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Abacus International declares 2H09 a time for cautious optimism

Direct News Source

13-Aug-2009 In a statement given today, Mr Robert Bailey, President and CEO of Abacus International, Asia’s leading travel facilitator, expressed cautious optimism for the beginnings of a recovery in the travel industry over the forthcoming 6 months and highlighted the potential to convert challenges the industry is still facing into opportunities.

Speaking at an exclusive event in Singapore, Mr Bailey revealed the latest Abacus Travel Insights 2H09 which highlighted better than expected results in travel segments such as online bookings, low cost carrier airlines, high performing markets such as Vietnam, a new trend for earlier booking lead times and a growing focus on intra-Asian and domestic travel.

These achievements were among a selection that have helped nurture the appearance of green shoots in the industry, but Mr Bailey warned against 'blind faith' noting that difficult conditions could still limit the green shoot's ability to thrive in the current barren economic landscape without careful tending or the introduction of new thinking.

Mr Bailey explained: "It's true that there is evidence of green shoots sprouting and lining the path that the industry is travelling on right now, which is great news. However, this road is still likely to be a bumpy one, leading Abacus to forecast 4 to 6 per cent less travel bookings for 2009 when compared to a similar period in 2008

Despite this, Mr Bailey reiterated his optimism for the future, having been impressed with the tenacity of the industry. He noted that "At Abacus, our figures on bookings for Free and Independent Traveller (FIT) in the first six months were down by 3 per cent compared to the same period in 2008 but this figure is not as bad as was originally expected and could indicate a slow-down in the slow-down or even perhaps some of the signs of recovery"

"This result is testament to the resilience of the travel industry in this region which far from resigning itself to the overwhelming challenges caused by the economic crisis and the H1N1 virus, has quickly responded with aggressive promotions and creative marketing that has motivated consumers to start travelling again, albeit not on the scale previously seen. These attractive deals have helped to minimise the slow-down in booking levels."

Mr Bailey's positive sentiment was also echoed by agents in South Asia with the latest Abacus Asia Travel Sentiment survey finding that a majority, some 32.8 per cent of agents expecting growth for their business volume/revenue for the next six months.

These agents may have good cause for this cautious optimism as there are early indications of more positive economic conditions. In early July, the International Monetary Fund's 2009 growth outlook for China was raised by one percentage point to 7.5 per cent and for India by 0.9 percentage points to 5.4 percent. The World Bank also raised its growth forecast for China from 6.5 per cent to 7.2 per in June 2009.

Meanwhile as Mr Bailey expressed, there are still many challenges apparent in the travel segment with negative events such as the recent hotel bombings in Jakarta and the seemingly unavoidable continued spread of H1N1 resulting in a further barrier to travel for the coming months.

But the segment perhaps most in need of a new path is corporate travel, particularly in China where e agents surveyed in Abacus Asia Travel Sentiment survey were largely cautious about the next 6 months. 33% of those interviewed by Abacus were expecting considerable negative impacts on their business from corporate travel. This suggests that the segment is most ready for change and the adoption of new thinking to bolster its future.

"As counter intuitive as it may sound, now is a time for opportunity. Historically, difficult times have been the making of many an organisation or industry and the travel industry is no exception. Perhaps for the corporate segment, it's time for new solutions or a focus on doing things differently that will help make the difference, something we at Abacus are absolutely committed to, and look forward to helping the industry achieve," explained Mr Bailey.

As well as providing a regular 'health check' in the form of the Abacus Travel Insight, Abacus also provides a wide range of technological solutions designed to assist the industry in facing the future with confidence and increased efficiency and productivity.

ABACUS TRAVEL SENTIMENT - 2H09

Market Highlights

Despite the fear of a decrease in travel, Abacus' air booking data showed that there are some green shoots in terms of a selection of positive market performances. Vietnam, Thailand, Myanmar, Sri Lanka, Philippines, China, Pakistan, Nepal and Kazakhstan all registered growth for January to June 2009 compared to the same period last year.

"This is a positive indication that people are still travelling and that there are opportunities out there for businesses," said Mr Bailey. He continued: "Businesses must water the ground and tend these green shoots carefully by making the effort to understand local conditions so they can effectively influence consumers' decision making process."

The increase in air bookings for Vietnam could be partly due to rising income levels of Vietnamese and reduced costs of outbound travel due to the rising number of low cost carriers and promotional campaigns from tour operators - all creating favourable conditions for overseas travel. According to Vietnamese news web portal VietNamNet Bridge, agencies reported a rise of between 10 to 15 per cent for sales of their international tours over the four-day May Day/South Vietnam Liberation Day (April 30) break, where packages were discounted by as much as 20 to 25 per cent.

Attractive promotions and discounts by airlines could have stimulated travel from several of the growth markets. Philippines Airlines' appealing promotional fares to selected cities on its international network could have motivated Filipinos to take to the skies earlier this year. Similarly in Thailand, Thai Airways offered attractively-priced fares to Singapore, Shanghai, Beijing, Tokyo, Korea and other regional destinations. A number of other services were also being offered at no extra charge to add value to passengers' travelling experience during this time. These included lounge access for all class of travel and 40-kilogramme luggage allowance per passenger.

Kazakhstan's outbound travel has been on the rise, seeing an increase of almost 4 per cent in 2008. This has continued into the first half of this year, fuelled mostly by the growing level of disposable incomes. A Euromonitor report indicated the country has seen the emergence of an affluent middle class who are keen to travel out of the country, especially during the winter season.

Looking forward to the next half of the year, air bookings from markets in Asia with significant numbers of Muslim residents could drop as fears over the possibility of contracting the H1N1 virus might prompt them to defer their November pilgrimage to Mecca. At a meeting on 23 July, Arab health ministers decided to ban children, the elderly and those with chronic medical conditions from performing the religious Haj annual pilgrimage to Saudi Arabia this year in an effort to slow the spread of swine flu. At the time of writing, governments in Asia have not announced similar restrictions.

Travel industry outlook

Online travel

The star performer of the travel industry so far this year is the online travel booking segment, which has shown remarkable stability through the otherwise volatile market of the past 12 months. "Figures indicate that while sales through traditional agencies have spiked and troughed several times, online bookings held steady throughout the second half of 2008. It rose strongly in the first half of 2009 with 13 per cent growth in1Q09 and increased to post a 30 per cent growth in 2Q09," said Mr Bailey.

Recognising the opportunity this channel offers, more travel agents are using the internet to reach out to new clients. This has fuelled the growth of online travel booking, which has grown into one of the main revenue streams for many travel agencies in this region. Almost 1 in 5 of all bookings made each year through the Abacus system comes through online sources and the Abacus GDS system processes over 70 per cent of all online travel bookings as of Q109.

Mr Brett Henry, Vice President Marketing, Abacus, said: "The online segment will continue to grow in the second half of this year. We expect Korea to be the fastest growing market in Asia. In terms of volume growth, Abacus online segment volume is expected to increase by 10 per cent in 2009, further cementing our leadership position in this segment."

He added: "A very real opportunity exists for travel suppliers to position themselves now to tap into upcoming online markets. These include Malaysia, which is regarded as the next emerging market where online travel booking is tipped to boom in the coming years. Further along the timeline, China, Indonesia, Vietnam and Thailand could develop into the next group of online markets."

Small and medium-sized agents in these potential growth markets need not think the online segment is beyond their reach. The rapid development of technology means the investment costs in setting up a system to capture this growth market is a very real possibility for every agency. Solutions such as Abacus WebStart and Abacus WebCreate can be easily and quickly implemented to create an online shopfront where clients can access at their convenience and at any time.

For agents already tapping the market, Mr Henry said: "The challenge now is to meet consumers' demands for better and faster online bookings experience. Technology has become a crucial tool in every agency's bid to win and retain cyber customers. Agents also have to keep up-to-date with the latest developments, such as via Abacus webinar training sessions, to help them effectively tap this market."

Travel suppliers: airline and hotels

Mr Bailey noted that one of the bright spots in the aviation industry has been the low cost carriers (LCC). Air Asia Bhd. had their best ever quarterly earnings in 1Q09, a 591% jump against the previous corresponding period. It, along with other LCCs in the region, has also announced several new routes and increases in flight frequencies for 2H09.

Most legacy airlines are still seeking to find their equilibrium in turbulence that has hit the troubled aviation industry. Mr Bailey said: "Recognising the challenges airlines are facing, Abacus waived subscription fees for one of its technology solutions, Abacus FareX, the leading net fares management and distribution solution in the Asia Pacific used by over 59 airlines including British Airways, Cathay Pacific, Etihad Airways and Singapore Airlines. This move would save carriers up to US$200,000 per year."

One of the potential challenges the industry appears to be responding to positively in Asia Pacific is capacity. According to OAG data published in October 2008 many airlines were quick to respond to the beginnings of the downturn reducing this by as much as 7% globally and 13% in Asia, in order to retain pricing and operating efficiency. This approach ran a very real risk of slowing down industry response time to any future upturn in travel as capacity takes time to recover.

However, the good news is that figures published just this week by OAG reveal in fact this capacity reduction has already started to recover in Asia Pacific with flights to / from the region reflecting a drop of only 3% compared to the same period last year. Better news still is that within Asia/ Pacific, OAG predicts there will be 32,003 more flights and 5,757,245 more seats on offer than in August 2008, resulting in an increase of 6% in flight operations and 7% in seat offerings.

Commenting on this, Mr Bailey said:"Given the time it can take to replace capacity in the airline industry it seems the segment here in Asia is better prepared than others. The industry appears to have taken wise steps in considering what appropriate capacity should look like before the economic recovery gets into full swing, this way protecting themselves from any future potential loss in earnings and enabling a quick turnaround once the green shoots really take hold."

Similarly, the hotel industry's revenue and occupancy levels continue to be hard hit. Singapore hotels reported seeing the start of a pick-up, said a July 31 article in Singapore's Straits Times. Millennium & Copthorne International Limited has seen occupancy levels rise from about 75 per cent in May to more than 80 per cent in July. Meritus Hotels & Resorts also saw a five to eight per cent increase in occupancy rates since June.

However, hoteliers acknowledge the battle to regain profitability is far from over. Mr Bailey said: "These positive figures from Singapore are encouraging but it is still too early to conclude from them that green shoots have sprouted in the hospitality industry here, or indeed, in any Asian market."

Travel Trends

Corporate travel

The corporate travel segment continues to be a casualty of the economic downturn and it could take time before any recovery in this segment. Abacus Travel Sentiment survey found the majority of agents who responded to the survey said corporate travel is the segment most affected by the economic crisis. Respondents from China, who were mostly travel agents with higher percentage of corporate segment business, felt this would affect their profit levels. 33.3 per cent or the majority of agents in China who participated in the survey expected 'considerable negative impact of between 15 to 20 per cent on their business volume/revenue for the next six months'. Another 30 per cent predicted 'some negative impact of less than 15 per cent'.

"The financial pressures faced by companies have forced them to be more stringent about granting permission for staff travel. This has forced the corporate travel booking process to evolve and greater attention is now being placed on the pre-trip portion of the travel booking process," said Mr Bailey.

This is gaining traction as companies make it a requirement for staff members to provide information so that managers can intervene and decide - before a trip takes place - if the investment in travel costs can be justified. A recent survey of procurement practices in US-based magazine, Business Travel News, found that 71 percent of corporations have rolled out some form of pre-trip notification or approval.

Mr Bailey said: "Such pre-trip reporting could well filter to Asia and corporate agencies in this region must be equipped with technology that can manage this mandatory requirement from their corporate clients."

"When investing in such technology, agencies would do well to turn to those that can manage the entire booking process, from pre-trip to post-trip, such as Abacus GetThere. Such tools allow agencies to help their clients save costs and allow them to bring additional value-add, for example by identifying and correcting weaknesses in clients' travel policies revealed by analysis of post-trip data," Mr Bailey added.

Airlines, which have traditionally looked to the corporate travel segment for high yield passengers, are competing fiercely for the fewer business travellers who are still flying. Now more than ever, creative marketing is required to ensure their messages and promotions catch the attention of corporate travel buyers and agents, who are inundated with offers.

"Airlines would really want to work even more closely with their GDS partner at a time like this and find ways to maximise their distribution and reach to targeted customer segments. At Abacus, we went the extra mile and introduced airline stimulus initiatives such as the current one for one hot deal promotion to help our airline partners achieve their sales targets," Mr Bailey said.

Earlier booking lead time

Another trend Mr Bailey highlighted is one where forward bookings are gaining a higher share for most Asian carriers. Abacus data showed the mean for forward booking in the first quarter of 2008 was 18.19 days. This has lengthened to 23.25 days in the first three months of 2009, an increase of 5.06 days. This behaviour could be due to consumers' response to factors such as responding to airline promotion or booking earlier to secure seats due to airline capacity cuts.

Intra-Asia and domestic travel

Although long-haul international travel has still not recovered, Abacus Asia Travel Sentiment survey found green shoots in the intra-Asia and domestic travel segments. Mr Bailey said: "The complex economic, health and safety issues facing consumers have resulted in a shift in travel patterns. Travel agents responding to the Abacus Asia Travel Sentiment survey indicated intra-Asian travel will grow in popularity in the short term."

40 per cent of agents polled in South Asia said "short getaways in the region" would be the strongest performing travel segment over the next three months. Similarly, more than half, 51.7 per cent, of agents in China who responded to the survey also said short regional trips have the greatest potential over the next three months.

There is also a trend towards domestic travel. Mr Bailey explained: "Faced with decreased discretionary budgets for travel as well as concerns over health and safety issues, leisure travellers are cutting back on visits to international destinations. Travel preference has shifted towards domestic holidays as these trips costs less. They also offer peace of mind as travellers may feel safer and more confident when they stay within the familiar environment of their own countries. These domestic tourists are now the lifeline of tourism businesses and their expenditures come as much needed revenue to airlines, hotels and others in the industry."

In destinations such as China, domestic tourism is outperforming the inbound segment. China's Xinhua news agency reported on 8 July, 2009 that China's tourism revenue is forecast to rise 3 per cent this year to 1.2 trillion yuan (US$175.6 billion). Of this, domestic travellers are expected to contribute 950 billion yuan, an increase of 8 per cent from last year.

Conclusion

Summarising the outlook for the next six months, Mr Bailey said he was impressed by how industry members in Asia have faced the twin hurdles of the economic crisis and H1N1 pandemic. "Without their efforts and determination, green shoots that have started to break through the parched ground would not have appeared. What it takes now is for industry members to unite, collaborate and together innovate to address the challenges the industry is facing so that they can be turned into future opportunities. By doing so, the industry will create conditions conducive for more shoots to spring up and thrive."