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Assistant Editor’s Note: In an article originally published by Hotel Industry Magazine, Euromonitor International’s Franziska Brandenburger explains why the future of the UK hotel industry lies with the BRIC nations.
2012 put the UK on the map – and many expect the events of last year to positively influence incoming tourism over the next two years.
As business and leisure travel from Europe and the US to the UK is on the decline due to the economic climate and turmoil in the Eurozone, companies operating in the travel and tourism industry are paying more attention to travellers from the BRIC nations.
The first half of 2012 saw sharp increases in incoming travel to the UK, especially from Thailand, South Korea, Brazil, South Africa and India, which is proof that the travel and tourism industry needs to start focusing on travellers from emerging markets. Industry experts believe that Chinese travellers are the most important inbound tourists to business from the BRICs, followed by Brazil, Russia and India.
Chinese Middle Class Fuel Spending
Discretionary spending is rising across all income levels in the BRIC markets, but it is the feted middle classes, and their growing propensity to travel, that have opened up opportunities for hotels in particular.
In particular, China’s rising levels of disposable income have spurred the growth of the Chinese middle class.
According to recent analysis by the Carlyle Group: “By some estimates, the country’s persistent growth will bring nearly 100 million households into the middle and affluent classes. [This trend highlights] strong growth in aggregate consumption, as millions experience rising incomes and consumption shifts from the bare essentials to more discretionary items.”
Per capita annual disposable income currently sits at £2,151, with 7.1% projected annual growth between 2012 and 2020, amongst the highest growth rates in the world.
Russia is one of Europe’s largest consumer markets with rapidly rising consumer expenditure and annual disposable income levels. Russia is also one of the world’s largest and most rapidly expanding luxury markets, driven by an increasing number of super wealthy.
This dynamic market is set to continue its solid growth. In 2012, Russian per capita annual disposable income stood at £4,833, with it predicted to grow by 3.1% annually from 2012 to 2020. The country was hit hard during the economic and financial crisis in 2009, which means that regular Russians will search for greater bargains, while the very rich will continue their high-spending lifestyles.
Against the backdrop of economic slowdown, Brazil’s disposable income and consumer expenditure levels have remained robust on the back of high employment and a burgeoning middle class.
Brazilians now enjoy strong purchasing power and more room for discretionary spending, with a large section of the population having moved out of poverty and low-paid labour over the 2005-2012 period. Brazil’s annual disposable income per capita stood at £5,212 in 2012 and is set to grow by 3.7% annually over the next eight years.
Visas Hinder Travel
One hurdle constraining growth in inbound flows from the BRICs is a need for travellers from Russia, India and China to obtain a visa to enter the UK. This really limits the UK’s ability to compete head to head with other European destinations.
Further planned increases in Air Passenger Duty (APD) in 2013 pose another threat and will particularly affect passengers on long-haul flights.
Industry experts believe that Brazil and India will be the BRIC countries most affected by the APD hike as these countries’ tourists will most likely avoid travelling to the UK. The UK has the highest rate of air tax in the world, almost 400% more than the majority of EU countries.
The strength of sterling against the euro is also an important factor taken into account by foreign travellers when deciding whether to visit the UK. While the Chinese Yuan strengthened against the euro in 2012, the exchange rate with the pound sterling stayed relatively stable, boosting inbound flows to Europe from China.
Rising competition from other European destinations like Italy and France adds further pressure. For example, arrivals from Brazil dropped from 179,000 in 2008 to 117,000 in 2010 and, while expected to grow again, inbound tourism from Brazil is not likely to fully recover over the next five years.
Implementing appropriate strategies to court these visitors will have a significant impact on arrivals and consequently the performance of well-prepared businesses.
Leading hotel chains should be looking to adapt to the specific needs and tastes of tourists from BRIC nations to benefit from this potential. Visitors from Russia and China in particular are often fascinated by the British monarchy, its traditions and etiquette, so attractions and tours related to the royal family are also expected to do well. And while London will be the key beneficiary, it is believed that, given the long-haul nature of visits, the opportunity extends beyond the capital.
Consequently, other areas of the UK that gear up appropriately will benefit, as BRIC travellers, taking longer holidays than many from closer geographies, take the time to tour around the country and make the most of their trips.
VisitBritain is particularly targeting Chinese tourists to increase visitor spending in UK hotels by £500 million and create 14,000 new jobs by 2015. In order to achieve these targets, the UK government has increased its GREAT marketing campaign, focusing on attracting visitors from China, by £8 million.
Clearly, the future of the UK hotel industry lies with BRICs, and many of leading hotel groups like Hilton and Starwood are introducing Chinese-friendly services to capitalise on the opportunity. These include Chinese restaurants, staff fluent in Mandarin and Chinese, as well as Chinese programmes available on TV.
UK hoteliers should also pay attention to the second tier of emerging tourism economies, also called SLIMMA nations, which include Sri Lanka, Indonesia, Malaysia, Mexico and Argentina.
In particular, visitors from Mexico, Argentina and Indonesia with growing disposable income levels could become the next powerhouses of the travel and tourism industry.
How prepared are you?