.64 indicating that not everyone is actively participating in outbound travel.
Turkey almost tripled its GNI per capita since the year 2000. Today the average spend per departure makes up 5 percent of GNI per capita.
Departures made up 11 percent of the Population, showing that there is still a lot of room to grow in terms of individual travelers.
CAGR growth projection
Turkey’s growth rate over the past decade had a CAGR of five percent. At the current growth rate the country would reach $8 billion in ITE by 2022.
What a saturated market may look like
If Turkey today had a spend per capita similar to that of the OECD, it’s outbound travel expenditure would be at around $43 billion. Turkey still has a clear potential of growing outbound expenditure. A saturation phase may be seen at around $40-60 billion.
Brazil is currently facing an economic crisis, with exports and overall GDP declining. GDP fell from $2.6 trillion in 2011 to just $1.8 trillion in 2015 and $1.7 trillion in 2016. Brazil’s current economic crisis is due to multiple factors including the drop in oil prices and political corruption. The country ranks as 124th on the Fraser Institute’s Economic Freedom Index.
Brazilian Outbound Travel
Brazil spent $20.3 billion on travel in 2015, down from $29.9 billion in 2014, the first steep decline in the past 10 years. The country has a very high misery index at 75 points, an unemployment rate of 13 percent, and is currently going through its worst recession ever. Travel spend was strongly correlated with the country’s overall economic performance.
For quite some time, Brazil has been considered among the most sought-after markets for destination marketers looking to attract outbound tourists, both due to its large outbound market and high tourist spending. According to research by the European Travel Commission, around 20 percent of outbound Brazilian travel was to the United States and around 50 percent was to other countries in the Americas. Drivers to growth, particularly to the States, included aggressive marketing from DMOs such as Brand USA along with the streamlining of the U.S. tourist visa process, which considerably more of a hassle for Brazilian passport holders in decades past. In Europe, the process is even easier, and Brazilians do not require visas for tourism-related visits for up to three months. However, the Brazilian government has done its part to discourage outbound travel in favor of domestic tourism, introducing in 2013 a protectionist measure under which Brazilians would be taxed at a rate of 6.38 percent on overseas purchases and ATM withdrawals.
Over the past few years, Brazil has been mired by recession and a complex political scandal involving hundreds of politicians and millions of dollars. This has had a deep impact on Brazilian employment rates and consumer confidence, translating directly into a sudden and marked drop in outbound tourism growth. According to travel consultancy IPK International’s annual World Travel Monitor, Brazilian outbound travel isn’t doing too well, falling by 15 percent to only 1 percent growth in the first eight months of 2016 (note that the Brazilian Real was at its weakest against the US dollar in January of the same year). Monitor findings also indicated that Brazilians were taking 20 percent fewer international vacations and those who did go to foreign countries spent less time in their destinations. Outbound air travel from the country decreased by 25 percent, with more and more Brazilians opting to drive to neighboring destinations (car travel went up by 10 percent). That said, many believe that things will start to improve soon, and the IPK’s Travel Confidence Index indicates the potential for around 3 percent growth by the end of 2017.
Travel Expenditure Analysis
Brazil had a very high and fast growing spend per departure at $3,117 in 2014, which fell to $2,149 in 2015. While the spend per departure is still relatively high, the spend per capita reached only $ 98.83 in 2015, down from $146.90 the previous year.
With unemployment at all times high and the overall state of the recession GNI per capita dropped to $8,840 in 2016. In 2015 when GNI per capita was still at $10,800 the average spend per departure made up 21 percent of the average citizen’s income.
Overall Brazil saw departures increasing over the past decade, with a slowdown due to the recent financial crisis. In 2015 departures made up 4.6 percent of the country’s population, compared to 2005 where the figure was at just 1.8 percent. The numbers show that there is still significant growth possible in terms of departures.
CAGR growth projection
Brazil had a CAGR of 16 percent over the past decade Brazil. However, due to the slowdown in recent years it might take a while for the country to return to consistent growth rates. Overall Brazil still has vast potential for growth. With departure rates at 4.6 percent compared to the population today it’s a true minority of Brazilians who are able to partake in outbound travel.
What a saturated market may look like
Projecting ITE per capita of developed markets on the the Brazilian market shows a likely saturation point around $110-150 billion.
Mexico ranked as 88th country on the Fraser Institute’s Economic Freedom Index. in 2015 the country exported $391 billion. The country has suffered in recent years with a recession in 2008-2009 and most recently the drop of oil prices has strongly affected the country with GDP falling from just under $1.3 trillion in 2014 to $1 trillion in 2016. Mexico’s exports have also seen a decline in 2015.
Mexican Outbound Travel
Mexico’s travel expenditure has tripled over the past two decades, in 1995 the country spent just $3.5 billion on travel expenditure and reached its highest spend to date in 2015 with $12.6 billion spent. Mexico also saw almost continuous growth in travel expenditure apart from a sharp decline during the 2008-2009 Mexican crisis, during which total GDP also fell by 4.7 percent.
According to a report by Canadean, the Mexican outbound tourism market could increase to about 24.6million by 2020. Mexico is one of the most important outbound markets for U.S. tourism and provides the second largest number of annual visitors to the country after Canada. In 2015, 18.73 million Mexican citizens visited the country, accounting for just shy of a quarter of all international arrivals into the U.S. According to a November 2016 report published by the U.S. Department of Commerce’s International Trade Administration, Mexico was to account for 25 percent of inbound visitor volume to the United States by 2021, with an anticipated 16.6 more visitors. However, Donald Trump’s presidency may disrupt this trend significantly, owing largely to the president’s campaign promises to “build a wall” along with the general sense that anti-Mexican sentiment has been normalized or legitimized through his election. It’s likely that Canada will instead scoop up a large number of Mexican leisure travelers looking to head north, owing both to its geographical proximity to the United States and Mexico and to a visa waiver program (effective as of December 2016).According to research by Tourism Economics shared with the L.A. Times, the U.S. tourism market will lose an estimated $1.1 billion due to a decrease in Mexican tourists.
Economic factors also come into play. The peso has not been doing well compared to the U.S. dollar over the past few years, dropping to record lows not long after Trump’s election. This is partially due to investor insecurity regarding the stability of the Mexican economy in light of the President’s “America First” campaign promises, but for the outbound tourist it translates as less money to spend on shopping, transportation, and leisure in the United States. For travelers with the means to go abroad, Europe might also be an attractive alternative, and Mexican passport holders are entitled to visa-free travel both in the United Kingdom and in the Schengen Zone. According to the Canadian Tourism Commission, Mexican travelers are largely interested in history, culture, and urban leisure, all experiences that make Europe (and particularly the most popular European destination among Mexican visitors — Spain) an attractive option. Canada, being a younger country, and one with a tourism industry more heavily reliant on nature-related experiences, may be better off positioning itself as an alternative to the U.S. Those trying to attract Mexican tourists to the States will need to emphasize safety and cultural openness and tolerance to attract visitors.
Travel Expenditure Analysis
On average a Mexican departure amounts to a total of $646.23, while the travel expenditure per capita lies at just $87.91. Indicating that there is still large room for growth which is likely to come with economic development.
Spend per departure made up seven percent of the average Mexican’s yearly income in 2015. While on par with some developed countries, with a lower GNI of just $9,830 it would still be difficult for the average Mexican to partake in international tourism.
Compared to Brazil, Mexico already has a strong number of departures compared to its population, with a 14 percent penetration in 2015. Nevertheless, also showing great room for growth.
CAGR growth projection
Mexico’s ITE saw a CAGR of four percent over the past decade. At current rates the country is projected to reach $16.5 billion in outbound travel expenditure by 2022. A more optimistic outlook, with an eight percent CAGR, would she Mexico at roughly $21 billion outbound travel expenditure by 2022.
What a saturated market may look like
The Mexican outbound market still has significant room for growth. Saturation may be reached around the $80-$100 billion mark, when projecting current developed market spends on Mexico.
Rajesh Magow, Co-Founder & Chief Executive Officer-India, MakeMyTrip.
Skift: Can you give us a broad overview of the online travel market in India, are you competing with international players? MakeMyTrip has roughly a 50% market share, correct?
Rajesh: Let me just touch on the 50% number that you mention. When combining Goibibo and MakeMyTrip the share is actually more than 50% for the online travel market. We used to be 48% just before we acquired Goibibo. I think we would’ve probably gotten into the territory of 60% of the overall OTA market share if you will.
On the flights market the overall online penetration is about 55%. But if you break that into domestic business traveling within India and outside, which is the international travel, then you would find that the domestic market has penetrated much more than international. Our domestic air online market penetration will be well in the sixties, and the international air market penetration is actually probably just 20 percent at this point in time.
There is significant room as we see in terms of shift from offline to online penetration. That is one of the biggest opportunities this year. We are already seeing growth and all of it is outbound, triple digit kind of growth rate. Depending upon the seasonality, and quarter, you can see growth rates anywhere between 55%, 60% 200% in terms of just growth rate of segments. On the domestic flight side, we are growing at double the market growth rate, which is about 16%, 17%. So, at least in the last reported quarters, we’ve grown from 20% to 25%.
As for the overall travel market here, we do have a couple of other local OTAs and we also have Expedia, which has been in the market for about seven, eight years now. There’s also Booking.com and Agoda, but as you know both focus on only on hotel markets and not necessarily on the flights market. But they are there. We also have AirbnB in the market. All the players are there, but the largest share of the market is with the domestic players off the online market across the segments.
Having said that, in the hotel market, both for the domestic market as well as international, booking.com is definitely growing but mostly on the back off the inbound travelers coming into India. Which is understandable because thery’re more popular in the other countries from where people are coming from. For Inbound travelers would use either Expedia, Booking.com, or for that matter Agoda. But domestic and outbound, we are definitely by far the market leader, and other local OTAs have whatever, they’re number two, number three.
Skift: So you’re really tackling the domestic and outbound markets. Are Indians your main customers or do you have traction in other countries as well?
Rajesh: No, predominantly Indians. We have a legacy business. It really started more as inbound in 2000 when we launched because India wasn’t ready for internet then. So we focused on the US-India corridor, non-resident Indians coming to India, but that business is just very small. It was a finite market and we saw the growth coming in from the Indian market, which was domestic traveling within India as well as outbound. So we didn’t really want to grow the inbound business and therefore, all our business that we have is largely domestic and outbound.
Skift: What is your this split between international and domestic travel?
Rajesh: At an aggregate level of flight standalone, hotel standalone, and packages, in terms of transactions done it will be highly skewed towards domestic because the value of the travel in the domestic market will be lower. But in value terms, we would have a very broad split off about 75% coming in from domestic and 25% business coming in from outbound.
Skift: What would it look like in transaction terms?
Rajesh: In transaction terms it will be skewed towards domestic and depends on whether or not you include redBus. If you include the bus and all, it would definitely be in the 90s for domestic and 10% would be international. But if you remove redBus, then it’ll be like 80/20.
Skift: So outbound is the largest growing part of your business?
Rajesh: Outbound travel is definitely growing on all platforms. Significantly higher than domestic. As for our international flights and international hotels, or for that matter international packages the growth rate is definitely higher, but you will have to obviously keep the base in mind, because the base that these growth rates are would be lower. But we are excited about the penetration of the online market in the international space, but we have seen clear trends of where Indians are actually looking to travel abroad, particularly in countries without visa restrictions. So all these on arrival destinations, for example, and there are a few of them in Southeast Asia, they are definitely growing on the online platform.
A large new segment are the youngsters, newly married, going for their honeymoon trips, et cetera. We have seen that people are now opting for international destinations for the first time. A lot of people saving money to at least spend on first holidays that they are going to have together, and the intention is to go outbound than domestic. It’s a very clear trend that you see. So overall, across the board when we look at all the travel types and you see numbers, we do think this is actually growing quite fast.
Skift: Regarding commission rates in the OTA market, are they similar to western commissions, from 10% to 25% or is there a significant difference in the Indian market?
Rajesh: The commission rates depend on the line of business that you talk about. For Air for instance, I would say we are now increasingly becoming similar to the global benchmarks. However, when you look at overall base rate on flights business it has three components. One would be what is coming from the airlines, which is the commission part, as you mentioned. That is very similar to whatever is on the global market. Then the second component is like a service fee or a convenience fee that we charge in India from the customer. That is included in the overall base rate. Then there is a GDS fee, which will also be part of the overall base rate. So what you see in the reported numbers would be air base rate would be anywhere from about anywhere between 6% to 7%. But that doesn’t mean that the airline is paying that much. The airline portion is very small now. It is very close to what the global markets are.
As far as the hotel market is concerned, because our ecosystem in India is skewed toward independent properties, for the chain properties the commission rates are very similar to the global market. But the independent properties, the margin would be relatively higher. Given that they need us a lot more
Skift: What is the Indian government’s approach to online travel? Is there strong regulation about rate parity or competition laws which affect the travel sector? For example, your recent merger?
Rajesh: So, we have a competition division of India here called CCI and we are had to go through the CCI and we got the approval. So they do evaluate is there any monopolization happening, just to say that it’s not impacting the consumer adversely. But we don’t have any regulation otherwise on our day-to-day business which is affecting travel business in terms of any controls either on pricing or on anything else. For intermediaries it’s a free market, so it’s not that there is any kind of regulation around it.
Skift: How do you see the future travel market in India? You mentioned the growth in outbound travelers, and obviously that has implications on spend as well. Do you think we’ll see a gradual growth in India or could we see a boom like in China over the past 10 years?
Rajesh: Looking at all the macro trends, if I look at India macro trends, which is the growth continuing on the GDP level it continues growing. And the trends that I see in terms of increase in income with the certain segment of people and the trends that we see in terms of the travel growth that is happening, let’s say the air market growing overall, which has been growing for the last year and a half, you know, between 15% to kind of 20%, which is a very, very good growth rate. And if I see the trends, or rather the projections from all the airlines, we’re actually adding capacity. So all the local carriers like IndiGo Air, even SpiceJet for that matter, they’re all adding capacity. And part of their capacity they’re going to put it on an international.
Even for full-service carriers like Vistara are adding capacity as well. So if I see all of that data points it’s difficult to not be optimistic on the growth rate to continue. We’ve also seen a lot of infrastructure related spend, be it expansion of airports, be it expansions of road infrastructure, and tourist destination infrastructure. So a lot’s been going on. There has been a tremendous amount of focus on infrastructure spending. So if I look at all of these factors, I think we should stay optimistic on growth rate to continue.
Skift: Great. I guess the growth would be beneficial for your business too…
Rajesh: Absolutely. In our long-term outlook, we are quite optimistic and we do think there’s great opportunity on two counts for us. One is the overall India growing and the market growing, in terms of travel sector growing, and second in terms of under-penetrated online segments where it ties to the digital push happening from the government and the smartphone penetration. We definitely think that will fuel the next level of growth on the under-penetrated segments as well.
Endnotes and Further Reading
- Life expectancy at birth, The World Bank, 2017
- Does China have an aging problem?, China Power, February 2016
- 2016 Monthly Tourism Statistics, National Travel & Tourism Office (US Department of Commerce), 2016
- Chinese Outbound Tourism Statistics in 2016: 122 Million Chinese Tourists Make Outbound Trips Spend $1098 Billion, World Travel Online, February 2017
- Determinants of Korean Outbound Tourism Young Seaon Park, Journal of Economics Business and Management, February 2016
- Urban population in South Korea, Trading Economics, 2017
- South Korea Outbound, Mintel Academic, April 2015
- Korean Outbound Tourism: Pre-Visit Expectations of Australia Edward Y J Kim, Journal of Travel and Tourism Marketing, October 2008
- Korea – Travel and Tourism US Commercial Service, Korea, June 2017
- India Tourism Statistics 2015, Government of India Department of Tourism, 2015
- The Indian Outbound Travel Market with Special Insight into the Image of Europe as a Destination, World Tourism Organization and European Travel Commission, 2009
- Outbound tourism from India, AZ Infotech, 2015
- The Connected Visitor Economy, India Outbound Travel, Pacific Asia Travel Association (PATA)
- Visa Global Travel Intentions Study, Visa, 2015
- MasterCard-CrescentRating Global Muslim Travel Index 2017, MasterCard & CrescentRating, March 2017
- Indonesia: Travel & Tourism, US Commercial Service, 2016
- Indonesia’s Rising Middle-Class and Affluent Consumers, Boston Consulting Group, 2017
- New World Bank Report Looks at Turkey’s Rise to the Threshold of High-Income Status and the Challenges Remaining, The World Bank, December 2014
- Research and Markets: Travel and Tourism Market in Turkey to 2019, BusinessWire, January 2015
- Turkish Airlines set to consolidate in 2017 and 2018 before fleet growth resumes in 2019; still launching new routes but also dropping some, AnnaAero, June 2017
- Tourism Statistics II Quarter: April-June 2017, Turkish Statistical Institute, July 2017
- ITB World Travel Trends Reort 2016 / 2017, IPK International on Behalf of ITB Berlin, 2017
- Marketing Strategies For Tourism Destinations A Competitive Analysis Target Market – Brazil, European Travel Commission, 2014
- Travel and Tourism in Mexico to 2020 ReportBuyer, PRNewsire, April 2016
- Mexico to the USA and Canada Booking analysis, Forwardkeys, March 2017
- Top 10 International Markets: 2016 Visitation and Spending, National Travel & Tourism Office (US Department of Commerce), 2016
- Travel & Tourism Economic Impact 2017 Mexico, World Travel & Tourism Council, March 2017
- Mexican tourists don’t want to visit Trump’s America It will cost us billions, Los Angeles Times, April 2017
- Mexico Market Profile, Canadian Tourism Commission, January 2013
- Russia: Inbound Tourism Up and Outbound Tourism Down, Tourism-Reviewcom, March 2017
- Russia Outbound Tourism: Where Next?, ITE Travel & Tourism, October 2016
- Russia in Figures 2016 Federal State Statistics Service, Russian Federation, 2016