Much like the luxury goods industry overall, the luxury travel market is highly sensitive to external shocks, and 2016 has indeed served up its fair share of geopolitical tensions, including fluctuating exchange rates, mass migration and conflict in many of the worlds key luxury travel destinations.
However, the industry is resilient, with 4% growth for 2015 in trips taken internationally and domestically, driven especially by Asia. In fact, global travel and tourism demand has grown consistently over the past two decades and shows very few signs of reaching a peak, having doubled in size. By 2020, it is expected that 1.5 billion international trips will be taken globally.
It is indicative of our current climate for both the luxury and travel industry that the 2016 New York Times Luxury Conference will focus on the luxury travel industry and, amongst others, will discuss the impact of changing global demographics along with the rise of the young, wealthy and highly digitalised traveller.
Euromonitor international has the pleasure of attending this year’s event which takes place on 1-2 December 2016 at the Grand Hyatt Hotel in Singapore. During this two-day conference, journalists from the New York Times and leading players from the worlds of luxury travel, hospitality, technology, retail, fine dining, and more, will come together to offer insider insights into the innovations, strategies and challenges poised to redefine the industry at a time of unprecedented demographic and social change.
Below are just some of the thought provoking and highly informative discussions that will take place at the conference:
Travel Health Prognosis
One of the key discussions set to take place on day one of the conference is titled “The Global Context”. Moderatored by Sam Sifton, Food Editor at The New York Times. This session will address how geopolitical, economic and cultural events are shaping the financial, legal and design infrastructure that underpins the luxury travel and hospitality industries, from the transitioning Chinese economy to struggling airline and hotel group operators and global terrorism.
Indeed, the global economy was already in pretty bad shape and recent political events in both developed and emerging economies have caused additional risks for both the luxury travel and luxury goods industries.
According to Euromonitor International’s latest travel data, Asia Pacific remains the global powerhouse for tourism arrivals, with solid increases predicted in the short to medium term as the number of travellers continues to expand throughout the region.
By contrast, and much in-line with the luxury goods industry, Western Europe will see consistent but somewhat sluggish growth in the next five years. Whilst there has been evidence of a slight uptick in UK sales of luxury goods, thanks mainly to wealthy tourists making the most of the weak UK pound, the BREXIT vote has worsened the outlook for the UK. Similarly the EU is going through a period of major structural problems, is battling against high geopolitical tensions and the increased terrorism threats, and the on-going refugee crisis is only adding to the problems.
What is interesting is that while Western Europe continues to be the most popular regional destination, according to Euromonitor International, it has fallen 10% in terms of volume share, whilst Asia Pacific has increased by the same rate. Similarly, Eastern Europe is struggling for arrivals, owing largely to negative geopolitical issues in Russia and Ukraine, which also follows trends that are apparent in the personal luxury goods industry.
However, GDP, arrivals and incoming receipts are all predicted to show relatively steady growth over the next five years as travel continues to expand globally. Average overall spend is, however, in decline, with many visitors continuing to seek value for money.
Further shifts in Asian consumption power from Hong Kong to Japan
One of the hot topics to be discussed will look at the impact of the evolving consumer. There is no denying that the internet has evolved at an unprecedented speed and has played a huge role in driving the luxury market over the last decade. However a new type of channel is emerging as a major driving force and that is the wealthy luxury traveller, be that at a luxury airport or indeed in another country abroad. During the conference, leading players will address the issues of how the world's top luxury retailers are reimagining physical and virtual spaces for these consumers with a key focus on the Asian consumer who has been the main muscle behind this evolving trend.
According to Euromonitor international’s latest research, a growing number of Chinese shoppers continue to head to Japan (and to a lesser extent South Korea) instead of Hong Kong. Indeed, much in line with Euromonitor’s luxury goods research, the latest travel data show that the number of Chinese trips to Hong Kong dropped by 6% in 2015 with a further drop of 5% expected by the end of 2016. However, at the same time there was a massive increase of 107% in the number of trips taken to Japan last year.
China Inbound Trips by World’s Top 5 Source Markets 2014-16
Japan and South Korea have indeed enjoyed the strongest demand from China, aided by more relaxed visa programmes over the past two decades, but also owing to their favourable exchange rates when shopping for luxury goods.
Indeed, the comparative weakness of the yen is helping to drive this. Luxury retailers in Tokyo and Osaka (as well as Japan’s duty-free and tax-free shops) are also picking up some of the slack from declining Chinese tourism in the major cities of Western Europe and North America. However, whilst the new sophisticated Chinese middle-class consumers have become increasingly savvy in terms of getting the best price for luxury, they have also become increasingly intrepid in their quest to travel to the best luxury shopping destinations. Whilst in 2015 Euromonitor’s data shows that the number of arrivals in Tokyo and Osaka increased by 35% and 52%, respectively, Fukuoka, which has become one of the latest shopping destinations for the Chinese middle-class thanks to the influx of regular cruise trips from China as well as the rise in shopping malls such as Canal City Mall, housing a number of luxury brands, saw its arrivals increase by 80% in the same year.
On the flip-side of this, despite the British pound reaching its lowest level in 31 years, the UK has lost some of it shine following Brexit, and uncertainty also shrouds Germany, the US and France thanks to the upcoming elections – the former two being the world’s leading sources of international luxury spend, highlighting just how much is at stake.
In a tourism context, of course China or the Chinese remain hugely important. Its well-heeled consumers might be feeling more cash-strapped of late, but they still travelled to Europe in their droves last year. Euromonitor’s latest travel data show that the number of Chinese tourists arriving in Western Europe reached 7.1 million in 2015 and is set to reach 7.9 million by the end of 2016.
By 2020, Chinese outbound departures (based on 24-hour trips, excluding day trips) are expected to reach the 116 million mark, which is a major milestone, and China will overtake all major sources of demand to become the world’s second highest market in it numbers of departure behind the US. However, the large and steady supply of outbound flows from China will continue to gravitate to Asia Pacific.
Moving forward it will be important for luxury shopping destinations and hotels around the world to tap into Chinese demand, but also to look at other emerging markets with rising disposable incomes, such as India, Indonesia, Mexico, Malaysia, Turkey and Poland
Shift to mobile means new consumer expectations
Another highly interesting and relevant topic that will be discussed at the conference is the impact of the generational shift and why luxury travel companies and brands need to act upon this now before it's too late.
One marked difference between the next generation of luxury travellers and the one before them is how they interact with the world: nowhere can the impact of mobile devices be seen more clearly than among digital natives, who have never known a world without widespread internet access, whether on a computer, tablet, smartphone, television, or wearable device. These young consumers are rarely seen without smartphone in hand and expect brands to interact with them via mobile.
In a survey carried out by Euromonitor International in 2011, 54% of respondents had never used their phones to make an online purchase. By 2016, this number fell to 27%.
However, it is also important for luxury travel companies to note that digital natives are no longer the only consumers seeking mobile brand interactions. The results of the same survey revealed that a growing reliance on mobile technology is changing the way smartphone users across all generations interact with brands and companies. Mobile-optimised websites and apps are now the rule, rather than the exception, and luxury hotel and travel companies that do not provide easy mobile access to information and products risk alienating consumers, and losing their loyalty (and discretionary income) for years to come.
The future of first class travel on the back of global wealth
According to Euromonitor International’s new Income and Wealth Model there are roughly 34 million HNWI’s across 50 core countries. Whilst these HNWI represent a micro share of the total population - less than 1% of all individuals to be precise - taken together they accounted for more than 44% of the total net-wealth in 2015. The combined net-worth of HNWIs is estimated to be as high as US$106 trillion.
While initially HNWIs were mainly concentrated in western countries, the segment has been now growing in more countries across the world. The rise of emerging market economies over the last few decades has resulted in the emergence of a HNWIs class in these countries which is becoming more and more visible in the global perspective.
However, this wealth expansion has not come without its own set of challenges for luxury players in that it has led to the increasing democratisation of the luxury industry. With this high income consumers have become increasingly demanding in terms of value for money, authenticity and above all the search for a true luxury experience.
Among individual countries, the US clearly dominates the country rankings with 16.5 million HNWIs, representing almost half of the adults in the 50 countries analysed. Together with the US, a number of other countries had over one million HNWIs individuals - the UK (2.4 million), Japan (2.4 million), France (1.9 million), Germany (1.6 million), Italy (1.2 million), China (1.1 million) and Canada (1 million). By 2030 the list is expected to grow to 14 countries, with Australia, South Korea, Spain, Switzerland, Taiwan and the Netherlands projected to join the club and the largest changes to watch over 2015 and 2030 will be the continuing rise of the HNWIs class in Asia.
As the luxury industry continues to be democratised, many key players have been questioning the future of premium class – Bangkok Airport, along with many other airports across the world, already offers airport lounge access for all, which seems almost revolutionary, whilst Air Canada has recently proclaimed that first class is dead and AirFareWatchdog has questioned the longevity of loyalty programmes.
With this in mind it seems keeping that a key theme to be discussed is how first-class travel in being redefined: with in-flight innovations, private jet tours and opulent cruise ships restoring the glamour of first-class travel, particularly across Asia, they will question whether the journey itself may actually become more memorable than the destination.
What with Beth Moses, Chief Astronaut Instructor at Virgin Galactic, appearing as the opening keynote speaker on day one of the summit to discuss space as being the final frontier for luxury travel, at a cost of US$250,000 per ticket one would clearly hope so.