The APTRA Exchange seminar, which took place this afternoon (Monday May 8) at the TFWA Asia Pacific Conference, brought together three top speakers to share their views on the opportunities on the horizon in Asia Pacific, now that the region has fully re-opened and the industry is on its way to making a full recovery.
The session outlined how business conditions in 2023 are set to be ‘much brighter than expected’ compared to just a few months ago, with the energy crisis in Europe abating, the end of China’s zero-Covid policy and fewer economies than expected set to face recession.
Kick-starting the session was Economist Intelligence Unit Global Chief Economist Simon Baptist, who provided an in-depth insight into some of the most pressing issues on their radar and what they mean to businesses in Asia.
Among the points under discussion was whether the world has yet reached its inflationary peak. Baptist highlighted how, in the near-term, the global economy seems to be in “better shape” with resilience evident from the EU and the US having avoided entering into a recession so far this year.
“China reopened unexpectedly in January and that’s leading to good growth in the APAC region this year, but there are still some deep and fundamental changes and challenges ahead,” he said.
“Inflation is beginning to fall, but slowly, and that is really having a big impact on households and disposable income. People are still spending though. We are not really seeing consumers pulling back in the way they have in the past. Tourism and services are doing really well – they have been some of the big rebounders since Covid 19.
“We can’t separate geopolitics and business anymore,” he added. ‘The US/China tension is going to be a major factor in the global economic picture over the next decade or more. It’s critical for travel and tourism to be aware of the different bilateral relationships.”
He also highlighted how the return of China has given “mixed signals” to businesses and while pent-up demand will power 2023, “fragilities” remain.
According the Economist Intelligence Unit data, the global growth forecast has been raised to 2.1, reflecting ‘modest’ improvements in the US and representing a rise on what was predicted earlier this year.
“Asia, the Middle East and Africa are where we see the highest growth rates,” he said. “Some markets are going to struggle. India, China and Indonesia are the markets with the fastest growing economies this year.
“We are going to see India and Indonesia more and more at the top of this growth chart. They will be a massive source of new middle-income households.
He continued: “There are four places we think are going to have a recession this year: Argentina, Russia, the UK and Germany.”
However, the data points to recovery across the G20 in 2024.
Oil prices are expected to remain high (an average of US86 a barrel in 2023), with recession risks amid monetary tightening by OECD banks. Natural gas prices are expected to ease this year, from historical highs.
“Commodity prices have started to come down but remain elevated,” Baptist said.
“Interest rates can’t come down until inflation is down,” he added. “Inflation has peaked, but we are not out of the woods yet. We think the US has finished raising interest rates now and we can expect them to remain flat for the next 12 months. Global inflation was at a record high (9.4%) in 2022, the highest since 1996. This will recede to 6.3% in 2023 and 3.9% in 2024.”
High food prices persist (at 60% above 2019 levels), with retail food prices still rising as commodity prices ease, but Baptist said that we should see this margin start to compress again.
When it comes to consumer spending power, Baptist noted that consumers are depleting their savings as real wages fall. The pandemic is still having an impact on consumer spending patterns amid cost-of-living pressures, with services that weren’t available during the pandemic, such as eating out and travel picking up at the expense of household goods and apparel.
He finished by summarising the key takeaways of his presentation. Namely, how Asia’s growth of 3.9% this year is still ahead of global growth of 1.9%. Also, that high interest rates and high inflation will persist this year, stumping import reliant countries.
“Commodity prices are well off their highs this year,” he added. “But will gain some ground.”
Finally, green and digital transitions will continue to see investment and geopolitics will remain a major course of business risk.
Next, Stephen Hillam, Managing Director of Pi Insight gave the audience an introduction to the new APTRA Index initiative, which APTRA is currently developing in order to provide an ongoing monitoring service to track the performance of the Asia Pacific airport duty free sector.
It follows the successful launch of the ETRC Index in Europe, and while it is in its early stages, Hillam was able to provide an overview of the methodology, scope and benefits of having an anonymised index developed for the Asia Pacific region.
Crucially, the quarterly index will provide insights on APAC market size and growth, as well as the evolution of key market dynamics and category performances.
“PI Insight would compiling the index with no data going to APTRA,” he explained. “We would also look to partner with a passenger statistics organisation, in this case ForwardKeys.”
Hillam underlined how retailer participation is the key requirement to the launch of the APTRA Index and that a follow up and round table will be proposed to discuss it in detail with retailers in the region.
Anne Kavanagh, Executive Director of APTRA stressed how no money would be changing hands as it is being thought of as a value-add to members.
“The main benefit [of the APTRA Index] is providing market context, which APTRA could use when lobbying government,” said Hillam. “We can also use it to understand the size of the market, compared to other channels, including the direction of the market and its growth and all the different dynamics that define the overall performance.”
In the final session of the APTRA Exchange, delegates heard from leading travel research agency ForwardKeys’ Vice President of Brands, Retailers and Media Marina Giuliano.
She outlined the latest travel forecasts in the region, as well as what’s on the cards for the travel retail sector in terms of international departures and key airports in Q2.
She began by delivering a global outlook, highlighting how the recovery of international air traffic worldwide reached -17% 2019 levels in Q2 2023, compared to -25% in Q1 2023.
“If we look at ticketing data, which is updated every day, it indicates that the performance of Asia Pacific is expected to improve significantly in Q2 2023 at -39% on 2019 levels versus -50% in Q1.”
The busiest airports worldwide, based upon forecasted international traffic in Q2 2023, are Dubai International Airport (DXB), London’s Heathrow (LHR) and Paris Charles De Gaulle (CDG), followed by Amsterdam Airport Schiphol (AMS), and Frankfurt Airport (FRA).
“Dubai, Istanbul and Doha have already rebounded to pre-pandemic levels,” she noted, by switching to growth versus 2019.
He stressed how there is a phased recovery happening in Asia Pacific.
“The first sub region that is going to recover faster than the others is South Asia with -10% in Q2 2023 versus 2019 levels. Followed by Oceania (-27%), South East Asia (-35%) and North East Asia (54%).
“India will benefit of stronger air capacity recovery, with total international capacity to Asia Pacific at -28% in Q2 2023 compared to -41% in Q1.
South Korea (-35% with a 10% share) and India (-27% with a 7% share) are expected to be in the top nationalities in Q2 in terms of forecasted international traffic from airports in Asia Pacific.
“One out of three Indian travellers can be found departing from Changi International Airport (SIN) – a hub that plays a big role in connecting countries,” she said. “Other airports that Indian travellers can be found at are Kuala Lumpur International Airport (13% share), Suvarnabhumi Airport (12%), Colombo Metropolitan Area (7%) and Hong Kong International Airport (6%).
Giuliano also presented data on the busiest airports in Asia Pacific, led by Changi, Incheon and Hong Kong airports – with Delhi (Indira Gandhi International Airport) getting back to 2019 levels (with a 3% share).
She outlined how Chinese travel is set to reach 32% of pre-pandemic levels in Q2 and that there will be increased seats for China outbound travel in H1.
Ultimately, her presentation demonstrated how “APAC is now the most dynamic region [for air traffic], set to reach 61% of 2019 levels in Q2.” Yet she advised stakeholders in the room that they may need to reconsider their retail strategy according to a new nationality mix and new touch points.
Another key takeaway was how Indian travellers are expected to be “the second [biggest] nationality [for travelling] in APAC in Q2, supported by a stellar reactivation of connectivity.”
Finally, Giuliano stressed how Chinese travel is set to reach 32% of pre-pandemic levels in Q2.
As she explained: “Recovery is uneven and expected to accelerate in H2, conditioned by connectivity, consumer confidence and traveller profiles.”
Stay close to TRBusiness.com for more on-location coverage from the TFWA Asia Pacific Conference in Singapore.
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