The Japanese Travel Market - Inbound Tourism Studies Centre

The Japanese Travel Market:
Update and Analysis
A report into changes in Australia's most important inbound market

By Doctor Roger March
Director, Inbound Tourism Studies Centre

Aims of the report
The aims of this report are twofold:

1 To provide Australian business people involved in Japanese tourism with an in-depth analysis of the current situation in the country's largest inbound market. Despite Japan being Australia's most lucrative inbound market, little analysis or understanding of changes in this crucial market are available to Australian tourism businesses.
2 To promote the objectives and activities of the Inbound Tourism Studies Centre (ITSC). The Centre offers to Australian business the only up-to-date information and in-depth analysis of trends in Australia's inbound tourism market.

Overview of the Japanese Outbound Market
What's happened in recent years?

Growth in numbers

Japanese overseas travel has more than doubled in the 1990s; between 1992 and 1996, the market grew 41% to 16.7 M.

The outbound travel market has been in recession since September last year; in 1997, growth was limited to 0.6%.

1998 has seen continued negative growth: -10% for January to May.

Main destinations

Hawaii and the U.S. Mainland typically account for 22-25% of the total Japanese outbound market.

China has been the fastest growing market for Japanese travel in the 1990s. Its market share rose from 4.2% in 1990 to 9.4% in 1997. Travel to Italy has also risen sharply.

In 1997, for the first time in many years, the U.S. Mainland was the No.1 destination for Japanese, followed by Hawaii, Korea, China and Hong Kong.

Japanese travel to Guam more than doubled between 1993 and 1997 to 1.1 M. visitors.

The popularity of Hong Kong, after being No.1 in 1996 due to the upcoming handover to China, has fallen remarkably.

In 1998, Hawaii overtook Australia as the No.1 preferred destination. (This refers to the destination that Japanese would 'most like to visit next' - not the destination they intend to visit.) Half the Japanese who travelled overseas in 1997 stayed at only one destination.

Travel spending patterns

Average spending per person on an overseas trip fell 28% to Y329,000 between 1990 and 1994.

Since 1994, spending has plateaued out at around Y320,000.

Shopping patterns

Average spending on shopping while overseas was Y91,000 in 1997; shopping expenditure, as a proportion of total travel costs, has not changed during the 1990s.

Japanese typically spend 50% on themselves and 50% on other people.

In 1997, fewer Japanese bought at airport duty-free outlets and department stores than in 1995.

The four most popular purchases of Japanese while abroad are chocolate/candy (#1), followed by T-shirts, clothing and tobacco.

Losing popularity are whisky, perfume, lipstick, jewellery, neckties, and handbags - all are being purchased by fewer people.

Honeymooners are the biggest spenders on shopping: 60% spend over Y150,000 each.

Older women are the big spenders among other market segments: middle-aged women (45-59) are the biggest spending group on shopping (Y124,000 per person in 1997). They are followed by elderly women, full-time housewives, working housewives, single women (18-29), middle-aged men and single women (30-44).

Duration of trip

Japanese are undertaking shorter overseas trips. In 1994, 46% of Japanese were out of the country for 7 days or less; in 1997, this figure had risen to 59%.

In 1997, 19% of Japanese travelled overseas for three nights or less.

Repeat travel

Hawaii is the No.1 repeat destination for Japanese: 58% of visitors to Hawaii in 1997 had been there before.

42% of all Japanese who travelled overseas in 1997 had been to Hawaii at least once in their life. The next most popular destination was Hong Kong/Macau with 25%.

In 1998, 47% of the Japanese adult population have overseas travel experience (compared to 28% in 1989).

Consumer segments

Young single women (18-29), or OLs, are the biggest segment (by age and sex), accounting for 14% of the entire outbound market. (This proportion is rising each year.)

Single women in their twenties average 8.4 overseas trips per person.

Older single women (30-44) account for 4.7% of the travelling market and average 12.8 trips per person.

Elderly men and women over 60 comprise 16% of overseas travellers.

The family market is the fastest growing segment in Japan: 25% of all Japanese in 1997 travelled with family or relatives, up from 17% in 1993.

Honeymooners

Honeymooners accounted for 2.6% of the overseas market in 1997 (down from 7.9% in 1990). ·

In 1990 nearly 870,000 honeymooners travelled abroad; by 1997, this figure had fallen to 437,000.

Spending on an overseas honeymoon has dropped from Y693,000 (per couple) in 1994, to Y480,000 in 1997, a decline of 31%.

Expenditure on shopping, in contrast, fell less than 10% from Y185,000 in 1994 to Y168,000 in 1997.

Less than half the number (46%) of honeymooners now buy all-inclusive package tours; in 1997, 52% bought 'skeleton' tours, referring to budget package tours comprising little more than air, some accommodation and transfers.

20% of honeymooners make their own travel arrangements.

The Top Three honeymoon destinations in spring 1998 were the U.S. Mainland, Hawaii and Europe. Australia, the perennial favourite among Japanese newlyweds along with Hawaii, fell out of the Top Three for the first time in 13 years Hawaii is the most popular family destination (44% market share), followed by Guam and Saipan (34%).

Japanese travel to Australia
Good news amongst the bad

Growth in numbers

Japan accounted for 19.5% of Australia's inbound market in 1997, after peaking at 24.2% in 1992.

Japanese travel to Australia peaked in 1993, when 5.63% of all Japanese overseas travellers visited Australia.

Australia's market share had declined to 4.84% by the end of 1997.

1998 has seen Australia pick up market share: for the January-May period, our share was 5.25% of total Japanese outbound.

Main destinations

Sydney remains the most popular destination: 68% of all Japanese visitors to Australia in 1997 stayed at least one night in Sydney. (The Gold Coast was second most popular with 49%.) · Japanese are staying less in Sydney and more elsewhere in Australia. Sydney's share of the Japanese market (in terms of % of visitor nights) dropped sharply from 39% in 1995 to 30% in 1997.

Japanese are spending more time away from the three main eastern seaboard destinations of Great Barrier Reef, Gold Coast and Sydney. In 1995, these three places accounted for 75% of all visitor nights; by 1997 this figure had fallen to 64%.

Travel patterns

It is uncertain exactly how many Japanese travel to Australia on package or group tours and how many make their own arrangements.

According to JTB data, 68% of Japanese to Australia in 1997 travelled on a package or group tour and 24% made their own travel arrangements. Of the package/group tour visitors, two-thirds travelled on an all-inclusive tour (in contrast to budget 'skeleton' tours). This means that only around 45% of all Japanese to Australia fit the mould of the stereotypical Japanese tourist. Conversely, some 55% can now be regarded as FITs.

BTR data, however, paints a different picture. Its research indicates that in 1997 84% of Japanese travelled on package/group tours to Australia and 16% made their own arrangements. (The 1995 figures were 86% and 14%, respectively.)

Comment: BTR's sample of 1,843 Japanese in their 1996 survey (for example) is a far more reliable measure than JTB's sample of 148 Japanese in their 1997 survey. For that reason, the BTR data should be accepted as a better indicator. The BTR results, however, do not distinguish between skeleton and all-inclusive package tours. Skeleton tours have grown in popularity in recent years as more and more FITs have shifted from making their own arrangements to the skeleton product which is increasingly price-competitive and convenient.

Departure points dictate where Japanese will do the bulk of their souvenir shopping. A little over half the number of Japanese leave Australia from Sydney; the figure has moved in the 50-55% range over the past three years. Cairns has recorded a slight decline, and accounted for just 19% of Japanese departures in 1996. Brisbane Airport recorded a substantial increase - from 13% in 1994 to 21% in 1996.

45% of Japanese visitors nights are spent in hotels - the highest of any market (Americans are next with 29%).

Travel spending patterns

According to JTB statistics, average spending per person on a trip to Australia (i.e., including all expenses prior to and during the trip) fell from Y472,000 in 1994 to Y432,000 in 1997.

As for spending while in Australia, Japanese package tourists spent an average $1,031 in 1997, down 15% from 1995 (according to BTR data). (Japanese package tourists rank 7th highest in this category.)

Shopping patterns

Japanese spent an average $652 on souvenir shopping in Australia in 1997, down 24% from 1995 (BTR data).

Duration of trip

Japanese are staying for shorter periods in Australia. In 1994, 36% of Japanese stayed in Australia for 7 days or less; in 1997, this figure had risen to 45%.

In 1997, 55% of Japanese visited no more than two destinations in Australia.

Repeat travel

Australia had 23% repeat visitation from Japan in 1997 (12 months ended Sept '97).

Between 1992 and 1996, repeat visitation each year averaged 22%. (This is the worst repeater statistic for any of Australia's 14 major source markets.)

Consumer segments

89% of Japanese to Australia are holiday-makers - the highest of any inbound market.

Japan has the smallest VFR market (2%) of any market.

Australia records above average share in four demographic segments: young single women (18-29), working housewives, middle-aged women, and single men (18-44).

Honeymooners

Honeymooners account for 5-7% of all Japanese visitors to Australia (depending on the season).

In 1998, for the first time in 13 years, Australia was displaced in the Top Three destinations for spring honeymoons. (Mainland USA, Hawaii and Europe were the top three in that order.)

Australia's market share for spring 1998 fell to 14.4% from 23.0% in 1995.

The five main spring honeymoon destinations (in order) in 1998 were Honolulu (#1 last year), Las Vegas (#6), Sydney(#2), Los Angeles (#7), and the Gold Coast (#3).

Honeymoon spending on shopping in 1997 was Y102,000, down from Y120,000 in 1994.

Honeymooners continue to spend substantially less on shopping in Australia than elsewhere.

Recent changes in the Japanese outbound market
Things are bleak in Japan. A weaker Japanese yen and slumping consumer confidence, fuelled by concerns over job security and the health of the country's financial institutions, has thrown a pall over the entire Japanese economy. Little wonder that many Japanese are putting off overseas holidays until things improve.

The Japanese outbound travel market has been in recession since September 1997. ('Recession' is here defined as negative growth from the same month of the previous year.) The outbound market was last in recession from September 1992 to July 1993.

The main difference between this time and the last is that the Japanese economy had already been in recession for 18 months when overseas travellers began to cut back on overseas travel in 1992. This time they are running ahead of the recession. This is likely to mean that outbound travel demand will remain negative well into the beginning of 1999.

Recent figures support this view.

In the six months to June 1998, the Japanese market is down 8.3%; June was down 7.3%.

According to recently released JTB forecasts, travel in the 1998 summer (July 1 - August 31) will record the first negative growth in 18 years, down 2.4%.

September is expected to be even worse, with the major wholesalers predicting a massive drop-off in numbers from September 1997. While JTB forecasts a modest fall of 7% in bookings for its Look packages, Kintetsu predicts a 20% drop and Jalpak 21%.

Meanwhile, Japan's travel industry is facing increasingly difficult times. Severe price competition from discount wholesalers such as H.I.S. and Map International continues to exert enormous pressure on the large, traditional wholesalers burdened with massive overheads and bloated workforces. The financial collapse of Jetour, the No.5 wholesaler, earlier this year was symptomatic of the competitive environment. So far this year 57 firms in the travel industry have declared bankruptcy with a combined debt of Y37.43 billion (A$453 million). This is 3.5 times the number of business failures in the whole of 1997.

The only success stories in recent years have been JTB and Jalpak, who have both managed to streamline their organisations and record profits. Perennial industry No.2 Kinki Nippon Tourist (KNT), which has recorded several years of successive losses, does not expect profits until at least next year.

Two recent developments in Japan will only worsen price competition. First, Japan's Ministry of Transportation has allowed travel agents to set their own prices for air fares from October 1 this year. The move is expected to lower prices by up to 30%, reports the Daily Yomiuri newspaper. KNT, for example, now plans to sell a five-day package to Hawaii for Y69,000, which is 18% lower than the previous price.

Secondly, Japan's three major airlines - JAL, ANA and Japan Air System - recently received new landing slots at Narita Airport, as part of the US-Japan Aviation Treaty revised earlier this year. JAL and ANA announced they will use many of the new slots to increase capacity on the Pacific route to the United States. This will inevitably trigger a new round of price cutting and draw customers away from the more expensive routes such as that between Japan and Australia.

Who are Australia's competitors in the Japanese market?

Hawaii is Australia's main competitor in Japan. When Japanese who have travelled to Australia are asked what other destinations they considered before deciding on Australia, Hawaii is repeatedly the first choice. And when travellers to Hawaii are asked what their next choice was, Australia is most often mentioned.

Since Hawaii is the most popular destination for Japanese holidaymakers, this is probably good news for Australia. It probably also explains why the Gold Coast is the only Australian destination which a healthy proportion of Japanese express the desire to revisit in the future. The bad news for Australia is that the Japanese should have such a narrow view of the Australian tourism product.

The reason that the Japanese traveller likes a particular country lies not simply in the destination's intrinsic appeal. Attractive airfares are also critical. Hawaii's enduring appeal is underpinned by the fierce competition on the Pacific route. Geographically, it is ideally located between Japan and the U.S. mainland.

Lower airfares also help explain the popularity of Italy in recent years. Alitalia has been an aggressive price leader in the Japan-Europe route. How can Australia compete when a seven-day tour of Italy and France costs less than a similar trip to Gold Coast and Sydney?

In tourism, more than in most other industries, market share is the main indicator of a destination's competitiveness. In market share terms, Australia has fared reasonably well during the 1990s. Only Italy, China and to a lesser extent Guam have made substantial inroads into the Japanese market.

As popular as Hawaii is, its market share has declined steadily through the 1990s. Though Mainland USA recovered some lost ground in 1996-97, it still falls well short of its 14.9% market share of 1990. China is the star performer. From a paltry share of 3.7% in 1990, it has risen to become the fourth most popular destination for Japanese.

The future direction of Japanese travel to Australia
Market share
As mentioned above, Australia's success or failure in the Japanese market is best measured by our share of Japan's outbound travel market. Australia's share of the Japanese outbound market peaked in 1993 at 5.63%. In the subsequent four years, 1994-1997, the Japanese market grew by 41%. During this period of rapid outbound growth, Japanese travel to Australia grew by just 21%. In other words, while the numbers of Japanese visiting Australia rose during these years, we failed to maintain our market share. By the end of 1997, our share had fallen to 4.84%.

Amidst all the gloom in Japan, Australia has actually increased its market share this year. For the period January-May 1998, Australia's market share stood at 5.25%. The improvement is explained by the fact that while growth to Australia is down 4% this year, overall outbound growth from Japan is down 8.5%.

Intriguingly, this is the third time in the 1990s that Australia has improved its position in the Japanese market when the overall travel market turned bearish. It happened in the six months after the Gulf War and again during the 1992-93 travel recession. Is this simply coincidence - or does Australia hold some inexplicable appeal for Japanese when times are tough?

Our underlying appeal
Australia was the twelfth most popular destination for Japanese in 1997. (In comparison, we were #16 in 1990 and #10 in 1993.) Notwithstanding this ranking, Australia rates highly in attractiveness as a holiday destination across a number of measures. For example:

Australia is the second most preferred destination (after Hawaii) for Japanese contemplating a future overseas trip.

Australia is perceived as the second most friendly country (after Hawaii). Australia also rates highly for safety (#2), kindness to travellers (#2), scenic beauty (#4).

For Japanese wanting a sports holiday, Australia ranks #2, behind Hawaii.

For Japanese wanting a leisurely beach holiday, Australia ranks #5 (after Hawaii, Tahiti, West Indies, and Fiji.)

For Japanese wanting nature-viewing tours, Australia ranks #4 (after Switzerland, Canada, and New Zealand).

For Japanese preferring overseas cruise holidays, Australia ranks #3 (after West Indies and Greece).

For Japanese who want to visit only one or twodestinations, Australia ranks #10.

The news is not all good of course. For Japanese wanting to undertake a shopping tour, Australia ranks the 16th most desirable shopping destination. (Top five are Italy, Hawaii, France, Hong Kong and Singapore.) And for those preferring cultural/historical tourism, we hardly rate at all, placed #37 (out of 52 destinations).

Conclusion
Twelve months ago I stated in a report that Qantas, more than any other organisation, must bear responsibility for Australia's faltering performance in the Japanese market. The legacy of the regime of high air fares that was supported by Japan Airlines and Qantas for many years continues to undermine Australia's competitive position in the Japanese market. Though airfares have dropped considerably on the Australia-Japan route over the past couple of years, the Japanese overseas traveller has been in cheap holiday mood for a much longer period. Perceptions die hard, and Australia is likely to be perceived as an expensive destination by much of the Japanese travelling population for some time to come.

The ATC is working hard to address these perceptions. In November 1997, it launched its $13 million "Australia Time" campaign that was shown on TV screens across Japan. The main target was the experienced female traveller, and the destinations promoted were Cairns, the Gold Coast, and Sydney. The ATC naturally claims that this campaign was responsible for the increased market share this year. Now the second stage of the campaign, costing a further $14 million, is about to begin. The target segments this time are older travellers and families.

Meanwhile, Qantas has announced that from November 1 this year the airline will operate just 24 weekly services between Japan and Australia - down from 37 services in 1995. After years of generating over 80% of its international profits on the Japan route, losses over the past two years have forced Australia's national carrier to scale down its activities in Japan.

As for the future, the Tourism Forecasting Council recently revised forecasts for inbound travel due to the ongoing negative effects of the Asian economic crisis and the Japanese recession. The Japanese market is forecast to decline 10% in 1998 and to fall a further 1% in 1999. Even allowing for an 8.4% increase in 2000, Australia is not expected to achieve the 1997 figure of 814,000 until 2001.

Overall, growth from Japan is likely to be negative well into 1999. The implications for tourism businesses dependent on the Japanese market - not to mention employment in the Japanese travel sector - are enormous. Solutions, short and long-term, need to be formulated. Three industry needs can be identified:

a stronger commitment to cooperative marketing initiatives by specific tourism sectors that will facilitate more efficient use of limited financial resources;

a more thorough understanding of the travelling and purchasing patterns of Japanese visitors to Australia so that firms can better segment and target specific customers; and

more refined distribution strategies by Australian tourism operators aimed at the Japanese FIT market.

Australia's changing tourism environment demands that business (and government) develop and implement creative marketing strategies. A coordinated strategic approach toward the Japanese market will reduce the impact of negative influences while ensuring that the benefits are realised.