A new class of people – the “consuming class” – is making its appearance in the APAC region, and this will bring fundamental changes to both the upper and lower ends of the travel market.

This Barbell Effect, the fourth factor identified in the Amadeus report,“Shaping the future of travel in Asia Pacific -The big FOUR travel effects”, will drive growth at the luxury and budget ends, as well as influences services and products that cater to these new markets.

Here are the numbers:

In 2011, there were about 700 million middle class people in APAC. By 2030 the number is expected to rise to 2.1 billion, with most coming from the emerging economies of China, India and Indonesia. The rise in this “consuming class”, whose income exceeds US$5,000 a year, will result in a significant increase in discretionary spending.

Currently APAC accounts for only 23% of global middle-class consumption and 28% of the middle class population in 2009, but by 2030 it will rise to 59% and 66% respectively.

Every year, between now and 2030, over 100 million people will enter the middle-class in APAC, with enormous consequences for travel.

Despite its huge population, fewer travellers from India visited APAC destinations in 2011 than travellers from either Australia or Singapore. But by 2030 the increase in the middle class in China, India and Indonesia will generate an additional 100 million visitors to APAC destinations, with 70 million of the increase coming from India and China. These two countries will dominate in both visitor numbers and total expenditure.

This growth, at both the higher and lower ends of the travel market, is due to two factors:

• By 2030 GDP per capita in India, China and Indonesia will only be 20-25% of that in Australia, Japan and Singapore. Although there will be many more travellers from these countries, they will generally be travelling on a budget.

• The number of wealthy travellers will, however, increase significantly as by 2030, high net worth individuals (HNWIs) will grow seven fold in China and six fold in India. These travellers will stimulate strong growth in the luxury end.

The Amadeus study identified Korea, Japan and Singapore as the favourite APAC destinations for Chinese leisure travellers, while the Indians prefer Singapore, Malaysia and Thailand.

The expected influx in travellers from India and China offers opportunities for all inbound markets in the region. However, travel providers have to adopt a multi-brand approach to target budget, midscale, upscale and luxury travellers, as a single brand will not meet the requirements of these disparate groups.

A few hotel groups have adapted their offering to suit these market niches. Accor Asia Pacific and Hong Kong-based Dorsett Hospitality International, for example, have fitted their hotels with amenities, special cuisine and specifically trained staff to cater to the needs of Indian and Chinese travellers.

Markus Keller, Accor Asia Pacific’s regional director of sales & distribution, said China is the biggest outbound market to New Zealand, Japan and Korea. “Our hotels are gearing up to better serve the Chinese market with specific service standards, but it also requires a new strategy across all aspects of hotel operations – including sales and marketing.”

Low cost carrier growth driving travel

The emergence of low cost carriers (LCCs) in the region is also driving growth in travel, from names such as AirAsia to Scoot in Singapore, Malindo Air in Malaysia, Peach in Japan and Spring Airlines in China.

These LCCs have become immensely popular with leisure travellers. About 47% of travellers in the region have taken at least one international flight with an LCC in the past 12 months. Lower fares are the main attraction for 80% of these travellers.

Business travellers are also a significant part of the passenger mix for LCCS, with one third having used them in the past 12 months. For corporate travellers, the main reason for flying LCCs are convenience (often being the only direct flight to the destination) and company policy.

Although the market share of LCCs in APAC lags behind the global share – about 18% of airline seats sold compared with a global average of almost 25% – the budget airline concept continues to gain ground especially in Japan and China.

David Brett

President of Amadeus Asia Pacific David Brett noted that the growth of LCCs in Asia is undoubtedly changing traveller behaviour. “The biggest effect is on short term travel or intra-Asia travel. Cross border long weekend breaks are much more common. It’s as easy to get on a plane and fly for two hours to another country, as it is to get in the car and drive so it’s allowing people to be more adventurous. I could drive for three hours and get to a beach in Thailand, or I could hop on a plane and go to Singapore or Hong Kong for around the same price.”

He added that historically, LCCs have avoided the travel agency channel and focused on direct sales, but they could not ignore this important channel anymore.

“Data from Centre for Aviation (CAPA) shows that today 52% of seat capacity in South-east Asia is operated by LCCs, and the competition is heating up. It’s Amadeus’ role to ensure that travel content is easily bookable in the Amadeus system.”

Brett said the LCC model is very different to the full service carrier model, and there is a lot of connecting the dots needed at the back end of the system to deliver the content to travel agencies.

“Last year we launched a new booking solution, LCC Smart, which mirrors the airline website booking process in the Amadeus Selling Platform, but with less clicks. Ultimately, it’s our goal to enable greater accessibility in booking travel by bringing travel options together in one place via the travel agency or direct to the traveller through the airline’s website.”

The rising demand for LCCS throughout the region, especially in North Asia, will also have tremendous stimulus effects on regional centres outside the main international hubs in countries such as Japan.

“There are almost 100 airports in Japan but most air traffic goes through Tokyo. Growth in LCCs will stimulate development of these second tier airports and their economic hinterlands,” said Peter Harbison, CAPA executive chairman.

He believes LCCs “will boom because of the meeting between declining fares and significant increases in middle classes with income levels sufficient to travel. This will mean an enormous growth in the number of people who can travel.”

For more, click on “Shaping the future of Asia Pacific travel – the big FOUR travel effects” – 29 January 2013

• Photos & charts courtesy of Amadeus