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FEATURE www.travelweeklyweb.com Macroeconomic forecasts for future travel The discussion above has focused on the immediate recovery from recession and some of the trends which emerged in the period preceding it. However, it is also instructive to look forward. Oxford Economics (OE) undertakes regular forecasts of travel and tourism activity on behalf of the World Travel & Tourism Council (WTTC) and are calibrated using data and forecasts from OE's global macroeconomic model on a group of core variables, including income growth and demographic changes. The figues below compare estimated foreign visitor arrivals and their role as bespoke travel advisors and as a trusted source of information. • Macroeconomic modelling by Oxford Economics suggests that Asia will account for nearly 22 percent of global arrivals by 2020 (up from 18 percent in 2008). The region's residents will account for 32 percent of travel spending by 2020 – up from 21 percent today. General Trends Affecting The Travel Industry Before the future of airlines and agents is considered, it is important to understand the current state of play of the travel sector as it emerges from the global recession of 2008-09. Emergence From Recession The United Nations World Travel Organisation (UNWTO) recorded 880 million tourist arrivals in 2009 – up from 536 million in 1995 but well below the 920 million of 2008. Until 2008 the pattern was one of steady growth, with the exception of a plateau between 2000-2003 as a result of events such as September 11, SARS and global economic stagnation. However, global tourism arrivals fell by 4.2 percent in 2009 to 880 million as the effects of recession hit. Tourism receipts ($852 billion) were 5.7 percent below the levels of 2008 – suggesting that people were also spending less per trip if they did travel. Early 2010 has seen a tentative and uneven recovery. The UNWTO estimated arrivals growth of seven percent for the period January-April 2010. More recent data, compiled by Oxford Economics, suggest global arrivals growth of 5.6 percent for the year to June 2010, with a slightly larger downturn (4.8 percent decline) in 2009. Will The Recession Have Lasting Impacts? Typically travel demand tends to have an income elasticity above 1.0. This means that travel growth tends to be faster than GDP growth – but correspondingly drops by more than falls in GDP during recessions. Euromonitor International (2009) points to this effect by noting that global international arrivals generally exceeded global GDP growth of around 4percent p.a. between 2004-2007 (inclusive). Conversely, recessions may be especially pronounced in some sections of the travel industry. In general, the recovery from the recession of 2008-09 is likely to be lengthy and halting. This means that consumer demand for leisure travel may take some time to re-establish itself. Nonetheless, the current recession should not obscure long term trends. Current expectations are that consumers will resume their previous travel spending as the upturn takes hold – i.e. there will be no major long term shift to lower cost leisure travel as a result of the recent recession. What is of more specifi c concern to airlines and agents is how to tap into passenger needs so as to ensure revenue growth in the future. www.travelweeklyweb.com resident departures in 2010 with forecasted arrivals in 2020 for major global travel markets, disaggregated by geographical region. (Note that China and India are a subset of Asia Pacific in these tables.) In terms of visitor arrivals, average 10 year growth rates range from 3.3 percent per annum (Europe) to 5.8 percent per annum (Asia Pacific) with China in isolation accounting for 6.7 percent. The most signifi cant trend is obviously a shift in arrivals to the Asia-Pacifi c region which will account for nearly 22 percent of arrivals by 2020. 2010 Europe N. America Asia Pacific* Middle East China India Resident Trips Abroad (mns) 2020 Estimate 571 101 250 62 49 10 Forecast 855 149 447 102 95 17 * Including China & India Source: Oxford Economics In the case of both foreign visitor arrivals and resident trips abroad, the fall in Europe's share of the global totals by 2020 is effectively counterbalanced by the increase in the Asia-Pacifi c share. Similar trends appear in spending patterns. The charts below indicate the trends in outward bound spending by region in 2008 and 2020 (i.e. travel spending by residents of given geographical regions). Spending by Asia-Pacific residents is forecast to account for 32 percent of the total in 2020 – much larger than the 2008 level of 21 percent. The increasing importance of Asia-Pacifi c aises questions about how travellers from these emerging markets might travel. Will they travel within their region or to the more traditional markets of Europe and North America? Will their travel habits be similar to travellers from Western countries or distinctly different? What can travel providers and sellers do to adapt to meet the opportunities and challenges associated with these global trends? 10 year growth rate (%pa) 4.1 4.0 6.0 5.1 6.9 5.6 54.2 9.6 23.7 5.9 4.6 0.9 Global share in 2010 (%) Global share in 2020 (%) 51.5 9.0 27.0 6.1 5.7 1.0 Source: Oxford Economics 30 NOVEMBER 2010 | TRAVELWEEKLY ASIA ■ | 5 CREDIT: Oxford Economics & Amadeus

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