City Insider: Improving world economy bodes well for travel, WTTC hears

City Insider - A City perspective on the travel industry from FT journalist David Stevenson

Travolution City columnist David Stevenson reports from the first day of the annual WTTC summit in Beijing

The tenth Annual World Travel and Tourism summit opened in confident style today in a sunny Beijing.

More than a hundred chief executives and other delegates gathered from around the world to attend the WTTC’s first Chinese event and the message, from the morning session at least, was positive.

According to one leading economist the good news was that the global economy is picking up fast, especially in the developing world, and that spending on travel and tourism is likely to be a big beneficiary.

But the summit also heard that most of the growth in the next few years was likely to be in developing countries such as China – much of the developed world is still struggling with the after effects of the Icelandic ash cloud and perverse government restrictions.

Perhaps the most astonishing statistic from the first session came from Adrian Cooper, MD of economic research firm Oxford Economics.

His consulting firm had recently been commissioned by Airbus to estimate the total economic impact of the recent Icelandic ash cloud.

According to Mr Cooper, the longest shutdown in aviation history since 1945 had cost $4.7bn in lost Gross Domestic Product (GDP) with over $2.6bn of that in Europe alone.

Adding in the more than $250m loss experienced after the cloud re-appeared for a second time a few weeks back, Mr Cooper put the final tally in lost GDP at $5bn

Government actions were also the prompt for one of the event’s more acid comments from James Robinson, founding chair of the WTTC and former chief executive at American Express.

Asked to comment on recent remarks from both President Obama and vice president Joe Biden advising against too much domestic air travel, he suggested that both politicians’ comments had been ‘”misplaced” and had done little to help the already struggling US domestic travel sector.

Some of the speakers also slammed the US visa policy which requires every Chinese tourist to attend a ‘live’ interview at one of the handful of US consulates in the country – one speaker suggested that these tough restrictions were probably why so few Chinese visited the US last year.

“Last year Paris had more Chinese guests than the whole of the USA combined,” noted Mr Robinson, currently head of venture capital firm RRE Ventures.

Otherwise the tone of the discussion was mostly upbeat at the well-attended event in Beijing, with emerging markets perhaps the most promising global segment.

Much of the talk in the morning session focused on host country, China – it is one of the leading global emerging markets, nicknamed the BRICs (Brazil, Russia, India and China) by investment bank chief economist Jim O’Neil.

One of his colleagues, macro-economist Anna Stupnytska, astonished delegates with breathless predictions about China becoming the number one global economy as early as 2027, with most of the growth likely to feed through into the local middle class.

Her research indicated that by 2030 70m extra people will be joining the middle classes in the BRIC countries overall, every year. Stupnytska also told the summit that between 2010 and 2030 an astonishing 2bn people would be added to the ranks of the global developing world middle classes.

In China that massive increase in potential supply was already being felt in the tourist sector, and especially in the hotels space, according to Arthur de Haast, Global chief executive at Jones Lang LaSalle Hotels.

His research suggested that the number of domestic Chinese tourists had been growing by more than 10% per annum every year since 1998.

That huge and almost constant increase in demand had already translated into a massive boom in new hotel construction – de Haast told the summit that China now boasts 1.6m hotel rooms across the country in 14,000 different establishments, compared to just 100,000 hotel rooms in all of India.

De Haast even ventured a prediction that he could “imagine at some point in the future 15 to 20 million hotel rooms in the Chinese market”. The US currently boasts just 4.6m.

Intercontinental Hotels’ amibitious growth plans demonstrated this abundant confidence in China’s future. The global hotel chain announced that it was planning to build 200 hotels in China over the next few years and aims to employ an extra 60,000 new staff in China over the next three years alone.

Various government speakers at the event were also relentlessly positive about the prospects for the sector over the next few decades – travel and tourism, one minister declared, would be one of the five pillars of the Asian countries’ growth plan.

The summit was also told that tourism in China already employs over 16m people either directly or indirectly. This huge number of employees perhaps helps explains why there are an astonishing 1,700 tourism and hospitality schools in China alone.

But Edouard Ettedgui, group chief executive of the Mandarin Oriental hotels group, issued the one note of caution in the morning session.

“The biggest risk is over-capacity”, he told the delegates, especially in the luxury hotels segment.  He pointed to Indonesia as an example – 15 years ago it saw a massive boom in luxury hotels, much of it under-utilised after various Asian crises.

“Indonesia today is still paying the price” for that increase in capacity, warned Ettedgui. That message will no doubt have disturbing echoes in a country such as China, which is currently planning to double its total hotel capacity within the next five years.

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