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August 10, 2015

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Where will they go next? UBS looks at trends in Chinese tourism

The number of outbound Chinese tourists has doubled over the past five years from 57.4 million to 116.6 million in 2014. Few will doubt the future growth potential of China’s mainland outbound tourism, but what is more interesting is where and how Chinese tourists will travel, and what they will do abroad.

To help investors better understand the likely behavior of Chinese tourists and anticipate future trends, UBS conducted a survey in April of 2,924 middle- and high-income residents in 20 first- and second-tier Chinese cities.

The respondents were a mix of those who had travelled abroad in the past 15 months and those with travel plans in the next 12 months.

The sample size was chosen to be representative of the market. Published on 15 June, the survey showed that the average number of trips (excluding Hong Kong and Macau) planned for the next 12 months to be 2.4, compared to 2.6 in the past 15 months.

Approximately 63 percent of outbound tourists are independent travellers — a segment that is expected to continue to dominate in the next 12 months at the expense of package tours.

Japan and South Korea will remain the most popular destinations over the next 12 months, and strong retention rates for both Japan, at 45 percent, and South Korea, at 40 percent, indicate a high probability that they will be subject to repeat visits.

While the outbreak of Middle East Respiratory Syndrome (MERS) could have a short-term impact on South Korea, we believe that the weakness of both the yen and the won will continue to be incentives.

The survey shows a substantial increase in the popularity of Australia and New Zealand as destinations for Chinese tourists.

In 2014, China was the second-largest inbound market for Auckland Airport and the third-largest for Sydney Airport.

This points toward an increase in the number of visits and should limit potential passenger yield pressure for the airlines.

Although Hong Kong is still by far the preferred shopping destination, there are red flags. First, the city had one of the lowest scores for “the shopping experience.” Second, if the price of luxury goods are the same on the Chinese mainland as they are overseas, 51 percent of respondents said they would continue to shop overseas but spend less, while 11 percent said they would no longer shop overseas.

Taking into account future import tax cuts, UBS believes this could lead to a decline in retail sales in Hong Kong.

Surprisingly, Chinese mainland travellers ranked scheduling convenience and direct flights ahead of price as the most important factors to consider when choosing an airline.

This poses risks to Hong Kong as a transit hub and likely explains why respondents were loyal to local brands that provide more direct flights out of Chinese mainland. Macau continues to appeal to Chinese mainland visitors, but high room rates are deterring overnight visits.

While Taiwan remains the third-most visited destination by Chinese mainland travelers, both for business and leisure, regional destinations are quickly closing the gap. Taiwan’s low average retention rate and uncompetitive shopping environment suggest leisure-driven passenger traffic growth and the uptrend in hotel occupancy rates are likely to decelerate.

About 60 percent of respondents indicated shopping as one of their top activities, and on average they spend between 10,000 yuan (US$1,610) and 12,000 yuan, which represents about a third of their total spending per trip. Cosmetics, apparel and accessories are some of the most popular purchases. On average, a Chinese household is willing to spend 950 yuan per night on 4-5 star accommodation during outbound travel.

Finally, 92 percent of respondents were already aware of Shanghai Disneyland, and 93 percent said they would definitely or probably visit, even though marketing is yet to begin, which bodes well for the opening.


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