Chinese Tourism Takes Full Flight

The rise of the Chinese middle class is having a profound impact on the travel industry. Cambiar explores the growth.

A journey of a thousand miles must begin with a single step.” – Lao Tzu

China has long had a history of exploration and travel.  During the height of China’s dynastic rule and long before Columbus sailed the Ocean Blue, the Chinese commander Zheng He, under the guise of the Ming Dynasty, was exploring vast parts of Asia and Africa with a massive fleet that included 28,000 men and over 250 ships some of which extended over 120 meters in length and 50 meters in width.  Between 1400 and 1435, Zheng He carried out 7 expeditions that spanned Southeast Asia, India, the Middle East and Africa.  There’s some research to suggest Zheng He may have discovered parts of North America decades before Columbus set foot on the continent.

Therefore, after more than three decades of impressive economic expansion post-Chairman Mao’s death in 1976, the fact that the Chinese are traveling in larger numbers beyond their borders is not without precedent.  According to data compiled from Bloomberg, the average number of monthly passengers traveling by air in China has increased from around 20 million in 2009 to now 50 million as of the 1st half of 2018.  Not surprisingly, the number of passengers traveling internationally has increased from just 1mln per month in 2009 to 5 million per month over the same time frame.  Additionally, in just the past five years alone, Chinese outbound tourists using all modes of transportation has grown from over 8 million per month in late 2013 to now 14 million per month as of 1st half of 2018.

In fact, Chinese outbound travel is already having a profound impact on the world.  Last year 135 million Mainland Chinese tourists traveled overseas spending $261bln outside of their borders, a figure that has doubled since 2010 according to the World Tourism Organization.  According to the Japanese foreign ministry, Japan issued nearly 4 million tourist Visas to Chinese nationals in 2017 up from just over 500,000 in 2012.  One only has to travel abroad to witness this first hand whether it’s the wall to wall welcome signs in Mandarin at Vancouver’s International Airport or the number of Chinese tourists taking selfies in front of the Eiffel Tower, the impact of Chinese outbound travel will be felt for decades to come.  Additionally, recent passenger data for both domestic air and outbound air suggest that travel demand has been largely unaffected by trade tensions and the broader slowdown in macro conditions across the country.

China is at a crucial income threshold suggesting that the propensity to travel by Chinese citizens is likely to converge with developed market levels over the next decade or more.  Interestingly India is still a decade or so behind China but no less important given that both countries combined account for nearly 1 out of every 4 people on the planet. 

Munish Malhotra is an Investment Principal at Cambiar Investors. Prior to joining Cambiar in 2017,  he worked at Marsico Capital…

It is Cambiar’s view that this outbound movement of populations across the planet stemming from Asia will be one of the largest mass migrations in history and have profound implications for various industries but especially those related to air travel and accommodation.  This is a secular trend that will no doubt play out over a lifetime and with it fits and starts but it’s nonetheless very powerful.  At Cambiar, we are trying to invest behind businesses where there’s a forward destination (no pun intended) that involves having companies that are likely to be larger and more profitable in the next several years versus today.  We believe companies that are broadly exposed to the travel industry should continue to benefit from this ongoing trend.

 

Disclosures

Certain information contained in this communication constitute “forward-looking statements”, which are based on Cambiar’s beliefs, as well as certain assumptions concerning future events, using information currently available to Cambiar.  Due to market risk and uncertainties, actual events, results, or performance may differ materially from that reflected or contemplated in such forward-looking statements. The information provided is not intended to be, and should not be construed as, investment, legal or tax advice.  Nothing contained herein shall be construed as a recommendation or endorsement to buy or sell any security, investment or portfolio allocation.

Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios. Statistics are based upon third-party sources that are deemed to be reliable, however, Cambiar does not guarantee its accuracy or completeness.

As with any investments, there are risks to be considered.  Past performance is no indication of future results.  All material is provided for informational purposes only and there is no guarantee that the opinions expressed herein will be valid beyond the date of this blog.