Inside Asia Pacific Travel - Insights from Visa

Transcript

Dr Simon Baptist:Hi, everybody. My name's Simon. I'm Visa's Economist for Asia Pacific, and today I want to share with you what we see coming for the regional economy over the next 12 months or so. What are the business trends, the consumer trends? Where's money coming from? Where are people spending it? And what are they spending it on based on the lens that we see? We're gonna cover kind of 3 key areas. First, I wanna have a look about the state of economies in Asia and what's the state of the consumer in our region. How are they feeling about their wallets and how are they feeling about their aptitude for travel? We'll talk about some new corridors and new connections that are shifting where people are going in this region and why. And then also some shifts in spending. So we are seeing some changes in what people want to spend on when they get to a destination, the way in which they want to pay, and also the drivers of trips are also changing. And this will link to some of the sort of capacity numbers that we've seen before, which I think are driven by some of these, some of these changes. So firstly, what's the Asian economy looking like? Up here on the left, We have the growth rates. Blue is this year, yellow is next year. You can have a look at your markets of interest to see what the overall growth rate is. One thing that is true is that growth in Asia, it is faster than anywhere else. If we have to be in a region looking for new customers and new growth, we would pick this one, but it's much slower than it was before the pandemic in a structural sense, and that's not going to go away. Why is that? There's 3 key headwinds for this region, things that used to push growth forward through the 2010s up until the pandemic, but now have all kind of reversed or have become less powerful. One of these is just the slowdown in China. So it's the world's second largest economy, by far the biggest in Asia Pacific, growth rate coming down every year, natural process. It's now an upper middle income country. It's got a declining workforce, declining population, property bubble sort of removing consumer confidence, structural challenges with the trade relationship with the US breaking down. So China's growth rate is slower. And really, we all got to sit around before the pandemic, or since 2009, and just enjoy waves of Chinese money arriving every year. Right? Every year, more visitors with more money, more tourists, more students, more investors, and we could just sit back and enjoy that in Asia. Now that wave has gone, capital's needed at home a bit more, and the psychology of travellers has become much more inward-focused after the pandemic. Second key headwind now for Asia is higher interest rates. So again, near-zero interest rates between, you know, 2009 after the financial crisis up till 2022. 2, very cheap cost of capital. This is an investment-hungry region, building factories, building new infrastructure. Now that capital is more expensive, that's a slowdown. And the 3rd tailwind that's turned into a headwind is the global supply chains. I mean, it is mostly the US, this wave of through the 2010s, go build factories in the new cheap place, right, driving massive investment in places like like Vietnam, Cambodia, Bangladesh, India. That's now turning around as well, all this rising nationalism and more barriers to cross-border. So Asia's growing fast, but a bit slower than it was. Growth is there, it's harder to find. So you have to have a more targeted strategy to identify who are these customers and how do I, how do I get access to them. Fastest growing economies at the moment, it is still Vietnam, India, and Philippines are the 3 the 3 with the fastest growth rates. What are we seeing on the consumer side? Where do people have money? We have something called the Visa Spending Momentum Index. If you want to sign up to get it, we release it every quarter. You can just Google it and sign up and get it in your inbox once a quarter. And we sort of release the spending pulse from a bunch of these key Asia-Pacific markets here. Yellow is spending growing at trend. Yep, so spending growth, uh, going at the normal trend for that market. Where it's green, spending is increasing, the rate of growth is increasing, it's going above trend. And red, the spending is coming down below trend. And there are some shifts happening in this region at the moment. Um, the strongest performing consumer market in Asia Pacific right now is Australia. Um, after 18 very difficult months, kind of '23, '24, you look at that top line, lots of orange, lots of red. Australian consumers were buffeted by high inflation and not spending, but their incomes were still rising, and that kind of psychology has now caught up. Their bank balances have, have affected their brains, and they're now opening their wallets and beginning to spend. We've had really, really good bunch of months actually since last December. Australia's been at historical trend or above, and September was really good, by far the strongest in the region. New Zealand's just coming out of a long downturn as well, but not, not as strongly. Looking at the advanced Asian markets in the second kind of, the second kind of segment, we are seeing a significant slowdown from '23-'24. Spending is decelerating. I think these advanced economies are more exposed to the trade war, right? Big trading hubs like Hong Kong and Singapore, business confidence is down, and they're not exposed to the AI hardware boom. In Asia Pacific, AI's impact at the moment is hardware, right? So it's who's manufacturing the chips, that's Taiwan, who's manufacturing hard drives, so places like South Korea, and then who's installing data centres, so that's Malaysia. I mean, other places too, but Taiwan, Malaysia, GDP growth really high, but it's all investment, it's not consumers, right? So a lot of money building a data centre, in Malaysia, not many people work there after it's built, so it's not really feeding through into people's pockets. So a lot of the emerging markets too, big growth slowdown. Emerging market middle classes in Asia Pacific, very challenged. Who's doing well is the affluent. The affluent are doing really well, overall spending is increasing, but the typical person doing less well as those engines of job creation on the manufacturing side so that rollout of supply chains, Chinese outbound investment, Western outbound investment kind of drying up, uncertainty, geopolitical issues, businesses kind of pulling back a little bit, not firing people, but not adding in the way that they were. So we do see a pretty consistent downturn in that, in those middle classes around emerging markets in this region. So the really key segment for consumers at the moment is affluent, affluent, affluent. That is where the growth is. When we look at Visa cards over the last 5 years in Asia Pacific as a whole, growth for mass market cards has been 1% over 5 years. Almost nothing, right? 1% over a 5-year period. Mass market cards, zero change in dollar spend effectively. Mass affluent cards, their spending has grown by about 7%. High net worth cards spending is up 20%. So really, well, actually 100% of the spending growth in Asia Pacific in the last 5 years has been in the affluent. So if you wanna grow, that is the segment you have to target. Now, they're doing well at the moment because capital markets are doing well. So money in stocks and assets and this kind of stuff, that's keeping their confidence levels very high. Yeah. high. It is fragile to that. Of course, if there was a stock market correction, the affluent would be more affected than the less affluent. But for the moment, that's where the money is, and especially strong growth in the numbers of affluent. China in light blue, India in dark yellow, Indonesia in dark blue— some of the, the markets where the number of affluent households is growing. So Indonesia, for example, affluent spending rising rapidly, Mass market spending declining. Yep. So there's a real bifurcation in markets around Asia Pacific. And the affluent do tend to travel more, although not so much in emerging markets in this region. We look at cardholders that we classify as affluent in Mexico, Japan, US, UK, so the more developed markets, affluent cardholders kind of take roughly double the number of international trips of the non-affluent. So they'll take twice as many trips. That's that ratio on the, on the axis here. Whereas in China and India over on the right, the affluent, of course they do travel more, but only 40% more, so not double. So there is a bit of a delta there, kind of suggests there is some untapped market there amongst affluent in India and China. Their propensity to travel over and above what you'd expect is less. than in, uh, than in a lot of other, uh, other developed markets. So where are people going? Uh, what are they spending on? And we might also think about how, how are they spending it? Because there are a lot of changes going on that are gonna rapidly change where money ends up in, uh, our industry and also how it gets there. Um, so on one hand, we're very focused on the, Payments impact of AI, right, and agent e-commerce. So, we're now preparing for a world where people don't use the search through the internet to do discovery and then move on to another set of websites or aggregators to, like, compare options and then choose one and then go somewhere else to make a purchase and type in your card number and all that kind of stuff. We're looking at a world where everybody will have an agent. Merchants will all have an agent, and those agents will, at the beginning, they'll talk to each other and present the option to the consumer, who will then approve it or not approve it or make the final decision. Over time, it sounds weird now, but we're going to get comfortable enough that we'll just let the agent make the buying decision for us with no intervention. We were a bit scared of e-commerce when it first happened. Now you'll go on any random website and buy something and expect it to come. So, So we're going to get comfortable with it. And actually, we've got— we're launching Visa Intelligent Commerce, which is our AI-powered agent in Singapore, Hong Kong, Australia, and New Zealand are the first 4 markets. That's happening within 6 months. So agents doing the buying for people is coming in the next 6 months in those 4 markets. Other markets will come a little bit later. And then that has huge implications. What does that mean for aggregators? Yeah. If my agent can look at 10,000 merchant websites in 1 second and then make the purchase for me, that really changes where the power lies and how we can address things like, say, price discrimination. These are the top 10 travel corridors in Asia Pacific. This is based on where we see spending moving across borders. About 1/3 of all— sorry, about a quarter of all travel in Asia Pacific is in the Greater Bay Area. So it's China, Hong Kong, Hong Kong, Macau. So of course that's mostly land-based and sea-based travel, so it's not, it's not airlines, but that's, that's the strongest kind of the 3 biggest areas. The 4th biggest corridor is Singapore to Malaysia, and you can see some kind of trend here, and maybe it's not a great one for the airline industry per se, which is people going cross-border to do basic shopping, right? Where you've got a border, where there's price differences, so like Hong Kong-Shenzhen or Singapore-Johor, that's really driving a lot of traffic at the moment. Other key trends, other big corridors in Asia Pacific at the moment, of course, the Japan inbound, that's been a huge one. With the depreciation of the yen, it's about 40% cheaper than it was a couple of years ago. So we've all been to Japan like probably 2 or 3 times, right? So that trend is still going. We still see good growth. In Japan inbound. Japan outbound is a disaster, um, because again, mirror of it, the yen is so expensive. It's expensive if you're Japanese. And also, like mainland China, there really was a bit of a psychological change of amongst Japanese and Chinese consumers during COVID You get— spend 3 years getting told how dirty and disgusting and dangerous the rest of the world is, right? You don't then want to go out there. And so we've seen a big also policy push by those governments, same in Thailand, for domestic tourism. So a lot more domestic travel there now and less, and less international. There are a bunch of other international routes that are growing though. We see strong growth in outbound from Australia and New Zealand. Australia is really the booming outbound market at the moment. So you've got me booming up here in Australian accent. And then you've also got Australian travellers booming around the rest of Asia as well. Outbound spending growth from Australia grew 30% last year. It's on track to grow 25% this year. They are just showing no signs of letting up in their kind of— it's not a post-COVID travel pulse, it's just like a new step change in the scale of outbound travel from the market. And of course, they're very affluent along with mainland Chinese travellers. They spend the most of anybody in the region. Mainland Chinese and Australian travelers spend about $3,000 each per trip when they're in the market, when they're using their card in other markets. Other travelers, it's about $1,500. So they're affluent, they're wealthy, and there's a lot of them. Other markets are growing fast though. Other very fast outbound growth from India and from Indonesia and the Philippines are kind of 3 new sources of travelers. that we are quite optimistic about. At the moment, numbers are smaller and of course they have less money, you know, so there's about as many travellers going out from Indonesia as go out from New Zealand, right, in terms— so in terms of dollar spend. So, you know, that's not a lot, but the scale of potential for that market is huge, right? I guess we saw that IndiGo moving up the rankings. I guess we can expect that to continue. And Indian travellers do travel in different ways, so their travel is much more driven by family connections. So they will go, where are my kids working? So they will be going to Singapore or San Francisco, right, or to Dubai. Where are my grandkids? And that's where they'll be going, and spending will be more focused around family, right? They're not really going out to see the sights, they're going to see the diaspora. So the diaspora are really driving those travel choices for travellers from India. In terms of where people are going, so here's relative to pre-COVID, on the x and then the annual growth rate up on the vertical. So, yeah, Japan is a big destination. So this is now where people are going, not where they're coming from. Japan, obviously very strong growth, but also these other Southeast Asian lower-cost markets like Indonesia and Vietnam growing fast too because they're cheaper. So when we have the challenge, the challenged budgetary situation of Asia-Pacific middle class, they want to travel. When we survey people, it's the number one big-ticket item they want to spend on. So do you want to spend on travel, motor vehicle, luxury goods, housing? Number one answer in almost every market, travel, right? They want to do it, but their income's a bit compressed. And so they're looking for places that are shorter and cheaper when they get there. So that's kind of the growth in inbound in markets like Indonesia and Vietnam. What's doing much less well is Thailand. Yeah, a lot of that is the Chinese traveler not really coming back as much after COVID and then sort of the issues around the scam centres and the kidnappings. But there's also a broader issue which is affecting markets like Hong Kong as well, which is now when people travel, they want a specific reason to do so. All right, so they don't just want to go to a generally nice destination. So these markets like Hong Kong and Thailand that historically have got a really strong General tourism offering, right? I mean, Thailand's awesome. You go there, nice weather, great food, get a massage, do some Thai boxing. You can do like you can do some cultural stuff. There's good shopping, nice nature. Tick tick tick tick tick, and you can have a really great week. But that doesn't look good on Instagram, right? Right. What people are doing is they're going somewhere where there's something that's going to look good on social media, and so destinations have to have a really specific reason. Why here and why at this time? So for example, Singapore gets way more entertainment visitors than Hong Kong, even though the nightlife is much worse. Why is that? Because they're doing better with concerts and events. And me at Lady Gaga or Blackpink looks better on my Instagram than a general night out in Hong Kong's fun bars. In fact, what I do in Hong Kong's bars, I'm probably not putting on my social media. So destinations need to have a very specific offering. And we can see here South Korea doing really well, right? So things like K-pop and cosmetics provide very specific reasons for people to go, oh, I like Korean cosmetics, I'm going to go get something I can't get at home. Oh, I'm going to go to the spot where my favorite K-pop star was in their last video, that's why I'm going there, right? Even if I think Seoul— maybe you think Seoul's less exciting than Tokyo overall, but I'm going there because I want to take this photo and I want to put it on my socials. So you have to have a reason to go somewhere. This is kind of altering what people spend on in destination. 2 of our fastest-growing categories that we see for cross-border are fast food and groceries. So go overseas, go on holiday, go to the grocery store. What is driving that. A lot of it is people are under pressure from inflation, they want to travel, and the focus is the social media moments. And so what I do is I save money by buying from— buying my meals at 7-Eleven or from the supermarket, eating in my hotel, and I'm saving up for my 1 or 2 big nights out per week where I'm going to the restaurant that looks great on Instagram. So I'm not eating out every night, at the mid-range restaurant. I'm eating supermarket food in my hotel, and then twice— once or twice a trip, I'm getting some great photos at a more high-end restaurant. And so that's kind of a shift in how people are spending. Spending less on accommodation in general because that's not something I'm sharing on my socials. There are differences in spending categories by location. So we see here, Tourists from Australia on the left, they generally like spending on accommodation, in dark blue, is a strong category for them. If we have a look at mainland China, their strongest category is now recreation and culture. And that's a shift from before COVID where Chinese outbound travellers were more focused on retail. But now they can do retail at home. Consumers are also moving into a new, a new phase and where they're valuing experiences more. So Chinese travellers now looking for experiences. The retail travelers now from India and from New Zealand, right? They're the people who are more focused on retail once they get into the destination. When people are in market, there's a bit of a downshift happening, less spending on luxury. Part of this is globalization. So you can get luxury goods everywhere now. You don't need to go to Orchard Road. to go to the LV store because there's now one in Manila and Jakarta and KL and, and, and, and, and, and. And so again, this is an example of how the drivers of tourism are changing. People want something they can't get at home. And this last example of this, it's an example from the Middle East, and then I'll finish up. So here is spending by time of day, which we can see when people are tapping their cards for food delivery apps in Dubai. In 2023, there's 2 peaks, lunchtime, dinner. Okay, that's what we'd expect. Deliveroo, one particular merchant that's meant to be blue, same, same pattern. What about 2024? Overall, same pattern for the overall food delivery industry. Dinner peak, lunch peak. Okay, boring. Then what happened with Deliveroo? Right? Something weird's happening there. They've got these 2 massive spikes and a little bit before lunch and a little bit before dinner. What is going on there? My colleague in Dubai did some research on this. His first idea was Batman, but it turned out it was the Dubai chocolate, right? Because that's when it was released on Deliveroo. So people were going to Dubai to sit in their hotel to order the Dubai chocolate as soon as it became available on the Deliveroo app. That's why it was just before lunch and just before dinner. They were the release— the release times, and that was driving a tourism boom. And they just made it up. It doesn't even have any history or anything to it. Just some marketer made it up. And that's what you've got to do to be successful as a destination. On the right, it's the Korean cosmetics example. So on one hand, that's an opportunity. It also means it never stops because now nobody cares about Dubai chocolate. Nobody's going there anymore to get that. You can get it at 7-Eleven for $2. So you have to always keep innovating and sort of always keep providing visitors with a new reason to spend in today's market. So I'll finish up there. Thanks so much for listening, and please get in touch with us if you have any questions. Thank you. Thank you, Andrew.

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