Travel Volumes between United States and China Hit a Rough Patch

15.07.2008 — While the overall medium to long-term trend for travel between China and the United States remains positive, the most recent three-month period (through May 2008) has been negatively affected by declining travel volumes, primarily for travel booked in the USA.  The U.S. contributes between 65 percent and 75 percent of the total volume of passengers between the two countries.

For the full 12 months through May 2008, total travel volume between China and the U.S. grew approximately two percent; however, this aggregate number masks a switch from positive to negative growth as of March 2008.  This decline in travel volumes is being driven by a drop in U.S.-originating passengers, which registered approximately 10 percent fewer trips to China compared to the same period last year.  Undoubtedly, the current economic climate in the US is contributing to this shortfall, but other factors such as the political unrest in Tibet, the recent earthquake in Sichuan, the protests which accompanied the Olympic torch relay, stricter enforcement of visa regulations and Chinese inflation exacerbated by a weakening U.S. Dollar, are all leading to a decline in U.S. demand for travel to China.  Reflecting this trend, the Beijing Tourism Administration recently announced that advanced bookings for hotel rooms in the capital during the Olympic Games are not up to living up to expectations, with plenty of hotel rooms still available.

To some extent, the decline in U.S.-originated bookings has been offset by continued strong growth in demand originating from China.  During the same three month period China-booked traffic has grown by about 5 percent.  However, this is not enough to balance the decline from the U.S., and overall travel for the three months through May shrank in the order of 6 to 7 percent.  The airline industry is reacting accordingly.  Both United Airlines and China Southern have recently scaled back their original summer 2008 schedules for flights between the two countries.

A closer look at some of the destinations within China reveals some important nuances in the overall picture.  The bulk of travel is concentrated in a small number of major cities on the Chinese end as approximately 80% of passengers starting or ending their journeys in Beijing or Shanghai.  Guangzhou and Fuzhou bring the total to more than 90%.  Overall, travel to and from Beijing and Shanghai declined between 4 and 10 percent in the last three months, caused by weakness in U.S.-driven demand, as mentioned above.  Demand originating from China has actually increased by 3 to 10 percent.

Interestingly, much stronger growth is being seen to and from secondary cities around China, and perhaps more significantly in many instances demand from the U.S. itself to these destinations remains positive in the most recent three months.  For example, travel was up by 20 percent between the U.S. and Shenyang, an industrial city in the north east which has expanded its economic base of heavy industry to include software and electronics since the launch of China’s “Revitalize N.E. China” program in 2003; the city of Chengdu, a pharmaceutical and financial center where the likes of Citigroup, HSBC and ABN-AMRO have operations, saw its U.S. traffic climb 6 percent (9 percent for U.S.-booked passengers); and travel to and from Dalian, where Intel is building a microchip plant, is up 13 percent (20 percent+ for U.S.-booked passengers) in the period March-May 2008, compared to a year earlier.

While U.S.-originating leisure traffic is under pressure in recent months, Chinese-originating demand continues to grow and travel to and from secondary business centers in China remains robust.  Looking ahead there are many reasons to believe that travel between the two countries will resume healthy growth.  During the Strategic Economic Dialogue in May 2007, led by Treasury Secretary Henry Paulson and China's Vice Premier Wu Yi, an agreement was reached under which U.S. carriers will be able to operate 23 daily roundtrip flights by 2012 (up from 10).

The agreement also allows the United States to designate three additional airlines to fly to China, and estimates indicate that daily passenger flights between the United States and China will double by 2012.  In December 2007, the two countries signed a memorandum of understanding (MOU) to facilitate Chinese group leisure travel from China to the United States. Under this pact, U.S. destinations can now market themselves in China, which also provides the necessary framework to permit group leisure travel from China to the United States.

About Travelport
Travelport is one of the world's largest travel conglomerates offering broad based business services to companies operating in the global travel industry. The company is comprised of Travelport GDS, a global distribution system business that includes the Worldspan and Galileo brands; GTA, a group travel and wholesale hotel business; Business Intelligence Services, a data analysis business; and IT Services and Software, which hosts mission critical applications and provides business solutions for major airlines. 

Travelport also owns approximately 48% of Orbitz Worldwide (NYSE: OWW), a leading global online travel company. With on-going annual revenues of approximately $2.6 billion, Travelport operates in 145 countries and has approximately 6,000 employees.

Travelport is a private company owned by The Blackstone Group, One Equity Partners, Technology Crossover Ventures and Travelport management.