China Opens up Outbound Tourism

The outbound tourism market in China is now open to foreign travel agencies. This may help foreign travel agencies in China break from agonizing losses.

China has opened up its outbound tourism market, which was considered the last “forbidden area” of China’s tourism industry to foreign investors.

Journalists report that the National Administration of Tourism and the Ministry of Commerce issued the Interim Measures for the Supervision and Administration of the Pilot Operation of the Outbound Tourism Business by Sino-foreign Cooperative Travel Agencies in August 2010. Then the National Administration of Tourism accepted the applications from 14 foreign-funded or Sino-foreign cooperative travel agencies to start the outbound tourism business. At last, Tui China, CITS American Express, JTB New Century International Tours received licenses to provide outbound tourism packages for Chinese citizens.

“This is an inevitable trend for the development of China’s tourism,” says Wu Bin, vice president of Guangdong Travel Agency. Foreign travel agencies may have a temporary impact on the local travel agencies, but in the long run, it is good for the development of the entire tourism business in China.

Waiting for outbound tourism with losses

“The official approval for starting outbound tourism has not been given. We just have the license. So we cannot give any appraisals right now,” says an insider from the aforementioned three travel agencies. According to him, the outbound tourism could be open in June or July.

Journalists have found that there were two fields of China’s tourism market that foreigners were not engaged in before the issuance of the aforementioned policy: one was the outbound tourism of Chinese citizens and the other one was to have foreigners as travel guides. Without a permit for starting outbound travel business, the foreign-funded or Sino-foreign cooperative travel agencies could only provide inbound tourism services in China and foreign tourists. “In China, the travel agencies provide services after collecting money but the hotels and scenic sites usually provide services before collecting fees. With the different settlement patterns, the Chinese local travel agencies, which are more familiar with the Chinese market, have their own advantages in prices. Therefore, the foreign-funded or Sino-foreign cooperative travel agencies cannot compete with them at all,” says an anonymous insider from a foreign travel agency.

According to the annual report from the National Administration of Tourism, there were about 20,000 travel agencies in China in 2008, only 30 of which were foreign-funded travel agencies. In addition, more than 90% of these travel agencies were suffering from losses and some of them nearly shut down half of their businesses.

The most fertile market

The foreign-funded and Sino-foreign cooperative travel agencies are awaiting the opening up of outbound tourism. That’s why they have stayed in China for so long.

Journalists note that there were 40.95 million Chinese people taking outbound travels in 2008. In 2009 the number increased by 16% to 47.60 million. In 2010 the number rose 20% to 57.39 million. Thus, China became the largest source country for outbound tourism. The local travel agencies saw a 10.6% increase in the number of Chinese tourists taking inland travels and 9.4% of the foreign tourists traveling in China in 2010. Additionally, the number of Chinese people taking outbound travels increased by 20.4 in the same year.

“Actually, the tourism market in China is deeply engaged in the price competition. Among the three major kinds of tourism businesses, the profit margin of inbound travel of foreigners is not higher than 2% and the margin for inland travel of Chinese locals is close to zero.”

According to an annual report from China Youth Travel Agency, though the company’s revenue dropped by 1.73% in 2010, year after year its outbound tourism reached new heights in both business scale and revenue. Its revenue in this field has a 78% year-after-year increase.

Therefore, outbound travel is the most fertile field of China’s tourism market and that’s why  foreign travel agencies are still holding on to the Chinese market.

No longer reliable on price

“Foreign travel agencies’ engagement in the outbound tourism market will have a short-term impact on local enterprises,” says Wu Bin. However, the foreigners’ engagement may force the domestic travel agencies to turn from advantages based on price to advantages based on services, because foreign travel agencies will not adopt low-price competition measures and instead will bring a new concept to the Chinese market.

Wang Jian, a senior expert from the Guangdong Tourism Academy, says that most Chinese local travel agencies work with the travel agencies in foreign countries to organize trips. The foreign travel agencies, which have branches in their original countries, can make use of their familiarity with the travel destinations to provide better packages for Chinese tourists.

Brief introduction to the three travel agencies

Tui China is the first foreign-funded travel agency in China. 25% of its shares are held by China Travel Group and the other 75% shares held by Europe’s largest travel company, Tui.

CITS American Express is first travel agency in China based on Sino-US cooperation. China International Travel Services (CITS) holds 51% of its shares while American Expressway holds 49% shares.

JTB New Century International Tours was founded by China Credit Travel Agency and JTB Co., Ltd from Japan. The latter takes half of the Japanese tourism market and has 71 branches in the world.