There are many interesting trends occurring in the global travel industry today, and one of the most notable is the growing impact of affluent travelers from “emerging” market countries on travel spending and investment.
Collectively, these countries are now beginning to outpace their “developed” (for the sake of this piece I am referring to the commonly used OECD definitions of the terms “emerging” and “developing”) market counterparts when it comes to creating affluent households.
Indeed, within the next decade the number of households making at least US$100,000 annually will increase by 30 million, with one out of three of these households located in emerging markets. And just as affluence in these markets continues to rapidly grow, so does their spending on travel. There is a projected growth of $1.3 billion in transportation spending in the period 2012 to 2020.
The impact of these emerging market travelers can already be seen in patterns of overseas travel into the United States. In 2014, more than half of all overseas travelers (excluding Canada and Mexico) to the US originated in emerging markets – versus the early 2000s when only a third of overseas travelers coming into the US came from these countries.
There are early differences in the travel spending patterns between these “emerging affluent” travelers and the more “traditional affluent” travelers. In particular, the emerging affluent spend more, on average, per purchase at retail stores than the traditional affluent. High-end retailers are the greatest beneficiary of these emerging affluent spenders, who spend disproportionately more on luxury goods than their traditional affluent counterparts. In addition, these travelers tend to exhibit surprising economic resilience as their spending during economic downturns shows small drops in purchase volumes while maintaining high average purchase amounts.
Outside of the US, travelers from emerging markets are having a significant impact on the shape of travel destinations and infrastructure investment. Emerging markets are now the major engine of growth for air travel. Data from IATA shows that air traffic in the US has been growing at an annual rate of 2% while growth is occurring at rates of 6%-7% in the Asia-Pacific region and Africa, and at double digits in the Middle East. Most of the investment in airports is now focused on emerging market cities, as the top 10 fastest growing airports in the world are in these countries.
Leading hotels, recognizing this trend, are now focusing much of their new investment in Asia, with properties being opened in all price tiers, in particular luxury brands. Mobile devices and social networking are not new, yet according to a Pew Research Center Report, consumers in emerging markets are the most active users of this media.
Companies that can adapt their services to the use of this media in servicing and attracting the affluent traveler, especially in emerging markets, have a unique opportunity to stand out. For example, wearable technologies and smart phone scans be used for services such as requesting a room upgrade on the way to a hotel or as room keys, or to reserve a rental car upon landing at an airport. Social networking creates a marketing opportunity for companies to reward guests for sharing their experiences with friends or recommending a particular location.
High growth of the emerging affluent will continue to shape the travel industry, so companies must orient towards new regions and business models to stay competitive. This demand tsunami will shape businesses and infrastructure in the years to come.
this article was initially published at weforum