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Amadeus to get better access to soaring outbound travel demand from China

Travel technology provider Amadeus hopes to crack the expanding mainland tourism sector using a new licence to operate there more freely

PUBLISHED : Friday, 21 February, 2014, 10:14am
UPDATED : Saturday, 22 February, 2014, 12:56am

When Bart Tompkins escaped to Koh Samui in Thailand for a holiday break during China’s October “golden week” national holiday two years ago, he could barely believe what he saw.

At the resort he stayed in, almost one in every two people he met was with a mainland tour group, and the rest were expatriates who worked in China.

Tompkins, the managing director for China of Amadeus, the world’s leading provider of travel technology, said this was in stark contrast to his last visit to the island 24 years ago, when he did not see a single Chinese person for a month.

“China has changed a lot in the past five years,” the Beijing-based executive told the South China Morning Post. “A lot more are travelling out of the country individually and book hotels and air tickets online.

A lot more are travelling … individually and book hotels and air tickets online
BART TOMPKINS, AMADEUS

“They are moving from traditional government-owned travel agencies to those owned by individual entrepreneurs who returned to the mainland from their education overseas.”

The growth of the mainland middle class and an easing of travel restrictions have fuelled a boom in outbound travel.

The booking of air tickets and hotels, though, has been monopolised by Chinese state-owned TravelSky Technology, which all other agencies must go through.

Last month the mainland’s aviation regulator, the Civil Aviation Administration of China (CAAC), cracked open the door on the business of bookings to foreign participation by granting two global distribution system (GDS) licences.

The awarding of the licences to Amadeus and Singapore-based Abacus means the two firms are no longer required to go through TravelSky and are allowed to deal directly with foreign airlines offering outbound services in China and with Chinese tour agencies.

But a prerequisite to the new arrangement is those foreign airlines and Chinese tour agencies must apply for permits to deal directly with Amadeus and Abacus, which analysts said could take 12-18 months to process.

Founded as a GDS in 1987 by Air France, Lufthansa, Iberia and SAS, Amadeus has its headquarters in Spain, and handled about 40 per cent of the world’s air bookings made by travel agencies at the end of June last year.

The rest was handled by Travelport, which primarily serves the US market, and Abacus, which is in turn owned by several regional carriers, including Cathay Pacific, Singapore Airlines and All Nippon Airways.

Amadeus has been in the mainland market for the past 20 years, but Tompkins does not know when global players will be able to directly serve the GDS market for domestic airlines.

“China is the last big market for all the international players and where the future growth is,” he said.

“But it is unpredictable when the domestic market will be open for foreign players. TravelSky has been there for a long time, and it will be there and won’t disappear.”

Brokerage CLSA, which released a report on a survey on Chinese outbound tourism last month, found independent travel is on the rise as more people move away from group tours.

Polling 1,000 travellers in 41 cities, the brokerage found the internet has become the major booking platform.

“As the mobile phone overtakes the desktop to become the most widely used internet terminal, travellers are moving towards mobile holiday-planning, e.g., booking, researching, navigating or experience sharing,” said Aaron Fischer, head of consumer and gaming research at CLSA.

The report said China’s outbound travel has grown an average of 16 per cent annually in the past 18 years owing to higher incomes and relaxed travel restrictions.

Last year, the number of outbound travellers hit a new high of 100 million, of which about 56 per cent were travelling for leisure, it said.

CLSA said aircraft manufacturers and the airline industry will benefit from the travel boom.

Tompkins sat down with the Post to discuss the online travel-booking business on the mainland.

 

What is special about China’s GDS market?

Every new market has got its own uniqueness and difficulties. China is more unique, because it’s so much bigger. The US is a bigger market, but it was the birthplace of GDS and has evolved independently from the rest of the world.

 

Is China particularly difficult to expand into?

It’s the biggest growth base and is growing phenomenally fast. As consumers haven’t been [exposed to] technology for a long time, they are going directly to the newest technology.

In the West, like Hong Kong, we got used to personal computers a long time ago. That’s why the use of mobile phones in making bookings came in a bit slower.

But China is leapfrogging it. Chinese go straight to mobile phones. I’ve seen figures from travel agents in China on mobile booking ahead of or the same as figures in the United States and Europe.

 

What issues are pending and need to be ironed out in expanding into China?

Regulatory restrictions in terms of what we are allowed to do in China. That has been slightly lifted. At the end of 2012, the new regulations were issued in China, which allows international GDS companies to operate in China. It has taken a while.

They are quite complicated regulations, which require more difficult applications. This means airlines have to apply for a permit on our behalf. As of last month, we had applications from Lufthansa, Air France and KLM, and all were approved by the CAAC. So these airlines and certain agents can use Amadeus in China.

And we are now in the process of securing more airlines and many more agencies.

 

What are Amadeus’ key business strategies?

The mainland’s marketplace has been used to one way of doing business. We want to improve its efficiency. Each year, we invest about 15 to 16 per cent of our total turnover in research and development. In 2012, we spent ¤414 million (HK$4.4 billion) on R&D.

Now, we have nearly 40 per cent of the travel agencies in the world using Amadeus’ GDS. In 2012, we processed over a billion searches per day.

Cathay Pacific, Singapore Airlines and Korean Air are going to be among 25 per cent of all airlines in the world using Amadeus technology for their in-house passenger service systems.

About 15 years ago, we decided to go onto the technology route rather than the commercial route. Now it is paying off.

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