This morning’s edition of the South China Morning Post carried an intriguing bit of news: Cathay Pacific, Hong Kong’s full-service legacy carrier, once again reported “high growth in passenger traffic at the back of its planes, while demand for its premium cabins fell below expectations.”
This lopsided development–a slump in demand for premium service, coupled with a growing appetite for more modestly priced seats–reflects a wider trend in Asian, and especially Chinese, passenger demographics. On the one hand, a government-led anti-corruption campaign is making it increasingly difficult for wealthy Chinese to travel abroad, as their foreign purchases are being closely monitored and subjected to annual spending caps. This is particularly true for government officials and employees of state-owned enterprises (along with their family members), who make up the majority of China’s high-net individuals. Many government officials have even been required to surrender their passports, and to apply for special permission to leave the country on a case-by-case basis.
On the other hand, thanks to rising levels of income and declining visa requirements, it has never been easier for members of China’s middle and upper-middle class to travel to abroad. The same is true in nearby countries like Malaysia, Indonesia, and Vietnam, where the middle class is set to double within the next five years. Having spent the past few years vacationing close to home, this emerging group of middle-income travelers are increasingly exploring destinations further afield in Europe, North America, and the Middle East.
A 2013 study by McKinsey correctly predicted that this emerging group of passengers–by some estimates about half a billion people–would become the main drivers of Asia’s economic growth in the coming decade. Another recent study projects that, by 2030, Asia will be home to nearly two-thirds of all middle-class consumers.
Yet the rise of middle-income Asian pax has caught many airports, and airlines, off guard.
Until recently, conventional wisdom suggested that targeting high-net Asian pax was a safe bet in terms of increasing revenue. The result was a slew of investments in high-end boutiques and premium lounges catering to the consumer habits of wealthy Asian, and especially, Chinese travelers. But now that that lucrative demographic is drastically reducing its foreign spending, these spaces are not performing very well. What can airports do to adjust to this new normal?
Over lunch last week, a colleague of mine who works in the travel retail industry complained about exactly this challenge. “Luxury products aren’t selling at all. The stores are empty!” she exclaimed. “All of my clients are asking for ways to do ‘cheap and cheerful’ concessions areas, because that’s where the demand is.”
“We need to readjust our sales strategies for a high-volume, middle-income demographic,” she continued. “But in Asia, that’s something we’ve never done before. We need to learn how to do it–and fast.”
This emerging group of middle- and upper middle-class passengers differ considerably from past generations of Asian travelers in terms of their logistical needs, aspirations, and taste preferences. How airports and airlines adjust their marketing strategies to reflect the growing influence of this demographic will be decisive in determining which airports succeed in capturing the much-coveted Asian long-haul pax market. On the other hand, those who ignore the rise of Asia’s middle class do so at their own peril.