China's Urge to Tour Creates New Travel Trends

Like much of the hospitality industry, it’s been a tough couple of years Banyan Tree. The luxury resort operator, which makes the bulk of its profits in Southeast Asia, was hit by a string of events, including the global financial crisis, the Thailand anti-government riots, the Icelandic ash crisis and even the World Cup earlier this year, which benched more tourists at home.

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But there’s a glimmer at the end of the tunnel, and it’s coming from China.

While Europe was the biggest source of tourists for the hotel pre-crisis, the mainland rules in its post-crisis world.

“China is really changing the game,” says Banyan Tree’s executive chairman and founder, Ho Kwon Ping. “From a historical perspective, tourism has always been in one direction: broadly speaking, it’s been Europeans visiting exotic places. There was a slight change when the Japanese started to travel more, but that didn’t make much of a dent. Then the Koreans started traveling, but that was less of dent. But outbound travel from China is huge,” he adds.

Tourists from North Asia now account for about 40 percent of guests at its core Southeast Asian hotels, driven largely by a surge in numbers from China, says Ho. Sensing opportunity, Banyan Tree took its capital raising push into the mainland – the company raised 1 billion renminbi, or US$150 million for its Banyan Tree China Hospitality Fund, which closed in September, almost entirely from high-net individuals from China. The fund will pay for a pipeline of new resort and spa projects there.

The Chinese aren’t just traveling within Asia, they are also flocking to destinations worldwide. According to the World Tourism Organization, China overtook France to become the fourth biggest tourism spender in 2009, jumping 21 percent in spite of the sluggish global economy.

Their capacity to splurge on travel has been driving tourism-dependent economies like the Maldives. The Chinese will not only soon become the largest market for the resort island, they are also single-handedly creating new mini-peak seasons where none existed before, says Ho.

“The Chinese are the big salvation for the Maldives… and they go mid-year during Golden Week [in October], not December. [Even] if it’s raining, they don’t mind because they’re not out there to toast themselves,” says Ho. “For [Chinese] honeymooners, the Maldives is romantic even when it’s overcast.”

The Chinese urge to travel got a boost partly due to the government – China’s state council has identified tourism as a major pillar of the domestic economy. The standing-room only crowds who flocked to Banyan Tree’s fund-raising road show attest to that, says Ho. “The yearning to invest in China is very strong. The stock market is pretty speculative, people have already invested in properties and now they’re looking for other ways to invest.”

Banyan is banking on China as it moves to rebalance its portfolio of resorts, spas and hotel residences. In the past, about 60 percent of the company’s assets and profits originated from Thailand, which left the company deeply exposed to natural, economic and, most recently, political crises. The firm is now off-loading some of its Thai assets; it recently sold the Dusit Laguna Phuket, part of its Laguna Phuket complex, in August, and is looking for buyers for some its other Thai properties.

Proceeds from the sale will go into its China investments – Banyan has about 15 projects under development across the country. It’s opening four new resorts next year, including two in China and one in Macau.

While the third quarter, traditionally a quiet period for the sector, remained slow, bookings for the fourth quarter werestrong, says Ho. Earnings next year could get an extra boost from further sales of Thai properties. “We’re looking at all possibilities,” Ho says. “It’s not a fire sale, we’ll only look at things with a good capital gain. It’s more about rebalancing our portfolio.”