Walter Dias

China market experts identify contributing factors to the segment’s robust development while cautioning the importance of responsible growth

By Thomas Johnson

As one of the world’s fastest growing economies, mainland China has spent the last decade or two cultivating its burgeoning middle class. Now, with a surplus of funds on hand, these freshly minted members of the Chinese bourgeoisie find themselves branching out and exploring international travel options. Could Guam be on the verge of greeting a massive wave of Chinese visitors?

Walter B. Dias, who spent more than 20 years focusing on the China market in Guam with Continental Airlines and is now United Airlines managing director of sales and marketing for greater China and Korea, says that the floodgates on the Chinese travel market could be on the verge of opening wide.

“On the travel side, I think we’re just scratching the surface; it hasn’t really started yet. My personal opinion — and I don’t want to seem too optimistic about this — is that the sky’s the limit. The U.S. government themselves projects that Chinese tourism to the USA will hit three million by 2020, and even that might be a little bit conservative because in 2014 the numbers were at 2.1 million, and in 2013, it was 1.9 million. That’s a 23% increase year on year. It’s huge.

“The big challenge for us — and I mean this for Guam and the U.S. both — is to prepare for the influx, because the numbers are going to be large, and we need to make sure we have the appropriate number of language speakers and other mundane things like Mandarin signage,” Dias says.

Jon Nathan P. Denight

Jon Nathan P. Denight, general manager for the Guam Visitors Bureau, says the Chinese visitor arrivals to Guam have been growing year after year. GVB preliminary arrival summaries indicated that the Chinese market had grown by 61.4% year-on-year, and arrivals for the month of March showed a 129.8% increase over March arrivals from last year. And the agency has big goals to increase that number further.

“Last year, our goal for the Chinese market was around 14,000. Now it’s 20,000,” he says. “It’s a sizeable jump, but it’s also a fairly realistic bar to set. The Chinese market is also a higher-yield market than most, especially when it comes to shopping. So you can’t just judge the market by arrival numbers; you also have to look at the profile of the customer in terms of quality and quantity.”

The Northern Mariana Islands has also seen a surge of Chinese visitors — up 31% compared to 2014 with a total number of visitors of 49,084 so far in 2015, according to arrival statistics from the Marianas Visitors Authority — and is hungry for more. Nearly all flights from China to the NMI were sold out long before the Chinese New Year, according to the MVA’s February arrival trends report.

“China remains an important part of our market diversification strategy in the NMI,” says Perry Tenorio, managing director for MVA. “At this time, we project to receive about 160,000 visitors from China by the end of this fiscal year, a small increase compared to last fiscal year. This would make China our second largest market, following Korea.”

To stimulate soft market demand after the Chinese New Year in February, MVA launched a variety of outdoor advertising campaigns in Shanghai, Gunagzhou and Chengdu in support of China charter flights. The agency also joined the Tinian Dynasty Holiday and Century Tours to host a series of promotional events in second-tier cities of China to promote the tourism resources of Saipan, Tinian and Rota. Chinese arrivals to Tinian were down 71% in March from last March, according to MVA.

“We’ve just learned that the NMI has been selected as the Best Island Tour Destination in the 2015 World Travel Fair Awards, held in Shanghai. We’re very excited about that and the continued prospects in the China market for Saipan, Tinian and Rota,” Tenorio says.

While Chinese arrivals to the NMI greatly outnumber those to Guam because of the visa exemption for the NMI, Dias and Denight say the recent extension of the U.S. visa for Chinese visitors to Guam from one to 10 years has contributed to a rapid increase. U.S. Chinese ambassador Max S. Baucus indicated to Dias that since the policy was put in place, the number of visas processed for U.S. entry has grown by 50%, and they only expect it to continue growing. Because of the inconvenient process required to acquire a U.S. visa, Dias says that U.S. officials have been working to streamline the process and make it more efficient for Chinese nationals.

“What typically would have taken six to eight weeks can now be done in about three days,” Dias says. “I’m not even worried about acquiring the visa-free entry anymore. We’ll keep working toward getting it, of course, but this new policy will have a dramatic effect on the overall number of visitors coming to Guam. That’s one of the reasons why we were finally comfortable launching a scheduled service to the island.”

United began its Shanghai-Guam direct route in October after an aggressive campaign by GVB to get direct flights from China to the island. According to Denight, the bureau worked directly with the airport to craft an incentive plan with reduced landing fees and other fees for underserved routes, which included China. GVB also came up with a program to offer marketing support to the first two air carriers to fly direct from China to Guam, which were Dynamic Air with its direct service from Beijing started last summer and United with its direct Shanghai service in October.

“We put up about $1 million for this program for the first two airlines […],” Denight says. “The way I see it, GVB has been working on promoting tourism for over 50 years, and while we’ll always be dedicated to our Japan market, I think China represents a great future opportunity for every tourist destination in the world to try and penetrate. And I think that the direct service we established last year will seem like a historic milestone in another 50 years as the start of our growth in the China market. It’s something we can look back on with pride when we’re up to half a million or one million Chinese visitors.”

In addition to the direct flights, Denight says that 2015 heralded a record number of Chinese charter flights for Chinese New Year, with Dynamic Airways flying in approximately 15 charter flights carrying more than 3,000 Chinese passengers.

Brian Borja

“It’s quite interesting,” says GVB China Marketing Officer Brian Borja, “because we’ve had Chinese flights before, but now they’re coming from Chengdu, Nanjing, Hangzhou — all these cities near the first three cities of Beijing, Shanghai and Guangzhou — so the air carriers that we’ve attracted through the airline incentive program [are] looking more closely at Guam by allowing even more cities to have access through the Chinese New Year charter flights.”

However, the increase in Chinese visitors is causing a small amount of concern in terms of room inventory.

“Because the Chinese are a new market and currently a seasonal market of sorts, it’s harder to get the room allocation we need just because large blocks are already reserved for other markets,” Denight says, “and last year, we actually had a bunch of charter flights that we had to cancel because it was hard for the travel packagers to get the rooms. But I think people are starting to see the value of the Chinese market and are now following our strategic plan to grow the market.”

With limited rooms, Dias says it becomes necessary to attract a higher quality rather than quantity of customer.

“We’re in a position where we’re using our inventory at a very high level, and when you’re in that position, you really need to be thinking about how to go up the value chain in terms of customers and attract a higher level of consumer,” Dias says.

Dias adds that establishing the island as a luxury destination will help filter out one of the frequent concerns of destinations that play host to China’s traveling nouveau riche: lower-end Chinese visitors who act discourteously while traveling. This discourtesy has been seen in several incidents abroad, such as when a Chinese visitor spray-painted his name on a 3,500-year-old Egyptian temple or when a Chinese passenger threw scalding soup on a flight attendant en route to Thailand.

While Dias says that the Chinese government is taking steps to educate new travelers on how to behave properly abroad, he acknowledges that the issue can be avoided almost altogether by focusing on catering to higher-end Chinese clientele.

Given the island’s growing reputation as a luxury shopping destination, it seems like the industry may already be well on the way there. As mentioned in Guam Business Magazine’s March-April tourism market update on Taiwan, this past Chinese New Year has been a banner time for Tumon’s luxury apparel stores. T Galleria, for one, has taken advantage of the surge in Chinese visitors by posting Chinese signage indicating price differences.

“The feedback we get from groups that have been in Guam is generally that we have the same product they’re looking for, but at a slightly better price, and that makes our location that much more attractive,” Dias says.

Much like the Taiwanese visitor, the typical high-end Chinese visitor loves to shop. Dias says United hosted a recognition event to Guam in mid-April for the top personnel of United’s highest performing travel partners in Shanghai, and while the corporate agents loved all of the activities and attractions, most of their free time was spent in one
shopping center or another.

“Ninety-nine percent of their free time was spent shopping. Whether it be at DFS, Micronesia Mall or even just the K-Mart experience, it all fits within their spectrum of shopping. And we see that in consumer surveys for China all the time: One of their top activities is shopping,” Dias says.

Of the 29 agents that participated in United’s recognition event, 25 had never been to the island before, Dias says, “And I didn’t hear one negative thing. And this was without any prompting because we honestly wanted to gauge their reactions and their feel for the location.”

In a separate instance with partners from Hong Kong, Dias and several of his colleagues had to hurry back and retrieve some of their guests before their departing flight because they were still shopping on their way to the plane. “That’s how much they enjoy it,” he says.

Ultimately, however, while the Chinese market seems to have great potential in terms of both quantity and quality, GVB and United are both wary of growing the market too fast too soon.

“Now that the one-year visa has been extended, there are many more Chinese visitors looking into acquiring a U.S. visa,” Denight says. “When we talked to agents in China before, the number one complaint was that the visa was making it difficult to sell Guam as a location. But now, when we talk to the same agents, they’re excited to sell Guam. We’re still pursuing the visa waiver as well, but a good thing about the visa is that it does tend to help weed out some of the lower-yield visitors. And that’s very convenient because we do want to grow the market, but we want to grow it responsibly and not at the expense of our Japanese and Korean markets.”

Part of responsible growth, Dias says, is not jumping right into offering daily air service from China.

“We don’t want to be in a position where we have to find 150 bodies to put on this plane and agents just end up selling very cheap packages to whoever will buy them,” he says. “We really do need to be disciplined, but sometimes destinations just can’t help themselves. They get excited about a new airline or a new route, but at this juncture, Guam really needs to carefully consider their options because we’re already running at record capacity for the island, and this is a rare opportunity for Guam to think about how to position itself for a higher end market.”

With shopping one of Guam’s biggest selling points, Dias says he hopes GVB continues to push luxury shopping to the Chinese market.

“Because we definitely have it, and the island is conveniently positioned to provide that to them with minimal effort,” he says. “It’s something that could really help distinguish Guam from other locations.”