Outbound: CAPA Sees Growth in Complexity & Diversity

January 29, 2020 | Bureau | Outbound India

But India is not a single, homogenous market. It varies significantly by city, income levels and demographics. National tourism board’s that fail to recognise this diversity or do not invest in understanding the behaviour and preferences of different segments are at risk of losing out, says a recent CAPA report.

Air Connectivity

  • International routes to/from India were already capacity constrained prior to the suspension of Jet Airways’ services, with many airlines reporting year-round load factors of close to 90%, and experiencing spillage during peak months.
  • This situation has been further exacerbated by the exit of Jet, which has resulted in higher fares, especially during peak seasons. Prior to the suspension of services, Jet had the largest share of international capacity to/from India, accounting for just over 12% of seats. Several Middle Eastern and Asian carriers are unable to expand capacity because of bilateral restrictions.
  • Only around 50% of the capacity deployed to/from India is available for the Indian point of sale, despite the fact that the outbound potential is much higher than inbound. Foreign carriers, in particular, tend to prioritise offshore sales which are viewed as being higher yield.
  • Foreign airlines tend to focus less on selling individual destinations and instead prefer to capture business and VFR travel, which represent high volume, low hanging segments that can drive traffic across their networks. However, there is a significant and growing segment of potential higher-yielding leisure travellers ex India, if national tourism boards and airlines are prepared to invest in appropriate marketing and product development.
  • New international services, particularly those launched by Indian carriers, have stimulated significant growth in visitor numbers in overseas markets. In recent months, Indian visitor arrivals to the Maldives and Turkey have seen tremendous growth after deployment of additional capacity.

Market segments

  • CAPA estimates that only around 5 million unique individuals in India travel overseas for leisure in any given year. This is insignificant relative to the potential, given that close to 100 million people live in households that are estimated to have the purchasing power to travel overseas, at least to a short haul destination. There is a huge market that is simply not being tapped.
  • The first-time traveller market ex India will continue to grow for decades to come, as economic growth propels more and more households above the income threshold at which they can afford to travel overseas. These travellers will tend to focus on destinations such as Singapore, Thailand, Malaysia, Sri Lanka and the UAE. Travel experience and increasing affluence will see them graduate over time to longer haul destinations such as Europe, Australia/NZ, Africa, and North America.
  • However, there is already a growing market of sophisticated, frequent travellers who are seeking new experiences off the beaten track. This has resulted in rapid growth, albeit off a small base, to diverse, upcoming destinations such as Azerbaijan, Cambodia, Georgia, Iceland, Israel and Peru.
  • There is a tendency by some foreign destinations to commoditise the Indian traveller. But India is not a single, homogenous market. It varies significantly by city, income levels and demographics. National tourism board s that fail to recognise this diversity or do not invest in understanding the behaviour and preferences of different segments are at risk of losing out.
  • But for those that take the time and effort to do so, there are significant opportunities to grow traffic and to develop a wide variety of market segments beyond the standard tourist packages e.g. MICE, destination weddings, female travellers, cruises, events-based travel, special interest e.g. golf, diving, culinary tours etc.

Distribution

  • As the market becomes larger, more diversified and more sophisticated, tour operators and travel agents (particularly frontline staff) will need to enhance their knowledge of destinations and travel products. This will likely drive increasing specialisation.

Cultural Sensitivity

  • Differences in culture will need to be understood by both sides. To attract more Indian visitors, destinations and their tourism ecosystems will need to be sensitive to issues such as dietary preferences, language, service expectations, value consciousness etc. At the same time, Indian travellers will need to be educated on customs and behavioural norms in other countries, to ensure that some do not hurt the image of Indian tourists.

There were more than 26.3 million departures from India by Indian nationals in 2018. However, the outbound resident market is smaller than this.

  • Historically, the industry has considered the number of international departures by Indian nationals to represent the size of the outbound market from India. In 2018 there were 26.3 million such departures.
  • However, this is not an accurate representation because this measures movements by nationality rather than by residence. There are a large number of NRIs who live overseas. When they travel to India for a short-term visit and then return home, they are captured in the ‘Indian national departures’ category. As a result the size of the market has been over-estimated.

Indian residents are estimated to have made 19.4 million overseas trips in 2018

Penetration of outbound travel from India
remains very low Indian residents are estimated to have made 19.4 million overseas trips in 2018

  • After removing NRIs from the traffic data, the estimated size of the international outbound market amongst Indian residents is estimated to have been 19.4 million in 2018.
  • The resident outbound market has grown at a CAGR of 10.8% over the last 4 years.
  • The number of unique individuals that travel overseas in a given year will be less than this as some residents travel overseas more than once per annum.
  • Almost 70% of this travel is for the purpose of employment, business or visiting friends. Only just over 30% is estimated to be for pure leisure.

Penetration of outbound travel from India remains very low

  • 2018 Indian Leisure Departures 6.2mn (estimated)
  • 2018 Unique Leisure Travellers ~5.2mn (estimated)

These travellers represent only around 5% of the high income population and only 0.4% of India’s population.

The most popular leisure destinations for Indian travellers in 2018

Only for leisure

  • Destination : 2018 Arrivals (mn)
  • Dubai 1,319; Thailand 1,190; Singapore 620; France 486; Malaysia 360; Sri Lanka 348; Indonesia 345; Italy 305; US 248; Hong Kong 220.

As a high value discretionary item, international travel is sensitive to economic conditions and trends in disposable income

  • As a high value discretionary item, international travel is sensitive to economic conditions and trends in disposable income.
  • National GDP growth has been declining since 2016 and there has been a marked slowdown in the last few months.
  • However, as at present it is not clear that this is slowing the outbound market. Factors such as the general election, closure of Pakistani airspace and bilateral restrictions have curbed international traffic below its natural rate.
  • But this appears to have impacted inbound more than outbound. As the data in the following slide shows, Indian visitor arrivals to a cross-section of destinations appears to be relatively buoyant. The sharp decline to Sri Lanka is due to the Easter terrorist attack. Although Dubai, the largest outbound market from India has seen a decline.

Key to unlocking market potential

How to convert increasing ability, interest and desire to travel:

  • Deliver value – LCCs will play a key role
  • Provide more non-stop connectivity
  • Increase capacity – bilateral rights are a constraint
  • Liberalise visa requirements
  • Enhance customer segmentation/marketing
  • Improving aircraft technology and new business models

Potential to achieve 20mn Indian leisure arrivals by 2025

  • Preliminary forecasts indicate a CAGR of 12.4% to 2025
  • Leisure departures of 14mn, generating 20mn arrivals
  • Spending of USD35-40bn, excluding airfares
  • Long haul LCC stimulation could add 2mn departures

Growth could be sustained for decades.