China Tourism Report Q1 2009

September Arrivals Fall Figures released by the China National Tourism Administration (CNAT) in October indicate that the Chinese tourism industry is beginning to suffer from the global economic downturn. In September, tourist arrivals fell by 5.94% y-o-y, to 10.56 million. This may in part reflect the impact of the Beijing Olympic Games, with tourists choosing to visit China in August for the Games rather than later in the year. In this regard, a dip in international tourism was always to be expected following the Games.

However, arrivals in the first nine months of the year have also shown a decline, despite surging arrivals figures for the Games in August. In total, 132 million foreign tourists visited China between January and September 2008. Although this means that China remains on track to meet our forecast of 141 tourist arrivals by year-end, this is below CNAT hopes for above 10% annual growth in 2008. There are several reasons for this, with the most important being the global economic slowdown. With most developed countries experiencing an economic slowdown, particularly in Europe and the US, travel to China is naturally being restricted, beyond the one-off spike to visit the Olympics. However, internal concerns have also had some impact. In particular, rising prices for hotel rooms, especially in Beijing and Shanghai, point to a shortage of rooms for tourists, and may have acted as a disincentive to tourism, despite efforts to increase room capacity ahead of the Games.

Air China Announces Loss Air China, the country’s flagship carrier, announced in November 2008 that it posted a loss of US$454 million in the year to October. The airline noted that this poor result was largely due to sharp fluctuations in the price of oil throughout the year. Specifically, fuel price hedging contracts purchased in July (when oil reached a peak of US$147 per barrel) meant that the airline was buying at a loss once oil started to fall, with the price dipping below US$50 per barrel in November. Costs related to fuel price fluctuations comprised 40% of annual operating costs in the year to October. In addition, the company noted that it has suffered from slowing demand for flights, most likely due to rising ticket prices early in the year and pressure on incomes stemming from the global economic slowdown.

Airport Infrastructure Investment Boost The government is keen to indicate that the conclusion of the 2008 Beijing Olympics does not imply an end to investment in the country’s infrastructure. In November 2008 the government announced an airport infrastructure investment package, which is designed to improve service and transport within certain key airports. The investment will be focused on airports in western China, as part of the government’s ongoing project to open up the region. Investment will total CNY30 billion in 2009, constructing and improving trunk lines in Kunming, Chongqing and Nanning. In 2020 investment will increase to CNY250 billion, with the construction of new airports in Chengdu, Xian and Guangzhou.