Knowing source markets helps refine strategies

By Michelle Grant

Understanding the source of hotel guests, whether domestic or foreign, has always been important to offer the appropriate amenities, allocate marketing resources and navigate demand shocks. This is becoming more important as globalization increases international travel, which is becoming a larger portion of the demand for hotel rooms. In 2007, spending by foreign visitors accounted for 33.7% of global travel accommodation sales but increased to 34.5% in 2011, according to Euromonitor International’s research. In this column, I’ll investigate the regional differences and future trends.

MEA and Eastern Europe dependent on foreign visitors

Foreign visitors accounted for 56.1% of travel accommodation sales in the Middle East and Africa in 2011—the highest percentages of all regions. Kenya, the United Arab Emirates, Egypt and Morocco are dependent on foreign tourists with more than 70% of travel accommodation sales stemming from this segment. This dependency means it is difficult to stimulate the domestic market to compensate for a loss of foreign visitors due to a demand shock, such as the Arab Spring.

Michelle Grant

Eastern Europe had the second-highest percentage of foreign tourism spending on travel accommodation at 53.2% in 2011. Croatia, Czech Republic, Hungary and Slovenia are all very dependent on foreign tourists with more than 80% of travel accommodation spend coming from this segment.

While these regions are highly dependent on foreign visitors, it is expected that this dependency will lessen in the next five years. Spending by foreign visitors is expected to fall to 54.1% for the Middle East and to 49.9% for Eastern Europe in 2016. Growing middle classes in these regions are creating first time travelers and allowing existing travelers to opt for paid travel accommodations instead of staying with friends and family.

Western Europe, Australasia and Asia/Pacific focus on foreign spend
Due to the importance of intra-regional travel, foreign visitor spending on travel accommodation accounted for 44.7% of sales in 2011 for Western Europe. This is expected to increase to 46.6% by 2016. The eurozone crisis is expected to undermine growth in domestic tourism expenditure. As a result, spending by foreign visitors on travel accommodations will likely drive 83% of total growth over the next five years. This trend is particularly pronounced for Ireland, the United Kingdom, Italy and Germany. These countries are expected to benefit from growth in visitors from China, India and Russia. The newly minted middle classes in these countries want to visit the must-see attractions in Western Europe, not to mention shop. Ireland and the U.K., in particular, are expected to benefit from the economic and currency strength of Australia.

Australasia also is expected to see the share of foreign spending on travel accommodation increase, going from 32.3% in 2011 to 34% in 2016. China will be a major growth source market for international visitors for both countries. The expansion of air capacity between China and Australia as well as the success of the Mandarin-language version of the “There‘s Nothing Like Australia” marketing campaign will likely encourage more leisure tourism. Australia also is expected to benefit from arrivals from Indonesia and Malaysia travelers.

Asia/Pacific will benefit from the region’s increasing prosperity, with intra-regional travel increasing and benefiting the travel accommodation markets of Taiwan, India, Malaysia and South Korea. As a result, foreign spending on travel accommodation will account for 35% in 2016—up from 33.7% in 2011.

North America and Latin America remain stable
With a mature domestic tourism market that is significantly larger than incoming tourism, the share of foreign spending on travel accommodation in North America is expected to remain stable, hovering around 20.8% over the next five years.

Latin America is expected to have a similar experience since its largest travel accommodation markets, Mexico and Brazil have robust domestic tourism markets that account for 90% of total tourism spending, and domestic tourism spending is expected to grow much faster, in absolute terms, than foreign spending in the future. Attracting and understanding domestic tourism in these markets will be crucial for hoteliers. As a result, spending on travel accommodation by foreign visitors only accounted for 19.6% of total sales in 2011; this is expected to shrink just slightly to 19.1% by 2016.

Michelle Grant is the travel and tourism research manager at Euromonitor International, specializing in hotels research. In her role, Michelle is responsible for Euromonitor’s hotel industry research, which provides analysis and in-depth coverage of the hotel market in 211 countries worldwide. She works closely with hotel companies, providing insight into consumer trends and market performance to help clients make informed, strategic business decisions. Michelle is a respected source in the travel and tourism industry. She has presented at a variety of high-level conferences, such as the World Travel Market, La Cumbre and the Special Libraries Association and is often quoted in journals, national newspapers and trade publications. Previously, she was a research analyst for Latin America, covering industries such as financial cards and domestic electrical appliances. Michelle has a Bachelor of Arts in Economics and Finance from Washington University in St. Louis.

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