Coronavirus and the Shake Up of the Chinese Outbound Tourism Market

Latest news reports about the coronavirus indicate that the virus has spread to 4,500 people, and 100 reported fatalities inside China and mounting. The virus is spreading at an accelerated rate lending to fears that containment is far from over. No fatalities have been reported outside China yet.

From a tourism perspective it has never been so bad in my career focusing on China’s outbound tourism. All tourist groups out of China have been cancelled from 27 January, some until February 10th, some till March already. Restrictions have been placed on Mainland Chinese traveling to Hong Kong. School holidays have been extended in most major cities including especially the epicenter of Wuhan but now also Hong Kong, Shanghai etc. Confirmed cases of coronavirus have been reported in popular tourist destinations for China namely Thailand, Malaysia, Japan, Singapore, South Korea and even in long haul destinations Australia, United States, France, Canada and Germany. Face masks are reported to being sold out in some European and North American cities.

With concerted effort it is hoped the virus can be contained within the next three months to allow for the Chinese outbound tourism industry to recover by the summer. Unlike SARS with initial official denials and the population not taking concerns to seriously (most of us living in China during SARS remember it a fun period hanging out with friends with all schools and companies closed down) this is a vastly different situation with China largely on lock down, people are staying in their apartments and only venturing out for essentials. While the world’s media attention has been focused on the trade war between the United States and China, it is the world’s developing countries that rely on tourism that will now suffer far more due to the tourism downturn associated with coronavirus. Many a tourism developing country has come to be dependent on Chinese tourists and their spend. No Chinese tourists, no money.

It’s a tough time for China’s outbound tour operators. Tour operators focused on the popular Australian market have been under pressure for some time now with the gradual shift away from group travel to family & friends small group and FIT travel. Then there was the bush fire. Japan had a phenomenal last year with Chinese groups surging but that has now come to an abrupt halt. Thailand, also a major come back destination for China in 2019 now not only will suffer significant decreased Chinese arrivals but should see a decrease in all arrivals now that it has confirmed cases of coronavirus, the most outside of China. Malaysia and Vietnam face a similar situation. The Middle East also experienced a growth in Chinese groups in 2019 following a depressed 2018 due to security concerns, then the USA assassinated Iran’s leading General sparking instant and grave fears for travel to the region and associated cancellations.

Western European destinations struggled to attract a growing market of group tourists, but where traditionally popular Western Europe failed Southern and Eastern Europe succeeded. While on holiday in Florence, Italy last summer I saw the largest concentration of Chinese tourists on the streets I have ever seen outside of China. North America was a bit of a disaster for group Chinese tourists in 2019 thanks to geo-political antagonism in the the form of Trump’s trade war and Canada’s holding of Huawai’s CFO and the founder’s daughter for possible extradition to the USA. There was hope for a recovery of the market once these political factors subsided. South America gained from North America’s group tourism loses with increases to the leading Latin American tourist destinations. But not without its troubles either, with international attention momentarily focused on the Amazon fires in Brazil and protests that rocked Santiago. Africa for 2019 changed little from 2018 in terms of group Chinese travel. China remained a life-line to straggling Egypt but waned for other traditionally popular destinations like South Africa and Kenya. Growth came for niche destinations Namibia, Rwanda and Ethiopia, but their base line numbers are so relatively low it will take them years to reach their full China arrivals potential.

2018 and 2019 can probably be characterized as a turning point from a decade of constant group tourism growth from China. While official statistics showed that total Chinese outbound tourism grew 12% in 2019, it appears that growth with group tourism was erratic and it is hard to imagine how FIT travel picked up the slack in the numbers.

Besides the general concern over a slowing in growth of group travel from China, what is becoming particularly concerning in the industry is the volatility of the market. While the market could not grow forever and declines were expected sooner than later due to the slowing of the Chinese economy (China just recently announced their lowest GDP growth quarterly figures in decades) the market has now become quite erratic. Some new destinations experience 800% growth in 12-24 months, while other traditionally popular destinations have lost 35-50% of their Chinese arrivals in 12 months. I literally couldn’t believe it when I read of a 35% drop for a once popular tourist destination that has seemingly been in the market for years.

To be sure, the Chinese tour operator industry itself is already very volatile, some outbound tour operators have already gone bankrupt, more are under severe financial strain. The growing market volatility over the past two years has created a situation that is set to be compounded by the coronavirus. “Only when the tide goes out do you discover who has been swimming naked”, the famous quote by the more famous Warren Buffett, seems to be the apt description of the situation before us. If I’m not mistaken, a major shake-up of the industry is now under way.

Who created the volatility in the first place? China had to move from undeveloped to mature outbound tourism market through lengthly cycles as all countries do, so a lot of it is cyclical and developmental in nature. But everyone can take a share of the blame starting with Chinese tourist consumers themselves, the Chinese outbound tour operators, the market regulation, the foreign destinations receiving the Chinese tourists including the local landing operators through to the hotels, restaurants and shops.

To start off with, those that entertain, encourage and engage in shopping tourism with sales commissions used as a system to subsidize travel products below the market rate have done nothing to help stabilize the Chinese tourist market. The creation of artificial markets and subsidized products have only vastly reduced travel standards that has exasperated volatility in the market. Most if not all are guilty of this. Operational standards are also not great, how many country destination tourism leaders have actively promoted growth of low quality wholesale group market business to their countries over tailor-made higher quality groups that they can proudly and loudly announce their great Chinese tourist arrival numbers but keep silent on how much the spend was, what the quality was, and how many/few of their own citizens actually benefited from the tourists. Take it to an even more basic level, how many country tourism bureaus actually have accurate data on Chinese tourist arrivals to their countries? Who was a tourist and who was a business person? How many group travelers versus FIT travelers from China, which cities do they come from and are what are their genders? Never-mind how much did they spend and where. Many simply don’t know so its anyone's guess how planning is conducted. Too many tourist destinations have done too little to improve and increase the number and quality of Chinese speaking tour guides in their counties, every year its the same problem. The list continues on and on. It's not all doom and gloom, a number of foreign destinations and products have truly learnt how to welcome and treat their Chinese tourist guests with respect and even though it remains challenging, business has been sustained and good. A lot can be learnt out there.

In some ways it feels like too many actors in the industry, both the tour operators and the country destinations are treating the Chinese outbound tourist market like a casino, come and go, throw money around, win and lose, a game. And it has started to show. Many tour operators have lost track of what standard operating procedures are, and are facing critical times. On the other hand many country destinations hoping to receive Chinese tourists have completely forgotten, ignored or completely misunderstood the outbound Chinese tour operators. As an example, if I was in charge of a long-haul tourist destination with limited marketing resources, my China focus would specifically be on Chinese women and men (especially women, but the male segment is growing) between the ages of 55 and 75, and I would go look for them with China’s more high-end group tour operators because they are the driving force behind Chinese tourist arrivals and monetary spend to new long haul destinations.

With the current challenge of coronavirus the Chinese government is encouraging tour operators to refund customers paid monies but many costs have been incurred already such as visa fees, air tickets and hotels. In this special situation the government will work with suppliers to extend refunds or credits till the end of the year. But either way the tour operators will take a knock which will shake up an already volatile industry. When the market returns to normality hopefully by the summer, I suspect things will not be the same again.

Volatility is set to increase, and destinations that treat the China travel market like a casino will see their wins and loses come and go in a similar fashion. For the prudent destinations it will be back to the drawing board to fix their fundamentals that have been taken for granted for far too long, because going forward the Chinese outbound tourist market-share will only come with a well planned and executed fight. Sure, some destinations will absolutely make quick and unexpected wins with little to no effort at all, that comes with the volatility, but they will also lose it just as quickly. 

All need to contribute to a healthy Chinese outbound market, this current existential crisis will be the catalyst. How can your organization contribute to a healthy, sustainable and lucrative China outbound travel market? For emerging countries rich in tourism resources that needs Chinese outbound tourism to achieve its developmental goals, this is your space and time to repair and prepare. The market has already changed, it's changing more.