South Africa’s tourist arrivals from BRIC countries grew by 20.8 percent since 2010. From Jan 2010 to Nov 2012, 748 740 people visited South Africa from Brazil, Russia, India and China, representing a growth of 39.2 %. But is BRICS* tourism growth sustainable? Tourism Tattler takes a look at each countries tourism potential and provides an analysis of internet and social media trends in this market.
*Definition: BRICS is an acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa. The grouping was originally known as “BRIC” before the inclusion of South Africa in 2010. The BRICS members are all developing or newly industrialised countries, but they are distinguished by their large, fast-growing economies and significant influence on regional and global affairs. As of 2013, the five BRICS countries represent almost 3 billion people, with a combined nominal GDP of US$16.039 trillion, and an estimated US$4 trillion in combined foreign reserves. Presently, South Africa holds the chair of the BRICS group, having hosted the group’s fifth summit in 2013. (Source: www.en.wikipedia.org/wiki/BRICS).
BRICS Travel Potential
Among the BRIC countries outbound trips have grown at different rates: Russia leads, followed by China, while Brazil and India lag far behind.
They all display dynamic economic growth but in terms of trips abroad the picture is different for each country. When it comes to travelling abroad and their economic situation the so-called BRIC countries* display no similarities. Neither China and Brazil, the economic powerhouses of the BRIC countries, nor China and India, the most populous in this group, generate the largest volume of trips abroad – instead it is Russia that leads the ranking in this category. According to a special analysis of the World Travel Monitor commissioned by ITB Berlin, there is no correlation between trips abroad, economic prosperity and population density. Russia is the most sparsely populated of these countries and its economy ranks third, but in terms of outbound travel the Russians come first. They undertake 1.3 times as many trips as the Chinese, 3.4 times as many as Indians, and 4.6 times as many trips as Brazilians.
In terms of growth in outbound trips Russia also ranks first. Five years ago 15.9 million Russians and 13 million Chinese went on trips abroad. According to the latest surveys, 23.8 million Russians and 18.3 million Chinese (not counting trips to Hong Kong and Macau, which remain the most popular destinations) travel abroad. During the period surveyed Russian lust for travel rose by 50 per cent, as opposed to a 41 per cent increase among Chinese.
As far as outbound travel from India and Brazil is concerned these BRIC countries lag a relatively long way behind. At 7 million trips abroad, India’s total exceeds that of Brazil (5.2 million trips). However, developments in these countries over the last five years show India growing by 30 per cent (previously 5.4 million trips abroad in 2006) and Brazil expanding by 85 per cent (in 2006 Brazilians undertook only 2.8 million trips abroad). By comparison, Brazil’s figures may indeed be lower and its economic growth less than India’s, but the Brazilian market is the more dynamic of the two. Looking at China and Russia, despite reporting a high outbound volume for many years, Russia’s growth rate is higher than China’s. Thus no parallels can be drawn between economic developments and the number of trips abroad, as China has the highest economic growth rate.
At close to three billion, despite the population of the BRIC countries being nearly six times larger than that of the EU (around 500 million), these countries’ citizens still travel abroad considerably less. In 2011 they undertook 54 million trips abroad, approximately six times less than EU citizens (345 million). Overall, however, the volume of travel abroad in the BRIC countries continues to grow. Five years ago the citizens of the BRIC countries undertook nine times less trips abroad than Europeans.
Dr. Martin Buck, director of the Competence Center Travel & Logistics, Messe Berlin: “The tourism figures for the BRIC countries, in particular for Russia, are very promising for the tourism industries of the host countries and destinations. They show that the BRIC countries are now catching up, not only economically but as well in terms of outbound trips . This is a process that will no doubt continue.”
*As the period surveyed was from 2007 to 2011 it was not possible to include South Africa (i.e. BRIC instead of BRICS).
BRICS Tourism Analysis by Country
Brazil realigns its strategy to enhance tourism flows. In 2012, Embratur realigned its marketing strategy to secure a 300% increase in foreign currency inflows from international tourists and to double the number of inbound visitors to Brazil by 2020. In order to do so, it streamlined participation in trade shows that are directed to its target source markets (Latin America, North America and Europe) and intensified its promotional activity in 2012 and 2013. The main goal is to take the most advantage of the increased exposure of Brazil, as it prepares to host two large sporting events, to display the beauty and attractions of the country and to achieve a durable positive impact on tourist arrivals.
Brazil under pressure. Brazil is under pressure as it enters 2014 with much infrastructure work to be done and a few months away from the FIFA World Cup 2014. As of May 2013, just four stadiums of the 12 cities selected to host World Cup games had been finished. Despite the delay, all projects are expected to be completed in time for the upcoming events. Nevertheless, it is certain that renovations will be required in preparation for the Olympic Games following the rush to finish infrastructure for the World Cup. This is very concerning, as it puts at risk the quality of all work done and, consequently, could have a negative impact on future tourism flows, as venues do not hold up to their original plan and are not fully operational. In order to attract over 7 million tourists as it wants to by 2014, Brazil will have to prioritise quality overall to avoid running the risk of a huge failure, much like the Commonwealth Games held in India back in 2010.
A new giant rises in air transportation. In 2012, TAM and LAN Airlines finally completed their merger (originally announced in August 2010) to create the largest airline in Latin America and one of the largest in the world – LATAM Airlines Group SA. The combined carrier will be a stronger competitor on long-haul international routes and an ideal alliance partner. The merger allows for more coordination on routes and pricing, as well as increasing negotiating power with suppliers. Furthermore, it expands the geographic presence of both airlines.
Domestic versus international destinations. Brazil is turning into a rapidly growing source market for arrivals worldwide. For Brazilian tourists, favourable exchange rates, coupled with the fact that international destinations offered similar or even lower prices than domestic ones, favoured international over domestic trips in 2012. The US and Argentina remained the most popular destinations for Brazilians. Although not a top destination, the Caribbean has seen a large inflow of Brazilians thanks to its lower prices and the introduction of direct flights to the Caribbean by GOL in 2010.
Arrivals grow faster than departures. The end of the review period was significant for Russian tourism, with the industry showing positive dynamics. Although outbound tourism remained much larger in terms of number of trips, inbound tourism posted stronger growth in 2011 and 2012. This was driven by several factors, including the Domestic and Inbound Tourism Development federal programme, growing online tourism and upcoming sports events.
Domestic and Inbound Tourism Development programme has significant impact. Russia’s new federal tourism development programme was created in order to improve the image of Russia as a tourism destination, promote the national tourism product, stimulate foreign investment in the Russian tourism infrastructure and increase the competitiveness of the Russian tourism industry. Despite the fact that the programme was only signed in August 2011, initial results were already present. Significant growth of inbound tourism flows was noted in 2012. It was the highest number of inbound trips in Russia for 15 years. Additionally, the rebranding of Russia in the world tourism market has started. The Government and private investors placed significant efforts into presenting Russia as an attractive destination country.
Legislation concerning travel retail tightens following bankruptcies. The bankruptcy of one of the largest tour operators, Capital Tour OOO, in 2010 as well as the collapse of other tourism companies Lanta Tour Voyage Ltd, ITC and Idealny Mir in 2011, had a serious effect on the Russian tourism industry. In most of these cases, Russian tourists were left abroad without any help from the company in question. Moreover, tourists did not receive any compensation. Due to these dramatic events, the Russian Government opted to reform the legislation concerning the operation of travel agents. Compensation funds for tourist protection, as well as for increasing financial guarantees for tour operators, was established in 2012. According to this legislation it is mandatory for travel agents to become a member of the compensation fund; only with this condition is a travel agent able to get a licence to operate. As a result, only travel agents with strong financial backgrounds, which are able to contribute to the compensation fund, will be able to operate.
Russian consumers actively shift towards internet sales. The importance of online sales is growing. Growth was observed in all tourism categories, such as air transportation, hotels, car rental and others. Growing availability of online services makes trip planning more convenient and accessible. This is driving increased interest in independent travel. The growing number of online travel agents, including OZON.ru (Internet Travel OOO), Anywayanyday.com (Bukbilet OOO), Amargo.ru (Avians OOO) and others, also contributes to the rising popularity of online tourism services consumption. Additionally, the growing popularity of various mobile devices and social networks, such as VKontakte, YouTube, Facebook and Twitter, has indirectly driven up internet sales. Positive influence of upcoming sports events. Upcoming sports events, such as the Winter Olympic Games in Sochi and the FIFA World Cup, are also set to have a positive impact on promoting Russia as a destination country.
Interest in Russia will grow before and after the globally significant events. Russia will be more recognisable in the international tourism arena, while the conditions for travelling will be improved. The positive impact for the tourism industry from sporting events was noted during the 2013 World University Games in Kazan. Tourism flows to Kazan increased significantly; this event saw 150,000 arrivals.
Government continues to promote travel and tourism. The Ministry of Tourism, through a tie-up with various state tourism boards, continued to push travel and tourism with the help of television commercials. State tourism boards linked with advertising firms such as Ogilvy & Mather to promote individual state tourism and the various elements that states had to offer to tourists. Apart from the Incredible India campaign, states such as Madhya Pradesh, Gujarat, Rajasthan and Maharashtra, among others, launched new television commercials in order to increase the inflow of both international and domestic tourists to their states.
Rising airport and fuel taxes increase the cost of flight tickets. Airlines suffered a bad year in terms of profits due to increasing airport taxes and fuel costs. The rising costs resulted in the airline companies transferring increases to prices for customers, thereby hindering the growth of airline bookings. Young urban consumers start to take up travelling as a lifestyle choice. The concept of travelling witnessed a shift among young urban consumers. There were more backpackers in 2012 as compared to previous years, a concept which continued to be niche and limited to very few consumers.
Movies and social media websites became popular media for marketing. Airline companies, travel agents and tour operators all started to utilise the entertainment business for their marketing. Product placement and becoming the official travel partner of a certain movie provided significant publicity for companies and was among the most sought after new marketing techniques in 2012. Social media websites such as Facebook and Twitter were extremely popular for promoting flash sales among the consumer base.
Devaluation of local currency will hinder the growth of outbound tourism. Travel and tourism became one of the pillars in the growth of GDP of the country during the year. However, the continued devaluation of the Indian currency resulted in an inhibited growth of outbound tourism. This continued devaluation will result in more consumers travelling domestically or to cheaper destination countries.
Domestic demand for tourism boosted by the rising disposable income. With the steady growth in China’s economy over the review period, disposable income levels among Chinese consumers have been continuously on the rise, resulting in strong growth in the numbers of holidays taken during 2012. This combined with the growing interest in achieving a better quality of life and greater personal wellbeing to boost growth in travel and tourism towards the end of the review period. Meanwhile, both outgoing tourist expenditure and domestic tourist expenditure enjoyed double-digit growth in current terms in 2012.
Uncertainty in global economy hits inbound tourism. 2012 saw lingering uncertainty in the global economy and a worsening of the European sovereign debt crisis and this hit inbound tourism in China hard, with reduced current value growth in incoming tourist expenditure and a decline recorded in inbound arrivals during 2012. Both business and leisure inbound tourism were negatively influenced by rising unemployment rates and less vigorous business activity in Europe and North America.
Online sales of travel and travel and tourism maintain vigorous growth. Online sales currently represent only a minimal proportion of travel and tourism value sales, although this low base means that vigorous double-digit current value growth was possible in online sales during 2012. The convenience of online sales and the wide selection of travel products and services on offer online continue to attract many Chinese people to make travel and tourism purchases online. In addition, the number of regular internet users in China increased rapidly over the review period. Direct suppliers joined the increasingly competitive online travel and tourism scene, competing with the already numerous online intermediaries. Meanwhile, mobile applications are now being employed by both direct suppliers and intermediaries to facilitate on-the-go use of online travel and tourism channels due to rocketing smartphone use in China.
Draft of Tourism Law under review, aims to regulate travel and tourism industry. The draft of China’s Tourism Law has been under review by the Standing Committee of the National People’s Congress since mid-2012. As the first dedicated Tourism Law in China, it aims to protect tourists’ rights and ensure the healthy development of the travel and tourism industry in China. The new law is expected to come into force in 2013 and is set to be the driving force behind the anticipated strong growth in travel and tourism in China over the forecast period, with the industry expected to grow in a virtuous cycle of development.
Strong growth to expect over the forecast period. With healthy economic growth and rising disposable income levels expected in China during the forecast period, travel and tourism in China is expected to maintain strong growth. Meanwhile, the rising exposure that Chinese people now have to the outside world through various media channels including the internet is likely to continue promoting outbound tourism among Chinese consumers, a process which is also likely to be fuelled by the simplified visa application procedures which are being introduced by many foreign countries for Chinese citizens. With the release of the Outline for National Tourism and Leisure in 2013 and China’s new Tourism Law in the pipeline, domestic travel and tourism in China is anticipated to register sound growth throughout the forecast period.
Tourist arrivals in South Africa continue to grow. 2012 saw the number of arrivals to South Africa increase by 5%, a higher rate of growth than the 3% growth in arrivals registered during 2011. Rising numbers of arrivals from neighbouring source countries such as Swaziland, Lesotho, Mozambique and Zimbabwe drove growth in arrivals during 2012 the numerous transport alternatives for arriving in South Africa supported growth.
Hotel occupancy levels improve during the review period. Hotel occupancy rates improved in South Africa during 2012 following reports of an oversupply of hotel rooms in the country during 2011. The oversupply of hotel rooms led to low occupancy levels during 2011 across all types of hotels. Many hotels in South Africa were constructed in the build-up to the FIFA World Cup in 2010, which was hosted by South Africa. Soon after the World Cup, however, there was an excess of hotel rooms at a time when consumer confidence took a dip at global level and many travellers were less keen to occupy hotel rooms which carry high room rates. Consumer spending power has since improved in South Africa, although the cost of living growth still outweighs the rate at which average consumer income is growing. As the exchange value of the South African rand continues to slide, it has also become cheaper for travellers from other countries to find travel accommodation at attractive rates in South African hotels and this was a strong driver of growth in the numbers of arrivals in South Africa during 2012.
More information for tourists threatens travel retail sales. Tourists in South Africa are increasingly seeking value for their money. As the range of information sources available to them continues to increase and as price comparison tools can are becoming more popular, many South African consumers are increasingly bypassing travel retailers when seeking travel and tourism products and services. This continues to pose a threat to growth in revenue for South Africa’s travel retailers. For instance, 4% current value growth was recorded in travel retail in 2012, a slower rate of growth than the 6% current value growth recorded during 2012 posted. The use of social media by the direct suppliers of travel and tourism products and services allows them to establish and maintain contact with potential customers.
Opportunities open up for financially fit domestic airlines. 2012 saw the closure of several airlines operating in South Africa due to liquidity issues. The first airline to close during the year was Velvet Sky, which was followed by 1Time towards the end of the year. Financial weakness was cited as one of the key reasons for the failure of these airlines to survive the high levels of competition coming from airlines such as Mango and Kulula, which have the backing of their respective parent companies South African airways and Comair Ltd. It has become very clear that domestic airlines can succeed in South Africa only if cash flows are managed effectively and if there is also sufficient financial support amidst high levels of price competition as operational costs often need to be met through external funding.
Middle class growth expected to boost tourism revenue growth. Ongoing growth in the size of South Africa’s middle class population is expected to be the key factor in terms of boosting revenues in the travel and tourism industry.. South Africans are expected to adopt a stronger travel and tourism culture as many South African people who were previously disadvantaged economically continue to obtain access to better jobs through the provisions of the BBBEE act. The South African Department of Tourism has been on a persistent drive to boost domestic tourism growth in South Africa and the country’s middle classes are expected to grow.
The following info-graphics portray trends that may influence the travel markets in BRICS:
1. GLOBAL IMPACT OF BRICS AND KEY INDICATORS BY COUNTRY:
2. BRICS INTERNET & ONLINE TRAVEL USAGE:
3. BRICS SMARTPHONE GROWTH & SOCIAL MEDIA USERS:
4. BRICS ONLINE TRAVEL SALES & POTENTIAL TOURISM DEMAND: