CiR reveals latest PAX trends and market outlook at TFWA Research Workshop
6th October 2016
CiR were delighted to share key PAX insights and a new market outlook with delegates at the TFWA Research Workshop in Cannes.
Focusing on current and future passenger trends, CiR Managing Director Garry Stasiulevicuis shared detailed information and understanding on traffic forecasts and customer insight data. In addition he also demonstrated the importance and value of using data to identify opportunities and threats to maximise brand and retailer potential within travel retail. In harmony with the themes shared earlier during the TFWA conference, Stasiulevicuis introduced a number of trends that are impacting today's traveller, including economic instability in leading markets, changing attitudes towards premium goods, on-going threat of terrorism, impact of migration across Europe and the rise of digital and e-commerce. These, along with passenger statistics, would tell the story of our industry in 2016 and beyond.
Global and Regional Passenger Outlook
Resonating with data and the market outlook shared earlier in the week by Tax Free World Association President Erik Juul-Mortensen, Stasiulevicuis introduced the session by providing an optimistic outlook for the industry. Sharing projected industry sales figures, he showed that travel retail is set to double in size to be worth $125bn by 2025. Similarly, PAX figures are also set to approach the 10bn mark in the same period, from over 6bn per annum currently. This was set in the context of ACI figures, which show a sustained PAX growth of 5.2% for the next 20 years. However, he also highlighted a key seismic shift, pointing out that sales have fallen whilst passenger numbers have increased. This tipping point in the industry has been created by a changing consumer and shopper, he shared, driven by a change in how, where and when people choose to shop.
Looking deeper into the data, he shared regional PAX forecasts showing significant levels of growth in all regions. Acknowledging that the markets of Europe and North America are well established, these are both showing projected growth of more than 30% over the next ten years. But focusing on APAC, he showed that the region is projected to grow by 70% in the same period, to 3.7bn. Within the region, Chinese International passengers will increase by 74mn, making them the most significant passenger group within the region. Additionally the markets of Thailand, India, South Korea and Malaysia will contribute to passenger growth in APAC. He also shared further insight from ACI, that predictions are for most of the traffic growth to come from international traffic. Currently international traffic is only 42% of total traffic, but this will reach parity in 2028 and will go on to be 58% of total traffic by 2040.
Drivers of Change
Examining the factors for change in passenger trends, Stasiulevicuis shared a number of insights around Global GDP, passport ownership and growth of an emerging middle class.
In most emerging markets there is a strong link between growth in GDP and growth in air travel, he said. Global GDP is in significant growth and will grow by 35% in the next ten years, but certain regions will experience even greater growth, with China's GDP growth of 68% and India's GDP growth of 117% being highlighted. This growth in wealth is fueling a demand for air travel. This coincides with rising passport ownership and liberalizations of the populations with the APAC region. Both China and India are said to be struggling to keep up with demand for new passports, in 2015 China issued 16mn passports and India issued 12mn. Currently only 6% of the 1.3bn Chinese and 5% of 1.2bn Indians hold a passport. Additionally, visa regulations are being relaxed, particularly for the Chinese, and this is helping broaden horizons for passengers. Providing a view on the emerging middle class, he said that today 25% of the global population is middle class (OECD), but this will rise to almost 60% by 2030. This will drive huge demand for air travel, and will be driven by Asia as the leading power-house, accounting for two-thirds of the global middle class.
Chinese Traveller Focus
Moving on to a focus on the Chinese traveller, Stasiulevicuis said that the outlook is positive. An economy that is moving away from heavy industry towards a more services and consumption-based economy, the country's economic growth is slowing but consumer spending is forecast to continue with a strong growth trajectory. International flights are a source of significant growth, he said, in a market where 94% of flights are currently domestic. Intra-Asia international traffic is driving the vast majority of growth, and Japan has benefited as savvy consumers take advantage of the weak Yen. The relaxation of visa regulations in Thailand, Vietnam and Malaysia has seen huge growth in Chinese tourism in these markets. Changes in routes and destinations has led to a growth in new departure airports, new airlines and new aircrafts. These are driven by the emerging middle class and millennials, who are seeking more adventurous destinations, whilst demanding greater choice and lower prices. Social media is a huge influencer in spreading the word of 'must-see' locations.
Russian Traveller Focus
Another big spending nationality, Russians, have seen a significant downturn in international travel in recent years, Stasiulevicuis said, due to a number of economic and geopolitical factors.However green shoots of recovery have been seen in the first half of 2016. Current forecasts expect international traffic from Russia's airports to return growth in 2017. Despite this, the long term economic growth of Russia in the last 20 years has been significant to the industry.
Moving on to longer term projections for the industry, he referred to Airbus's annual report and shared that established markets are set to continue to flourish to 2034, with North America moving further than Europe. China, as an individual country, will overtake where Europe is now. Indian PAX too will become a major influence in air travel and will be further ahead in 2034 than where China are now. Again, it will be driven by Indian millennials to some extent, but more strongly by Gen Z Indians who will be tech savvy and come with their own expectations of service and accessibility, needs that cannot be easily met by today's current infrastructure, he said. The sentiment was expressed that Africa cannot be ignored. Whilst it is some way behind other regions, it has the propensity to become significant.
Concluding, Stasiulevicuis said that there were six pillars that retailers and brands must incorporate into their strategies and planning;
- Focus on millennials
- New consumerism
- Build digital and e-Commerce strategy
- Build for new middle class
- Link with the hyper-connected consumer
- Focus on the new routes
In summary, he said, the future will be different. Established markets will be disrupted and technology will replace human interaction. Mobile will become the essential retail platform with technology enabling convenience and buying consumers time. The time to plan for meeting these changing needs is now.
Presentation slides are available to view and download here