The Rapid Rise of China's Outbound Millions

REPORT

China Unbounded: The Rapid Rise of China’s Outbound Millions Written, Researched and Edited by Bing Liu, Mark Blutstein, Maggie Rauch, Douglas Quinby April 2016

While Chinese travelers are an emerging force, many are still new to air travel and the idea of traveling overseas. But with increased prosperity and easing travel restrictions, they are making up for lost time. In 2015, Chinese nationals took 120 million trips abroad. This report is a firstofitskind look at the Chinese outbound traveler, examining behaviors and motivations across the travel life cycle, from destination selection to online shopping habits, indestination purchases and everything in between.

This content is published by Phocuswright Inc., a wholly owned subsidiary of Northstar Travel Media, LLC.The information herein is derived from a variety of sources. While every effort has been made to verify the information, the publisher assumes neither responsibility for inconsistencies or inaccuracies in the data nor liability for any damages of any type arising from errors or omissions. All Phocuswright publications are protected by copyright. It is illegal under U.S. federal law (17USC101 et seq.) to copy, fax or electronically distribute copyrighted material beyond the parameters of the License or outside of your organization without explicit permission.

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Table of Contents

Introduction 6 Outbound & Rising 6 Methodology 7 Key Findings 8 Overview: Major Trends and Trip Characteristics 9 Seasonality 10 Travel Party 11 Motivation 12 Spend Trends 13 Age, Income and City Tier: Post80s Generation Leads Outbound Travel 17 Growth The Journey Starts Online: Destination Research and Travel Shopping 19 Social Influence on Travel Search and Shop 22 Groups and the Emerging Independent Traveler 24 The Emerging Independent Traveler 25 Booking and Payments 29 Payments 32 Segment Spotlights: Lodging and InDestination Activities 34 Lodging 34 InDestination Activities 39 Looking Ahead: The Future of Chinese Outbound Travel 40 Appendix: Demographics 44 Sponsors 48 Endnotes 53

Figures and Charts

Fig. 1: Future Travel Intent 2013 Leisure vs. 2015 Outbound 7 Fig. 2: FirstTime Visitors by Region 10 Fig. 3: Outbound Trip Seasonality 11 Fig. 4: Travel Party, by Region Visited 12 Fig. 5: Motivation for Last Trip 13 Fig. 6: Share of 2015 Outbound Travel Spend by Segment 14 Fig. 7: Average Total Spend by Destination 15 Fig. 8: Average Spend on Travel Components by Region Visited 16 Fig. 9: Shopping Discounts on Ctrip.com 17 Fig. 10: Chinese Outbound Travelers’ Income, by Age 18 Fig. 11: Outbound Travel by Age & Income 19 Fig. 12: Media Used for Destination Research 20 Fig. 13: Information Sources for Shopping 21 Fig. 14: Types of Websites/Apps Used for Shopping 22 Fig. 15: Traveler Use of Social Networks 23 Fig. 16: Mobile Activities in Trip 24 Fig. 17: Group, FIT and Package Share 25 Fig. 18: Group, FIT and Package Share Among Affluent Travelers 26 Fig. 19: Travel With an Escorted Group: City Tier, Wealth, Youth 27 Fig. 20: Package Purchase Incidence Among FirstTime and Repeat Visitors, by Destination 28 Fig. 21: Type of Package Purchase by FirstTime and Repeat Visitors 29 Fig. 22: Device Used to Book Vacation Package 30 Fig. 23: Device Used to Book, by Travel Product 31 Fig. 24: Sites/Apps Used for Booking 32 Fig. 25: Typical Method of Payment, by Age 33 Fig. 26: Typical Method of Payment, by Travel Product 34 Fig. 27: Lodging Type Used 35 Fig. 28: Lodging Type by Monthly Income 36 Fig. 29: Lodging Type Used by Destination 37 Fig. 30: Most Important Features for Choosing a Hotel 38 Fig. 31: Key Accommodation Features by Hotel Category 39 Fig. 32: InDestination Activities Incidence 40 Fig. 33: Expected Trip Adjustments in the Next Two Years 41 Fig. 34: Likelihood to Travel Internationally 42 Fig. 35: Reasons for Not Traveling Internationally 43 Fig. 36: English Proficiency 44 Fig. 37: Province or City of Residence 45 Fig. 38: Age and Gender 46 Fig. 39: Monthly Household Income 47 Fig. 40: Employment and Education Status 48

Phocuswright thanks its sponsors for China Unbounded: The Rapid Rise of China’s Outbound Million. Without their active support, this research would not have been possible.

Auckland International Airport Ctrip.com Fáilte Ireland FRHI Hotels & Resorts Hawaii Tourism Authority InterGlobe Technologies Kuoni Group Las Vegas Convention and Visitors Authority Los Angeles Tourism & Convention Board Meritus Hotels & Resorts Starwood Hotels & Resorts Worldwide, Inc. Travel Alberta TripAdvisor®

Introduction Outbound & Rising

Chinese travelers have been an emerging force for several years. They are the mosthyped category of traveler in the world, representing a huge amount of trip traffic and travel spend. However, they are still relatively inexperienced. Many Chinese are still new to air travel, and new to the idea of traveling overseas. With the easing of travel and visa restrictions that once made trips abroad inaccessible for all but a tiny sliver of the population, they are making up for lost time. Increased prosperity is bolstering travel as well.

The expansion of wealth that has stoked general consumer consumption in the country through more than two decades is extending to international travel. In 2015, Chinese nationals took 120 million trips abroad, according to the Chinese National Tourism Administration, which has set a target of 200 million by 2020.

They may be catching up with other countries in terms of international trips, but China's outbound travelers are ahead of the curve when it comes to technology. They have access to a rich digital universe of travel websites and apps offered by established players and a quickly expanding crop of startups. The country has experienced a boom in online travel marketing and distribution, a boom that quickly jumped to mobile channels at a pace far ahead of markets in the U.S. and Europe. In 2016 China's own travel market will become the world's first to see a majority of its bookings via mobile channels. When they go abroad, Chinese travelers are taking those mobilesavvy habits with them, even as many visit a country or a continent for the first time.

Phocuswright's China Unbounded is a firstofitskind look at the Chinese outbound traveler, examining behaviors and motivations across the travel life cycle, from destination selection to indestination purchases and everything in between. It examines Chinese travelers' online shopping habits on travel products from air and lodging to shopping and vacation packages.

The survey on which the report is based was fielded in November 2015, a few months after the July 2015 crash of the Shanghai Composite Index and the August 2015 devaluation of the yuan. Economic indicators have been mixed for several years, and the picture is more complex than simply slowing growth in a huge economy. Volatility in stock markets and currency raise questions about the shortterm health of the Chinese economy. But while 6.9% GDP growth in the same year trailed projections by fractions of a percentage point, that still was the biggest increase of any major economy aside from India. And so far, China's outbound travelers seem optimistic in the face of economic uncertainty. Compared to Phocuswright's China Consumer Travel Report from 2013, a survey of Chinese leisure travelers, today's outbound Chinese travelers seem as intent to increase the length and budget for outbound trips (see Figure 1). If Chinese consumers are cutting their spending to protect their savings, trips abroad do not seem to be the first budget item to be trimmed.

Figure 1

Methodology

Phocuswright fielded an online consumer survey in November 2015 through AIP Corporation. The survey targeted Chinese adults who travel internationally for leisure.

To qualify for participation in the study, respondents had to be at least 18 years of age, have access to the Internet, and have taken at least one overnight leisure trip in the past 12 months to one of the six destination regions: Greater China, Southeast Asia (e.g. Thailand, Singapore, Malaysia), Northeast Asia (e.g., Japan, Korea), Australia and New Zealand, Europe, and the U.S. and Canada. In addition, respondents must have played an active role in planning their international trips. Responses were weighted by age and gender against the Chinese online population.

Oversampling was conducted to ensure a sufficiently large sample of respondents who traveled to select destinations (a quota of 500 per region). Phocuswright received 3,043 qualified responses out of a sample of 25,000 travelers who participated in the survey. Responses were weighted by age and gender against the Chinese online population as well as by the share of Chinese outbound trips to each destination region according to statistics released by China National Tourism Administration. Results are projectable to the Chinese outbound traveler population at a 95% confidence level with a +/1.8% margin of error.

This study sample includes significant representation beyond Tier 1 cities (Beijing, Shanghai, Guangzhou, Shenzhen). Tier 2 cities include Changchun, Changsha, Chengdu, Chongqing, Dalian, Fuzhou, Harbin, Hangzhou, Jinan, Nanjing, Ningbo, Qingdao, Shenyang, Suzhou, Tianjin, Wuhan, Wuxi and Xiamen.

The term longhaul travel is used in this report to refer to a trip to the U.S., Canada, Europe, Australia or New Zealand. In contrast, shorthaul travel refers to a trip within Asia, including Hong Kong, Macau, Taiwan, Southeast Asia and Northeast

Asia.

Key Findings

The course of outbound travel in China is being set by the young and upwardly mobile. More than seven in 10 (72%) outbound travelers fell between the ages of 25 and 44 in 2015, and they already wield spending power similar to those 45 and over.

China's outbound travelers are still relatively inexperienced. Although more than threequarters of those who traveled abroad in 2015 had done so before, the majority of travelers were firsttime visitors to the regions they visited (e.g., Greater China, Northeast Asia, Southeast Asia, U.S./Canada, Europe, Australia/New Zealand).

China's busiest outbound travel season begins with the Labor Day holiday May 1. The season builds through the summer months and peaks over the October holiday. A quarter of outbound trips occur in early October, and 72% of outbound trips take place between May 1 and National Day.

Destinations within Asia are more popular with families and couples than destinations in Europe, North America and Oceania. Shorter flights and lower airfares combined with lessstringent visa regulations make shorthaul trips more accessible for family travel. Meanwhile, longhaul destinations are more popular among solo travelers, led by the U.S., where onethird of Chinese visitors traveled alone on their most recent trip.

Shopping is a major part of China's outbound travel story. Four in 10 outbound travelers cited shopping as a motivation for taking their most recent trip; among those who visited Japan, 56% went in part for the shopping. And they are putting their money where their mouths are: 22% of 2015 outbound travel spend went to shopping.

Chinese travelers spent $205.7 billion, or ¥1.3 trillion, on trips abroad in 2015. Nearly half of that spending was on vacation packages. Standalone air and lodging spend accounted for roughly 10% each. Indestination activities accounted for 3% of spend, and rail, coach, cruise and car combined for just 2% of travel spend.

The average spend per trip was ¥17,490, or US$2,808 Removing shopping and dining, Chinese outbound travelers spent $2,022 per trip. Package purchasers spent an average of roughly ¥700 more than nonpackage purchasers. The most affluent travelers (those earning ¥20,000+ per month) spent nearly onethird more than the overall average; categories attracting the extra spend of the most affluent included car rental, cruises, shopping, dining and vacation packages.

Mobile is the leading online platform for both standalone travel products and package bookings. More than half (53%) of package purchases go through apps and mobile websites. Hotel, car rental, private accommodations, long distance rail and destination activities all get the majority of online bookings through mobile channels.

Mobile websites are used more for bookings than apps are, but apps still make up a significant share of mobile transactions. Apps account for 38% of mobile package bookings, 37% of mobile lodging and nearly half of in destination activities booked on mobile.

Ctrip is the leading website among outbound travelers who book online. The next four are Qunar, Tuniu, LY.com and Alitrip. Sites based outside of China have very little traction. Expedia and Priceline (including Booking.com and Agoda) were each used by less than 5% of Chinese outbound travelers who booked online.

Offline channels remain significant, but their significance will decline as younger travelers become an even bigger portion of the outbound travel population. Nearly 40% overall report booking their last trip entirely offline, but travelers 55 and older book offline at nearly twice the rate of the overall outbound travel population.

The escorted group tour is still big, but FIT is gaining. Escorted group tours represent about twothirds of outbound

travel in China; comfort levels with travel abroad, visa regulations and value for money are likely helping to keep tour groups popular. FIT is on the rise though, as outbound travel trendsetters opt out of the guided tour. The youngest, wealthiest and most experienced travelers as well as Tier 1 residents were all more likely to travel independently.

China's online payment methods enjoy traction not seen in any other major travel market. Credit cards and cash are the most widely used forms of payment among outbound travelers, but Alipay and Tenpay/WeChat Wallet are widely used. For travelers aged 1824, they are the secondmost prevalent form of payment, barely edged out by cash. Alipay and Tenpay have significant adoption across all segments. They are the secondmost commonly used for both flight bookings and hotels.

For hotels looking to better serve Chinese travelers, Chinese speaking staff is the most important adaptation to make. One in five rated Chinese speaking staff as an important factor in choosing a hotel, ranking it ahead of Chineselanguage menus, onsite Chinese restaurants, Chinese TV channels, and proximity to a local Chinese community.

Shopping, sightseeing and dining out are the most popular activities, all done by more than two thirds of China's outbound travelers on their last international trips. Amusement parks and theme parks are also quite popular; 59% visited one.

The largest amount of activity booking occurs during the trip, a day or more in advance. But there are also significant amounts of bookings going on pretrip and sameday. Online and offline channels are almost equally important as research platforms and booking channels for activities.

Overview: Major Trends and Trip Characteristics

Outbound travel is big and growing, but most travelers do not stray far. Just under half (47%) of Chinese travelers took an outbound trip in 2015. For nearly a quarter of them, it was their first time traveling beyond the mainland, and the vast majority stayed close to home. Only one in 10 trips were to destinations beyond East Asia. The rest were to shorthaul destinations including Greater China, Northeast Asia and Southeast Asia.

Hong Kong, Macau and Taiwan referred to from hereon as Greater China occupy a unique position among China's outbound travelers. Each has close political ties to the Mainland, but with varying degrees of independence. Each has its own currency and separate procedures for Chinese nationals to visit as tourists. In addition some language challenges arise for Mandarin speakers in all three destinations. Still, these destinations remain easier for Chinese travelers to visit than any others outside of the Mainland, thanks to proximity and cultural and political ties. Trips to Greater China represented nearly three quarters of outbound trips in 2015.

Beyond Greater China, the five countries most visited were all within Asia, with the U.S. the most popular destination beyond Asia. Within the U.S., the top four states New York, California, Washington, D.C. and Hawaii attracted significantly more travelers than any others.

The full top 10 destinations by country were as follows:

1. Thailand 2. South Korea 3. Japan 4. Singapore 5. Malaysia 6. United States 7. France 8. Italy

9. United Kingdom 10. Australia

While less than a quarter of Chinese outbound travelers went overseas for the first time in 2015, a much bigger share were firsttime visitors to their chosen destinations. More than two thirds of travelers to Northeast Asia were firsttimers, as were more than three quarters of travelers to Southeast Asia, Australia/New Zealand, Europe and the United States/Canada (see Figure 2).

Figure 2

Seasonality

While China's Lunar New Year holiday garners big headlines each year, with accompanying photos of crowded train stations and tourist sites, it is not the country's peak season for international travel. Only 7% of international trips occurred over the holiday in 2015 (see Figure 3). Although most Chinese workers get about two weeks of vacation over the New Year, there is a strong tradition of spending the holiday in one's hometown or with family. Outbound trips at Chinese New Year also tend to be short, with the highest portion lasting three nights or less indicating travelers are using part of the holiday for traditional observance, and part for a trip abroad.

The outbound travel season really kicks off with the May 1 Labor Day holiday and peaks at the earlyOctober National Day. A quarter of outbound trips occur in early October, and 72% of outbound trips take place between May 1 and National Day.

Figure 3

Travel Party

Solo trips represented about a quarter of Chinese travelers' outbound trips, meaning that three quarters of trips were either with family or friends. The most popular destinations for family travel were within Asia; 60% of Northeast Asia trips were with a spouse or significant other (see Figure 4), and about a quarter of trips to Northeast and Southeast Asia included children. Shorter travel distances and lower airfares make these destinations more accessible for families. The U.S./Canada led in solo travel by a wide margin one third of trips there were solo. Travel distance and expense are likely factors, but the U.S.' notoriously strict visa regulations may also play a role. It is often easier for one person to acquire a visa than it is for a couple or an entire family. The U.S. also had a high share of travelers extending a business trip for leisure; employees of U.Sbased companies or those with other business reasons to visit the U.S. likely find it easier to acquire visas.

Travelers were asked to indicate which of six different travel party descriptions aligned with their most recent international trip. The only one that was exclusive of others was the "By myself" option. Many travelers chose multiple options for example, a couple traveling with a child would choose both "With an adult" and "With family including children."

Figure 4

Motivation

The top two reasons for Chinese travelers' outbound trips a desire to see natural/cultural/historical attractions and the desire to take a break and relax are each cited by more than half of travelers (see Figure 5). These are the biggest reasons regardless of destination visited, but among less often cited motivations, there is more variance.

Shopping is a major motivation, cited by four in 10 travelers. China's export economy is more developed than its import economy, and luxury goods are heavily taxed. At the same time, China has not been known for developing highquality domestically made consumer products. As a result, the ability to buy certain goods often luxury goods, or goods believed to be of better quality in a certain country is an important part of travel for many. Recently, this factor has been an especially big part of travel to Japan, where 56% of travelers said shopping was an important motivation for their trip. Although shopping is a motivating factor for many outbound trips, and Chinese travelers spend heavily on shopping, quality of shopping rated relatively low in importance for destination selection. It may be that travelers expect good shopping options can be found in many destinations, making it less of a differentiator than other factors.

Another big impetus for international travel was the ability to extend a business trip. Nearly one in five international leisure trips were an extension of a business trip. Longhaul travelers were more likely than shorthaul travelers to cite this as a trip motivation. Business trip extension was especially important for travelers to the United States/Canada and to Australia/New Zealand. Perhaps due to stringent visa regulations, the cost of flights to those regions, and the welldeveloped business ties between China and the U.S. and Australia.

Figure 5

Spend Trends

Chinese travelers spent $205.7 billion, or ¥1.3 trillion, on trips abroad in 2015 equivalent to about 1.8% of the country's $11.4 trillion GDP that year.1 Nearly half of that spending was on vacation packages and 22% $45.3 billion was spent on shopping (see Figure 6). Standalone air and lodging spend accounted for roughly 10% each. Indestination activities accounted for 3% of spend, and rail, coach, cruise and car combine for just 2% of travel spend.

Figure 6

The average spend per trip was ¥17,490, or US$2,808 Removing shopping and dining to compare this figure with Phocuswright's most recent research on U.S. travelers, Chinese outbound travelers spent $2,022 per trip.

Certain groups of Chinese travelers spend significantly more than others. Package purchasers spent an average of roughly ¥700 more than nonpackage purchasers. The most affluent travelers (those earning ¥20,000+ per month) spent nearly one third more than the overall average. Categories where they outspent by the biggest margins were car rental, cruises, shopping, dining and vacation packages. Travelers from bigger cities also spent more per trip.

Not surprisingly, the distance traveled correlates to higher trip spend. Travelers to Europe spent the most, followed closely by the United States/Canada. Travelers to both of the top two regions spent more than twice as much as travelers to Southeast Asia and nearly twice as much as travelers to Northeast Asia (see Figure 7). Among shorthaul destinations, Northeast Asia attracted the highest spend.

Figure 7

Within Asia, differences in trip spend across regions is largely attributable to shopping. Air and hotel spend were similar for Northeast and Southeast Asia, but average shopping expenditure for travelers to Northeast Asia was ¥10,518, compared to ¥6,481 for travelers to Southeast Asia (see Figure 8). Japan and, to a lesser extent, Korea have in recent years become popular shopping destinations for Chinese travelers, who believe their neighbors offer superior home goods and cosmetics in particular.

Figure 8

Chinese outbound travelers' shopping spend has been big enough to have raised some eyebrows in Beijing, where the government would like to see more spending happen domestically. Ctrip has used shopping as a lure (see Figure 9), especially for outbound travelers, offering cash back and discounts at malls from Tokyo to Berlin to New York, as well as airport duty free shops.

Figure 9

Age, Income and City Tier: Post80s Generation Leads Outbound Travel Growth

Unlike the U.S. and Europe, where the preretirement and early retirement segments represent a large share of the travel market, China's traveler population skews younger. A very high percentage are in the 2544 year old segment. This is especially true for outbound travelers. Nearly three quarters (72%) of China's outbound traveler population falls within this range, and nine out of 10 are between 18 and 44 years old.

The generation gap is not a phenomenon unique to China, but the country exhibits especially acute differences between older generations and their children and grandchildren. Due to recent history, experiences and outlooks differ drastically across age groups. Postreform prosperity has favored younger citizens who have had the chance to attend university and find good jobs in a muchimproved economy.

A person who turned 45 in 2015 would have been in elementary school when Deng Xiaoping introduced the first economic reforms in 1979. Unlike their parents, the brightest and most privileged among them would have a chance to go to college and carve out careers in the new China.

A person who was born the year after those events would have turned 35 in 2015. They are the oldest of what is known in China as the Post80s generation. They came of age in a period markedly different than their parents, a period of increasing openness and prosperity. They have recently been joined in adulthood by the Post90s generation in 2015, that included people 25 and younger. The Post90s generation will be important to outbound travel in the near future, but many are still in college or they are searching for or working at jobs at the lowest rungs of corporate China.

It is the Post80s generation (aged 2534) and those just before them (ages 3544) who are leading China's arrival on the global travel scene. More than half (53%) of travelers in each of those two age brackets took an outbound trip in 2015, while © 2016 Phocuswright Inc. All Rights Reserved. 17 China Unbounded April 2016

no other age bracket cracked 40%.

Adults aged 2534 made up 42% of 2015 outbound travelers, and 44% in that age group earned a monthly income of 15,000 yuan or more. That is roughly the same share of earners at that level in the 45andover age bracket (see Figure 10) and just behind the 49% of 3544 year olds at that income level.

Figure 10

China's 2534 year olds and 3544 year olds are relatively well off, and their economic security enables outbound travel. While it is hardly surprising that higher earners are more likely to travel abroad, clear inflection points occur at certain earning levels. For travelers earning ¥10,00014,999 per month, international travel incidence jumps by 18% over that among travelers earning ¥8,0009,999 per month; at the ¥15,000 per month level, it jumps another 20% (see Figure 11).

Figure 11

Wealthier travelers also are more frequent travelers. Only 32% of outbound travelers earning ¥10,00014,999 per month took more than one trip abroad in 2015. Among those earning ¥15,00019,999, that percentage climbed to 42%, and trip frequency continues to rise with income. Residents of Tier 1 cities also take more frequent trips abroad; half of outbound travelers from Tier 1 cities took two or more international trips in 2015, compared to 34% of Tier 2 residents.

The Journey Starts Online: Destination Research and Travel Shopping

While mobile channels are booming in all respects in the Chinese travel industry, the desktop web remains an important travel resource. It is the mostused platform for destination research, as well as for searching and shopping for individual travel components, used by about three quarters of outbound travelers for both (see Figures 12 and 13). Smartphones follow, used by roughly half for both destination research and shopping; tablets were used by about one fifth. Personal recommendations were the third most important source of information, but were a bigger part of destination research (50%) than for search and shopping (39%).

Figure 12

Compared to destination research among all outbound travelers, those searching and shopping for travel products were much less likely to turn to offline sources. While 37% used traditional agents as a resource for destination information, only 18% of travelers turned to them as they shopped for individual travel components. Usage of travel guide books and other printed material, as well as calls to travel providers and tourism bureaus, were used far less in the search and shopping phase.

Figure 13

Travelers generally used the same shopping channels regardless of the destination they visited. A notable exception was visitors to Southeast Asia, who showed a strong preference for mobile shopping 59% listed websites or apps via smartphones as shopping resources, compared to 45% of travelers overall; 33% used tablets for travel shopping, compared to 20% overall. Travelers to Southeast Asia were a young group 40% were in the Post80s generation, between the ages of 25 34; one third were between 3544. Nearly three quarters of these trips (72%) were with an escorted tour group. Southeast Asian destinations, and Thailand in particular, have been a focus of China's biggest OTAs as they compete via mobile channels for the attention of China's emerging outbound travelers.

OTAs play a big role at the top of the funnel. Intermediary travel booking sites (including OTAs like Ctrip and Tuniu, and online malls such as Alitrip) are more popular destination research resources than travel guide sites and traveler review sites (see Figure 14). Specifically, Ctrip dominates online travel shopping. Three fourths of outbound travelers cited using Ctrip regardless of the distance they traveled. Among its competitors, several sites have a relative strength with shorthaul or long haul trips. Qunar, Alitrip and Meituan performed better with shorthaul than longhaul travelers. Qunar has long been a resource for pricesensitive travelers. Alitrip, which evolved out of Alibaba's Taobao Travel in 2014, has made outbound travel, mobile bookings and deals central to its growth strategy. The combination lends itself best to shorter trips with eyecatching price tags. Meituan is a group buy site that has recently increased its focus on travel.

Figure 14

Sites that do better with longdistance travelers include Tuniu, China's most mature outboundfocused packaging site, which went public in 2014. Also attracting a higher share of longhaul travelers are the websites of the country's biggest traditional agency, CITS.cn; eLong, which until mid2015 was controlled by Expedia; and Mao Tu Ying, the Chinese name for the U.S based review site TripAdvisor.

While some sites are more widely used than others, Chinese travelers tend to shop around, referencing many different types of sites when shopping for travel products. An exception to this pattern is travelers over age 44, who are heavily dependent on OTAs and general search to research destinations. Younger travelers use a greater variety of resources, including their social networks, travel guide sites and traveler review sites.

Social Influence on Travel Search and Shop

China's rich mobile and social media environment are integral to travel research, experience and sharing. A majority of outbound travelers sought friends' travel advice through social networks, shared photos and posts during their trips, and viewed their friends' photos and posts (see Figure 15).

While interactions with friends are the favored uses of social media, Chinese travelers also interact with brands at relatively high rates. Roughly a third engaged in the following types of commercial interactions on social media: looked for deals or promotions, subscribed to travel company accounts and looked for local activities. The biggest share of Chinese social media interaction takes place on WeChat (85% of outbound travelers have WeChat accounts).

Figure 15

Chinese travelers turn to social platforms and mobile platforms throughout the travel lifecycle. They play a big role in research and booking, both before trips and in destination, and in how travelers share photos, written updates and reviews after they travel. Activity on WeChat tends to be more focused on friends and family, and the content shared by personal contacts is more influential than travel brands. Travelersubmitted photos and videos are the most influential type of social media content.

During trips, the most popular social media activity is posting photos and videos, done by 37% of travelers (see Figure 16). More than one quarter of travelers share their experiences through blogging and contributing to social travel forums, much more than the 10% who say they post reviews during their trips.

Figure 16

Smartphones' most important function during trips is as a practical tool, for accessing maps and itinerary and reservation information. Mobile is also frequently used intrip to research and purchase travel products including hotel rooms, flights and activities. These practical uses of mobile are not generally associated with social media in other markets, but for Chinese travelers there is potential for travel research and brand interactions to be routed through social platforms, specifically WeChat. WeChat offers companies the ability to create applications within the platform, and one third of travelers already follow branded accounts. WeChat also has a builtin payment platform, WeChat Wallet. Given that at least 38% of travelers research travel products via mobile during their outbound trips, and a similar share post multimedia to social platforms, clear opportunities are available for brands to reach travelers with information and offers at the intersection of social and mobile.

Groups and the Emerging Independent Traveler

Escorted group tours have been a big part of Chinese travel, both outbound and domestic, since the country's post1979 reform and opening first made it easier to travel. Groups of a dozen or more travelers, in matching hats with a guide at the front carrying a flag, are seen from Beijing to San Francisco. But in recent years, anecdotal evidence indicates that travelers from the mainland are abandoning these groups for free and independent travel (FIT). And quantitative indicators suggests that FIT will increase at the expense of escorted tours as Chinese travelers become more experienced, and as younger travelers enter the outbound travel pool.

Old habits die hard, though, and the escorted group tours that were once nearly synonymous with outbound travel from China are still an important part of overseas trips. Two thirds of travelers report opting for one on their most recent international trip (see Figure 17). Package purchase incidence was slightly higher, at 71%. Travel components included in the highest share of packages were flight and hotel, followed by destination activities.

Figure 17

The share of travelers purchasing group tours varies significantly by region visited. Australia/New Zealand had the highest share of group tour travelers. Northeast and Southeast Asia, both popular with less experienced travelers, also had a high share of group tourists. These regions also have been featured prominently in promotional packages as Chinese OTAs compete for travelers' attention. Europe had a higher share of groups than the U.S. and Canada, perhaps due to its diversity of languages and cultures requiring more support for travelers than for those going to North America.

The Emerging Independent Traveler

Escorted group tours may still dominate outbound travel in China, but FIT is on the rise. The youngest, wealthiest and most experienced travelers demographics that often are on the leading edge of change all show tendencies toward independent travel. Among the most affluent, those making more than ¥20,000 per month, 60% joined escorted group tours (see Figure 18), compared to 66% of outbound travelers overall. Among the youngest outbound travelers, those age 1824, only 57% joined an escorted group tour (see Figure 19). Tier 1 residents also were more likely than residents of Tier 2 and smaller cities to travel independently.

Figure 18

Figure 19

With travelers from the biggest cities, in the highest income bracket, and the lowest age bracket all choosing independent travel at a higher rate, Chinese outbound travel will trend more toward FIT over the next several years. And there is another, even stronger predictor for FIT travel: experience. Travelers who are returning to a destination are much less likely to travel with a group. Three quarters of travelers visiting a destination for the first time opt for an escorted tour; when they return to that destination, just 54% choose an escorted tour group. Repeat visitors are also less likely to purchase any kind of vacation packages, including escorted tours (see Figure 20). The drop in package purchases is especially big for repeat visitors to longhaul destinations. For example, 78% of firsttime visitors to the U.S. purchase vacation packages; on repeat visits, more than half travel independently and purchase travel components individually.

Figure 20

The transition to independent trip planning is not a direct and immediate change; it often happens in stages. As travelers become more experienced, they may still purchase packages, but will opt for those that give them more control than a completely bundled, onesizefitsall package. While firsttime visitors to a destination are much more likely to choose completely prepackaged trips, those making return trips to a destination are more likely to choose customized packages or packages that allow them to make modifications (see Figure 21). As Chinese outbound travelers become more experienced, creative and flexible packages will become increasingly sought after.

Figure 21

Booking and Payments

Online channels, and mobile in particular, are huge in China for destination research and travel shopping, and the same holds true for bookings. Mobile is the platform of choice. The majority of online outbound travel bookings were made via mobile, whether travelers booked components individually or purchased a package. For mobile package booking, the mobile web was used roughly 1.5 times more often than apps (see Figure 22).

Chinese travelers are apparently not intimidated from making big, relatively complex bookings via smartphone. This lack of concern may be bolstered by mobileonly promotions from OTAs, which have been in fierce competition for market share, app downloads and the attention of China's fastemerging overseas travelers.

Figure 22

Mobile is also the platform of choice for purchases of individual travel components. Of six types of travel product air, hotel, car rental, private accommodations, longdistance rail and destination activities only one, air, gets the majority of its online bookings through desktop channels (see Figure 23). Mobile web accounts for more bookings than apps, but apps account for more than 10% of bookings in every segment. And for indestination activities, apps and mobile web are nearly even.

Figure 23

As they build their overseas trips, Chinese travelers have a wealth of websites to choose from. The biggest global booking sites, from Expedia and Orbitz to Priceline and TripAdvisor, all have Chineselanguage sites. And China's own OTAs Ctrip, Qunar and eLong (controlled by Expedia until mid2015) are aggressively pursuing outbound travelers. The country's leading general ecommerce sites, Taobao and JD.com, have both increased their focus on the travel vertical, and Taobao's Alitrip is staking its bets largely on outbound package deals. Group buy sites Meituan and Nuomi have also made the travel vertical a priority. The growth of outbound travel itself has given rise to several new sites. NASDAQlisted Tuniu, which specializes in the products of outbound tour operators, is the third mostpopular site with China's outbound travelers, used by 43% of those who booked a group tour in 2015. Just behind it is LY.com, used by 38% of group tour bookers.

The big domestic OTAs lead in bookings, headed by Ctrip, used by more than twothirds of outbound travel bookers, and followed by Qunar (see Figure 24). Each site was more widely used by those who traveled with escorted tour groups than by FIT travelers, but the difference was especially large for Tuniu, LY.com and Alitrip, which are focused on tours and packages. And eLong, which has long been counted as one of China's big three travel booking sites along with Ctrip and Qunar, registers lower with outbound travel: Just one in five cited the OTA for booking trips.

Meanwhile, players based abroad have gained very little traction in what should be an area of strength outbound bookings. Priceline and Expedia barely register, each being used by 3% or less of online bookers. Skyscanner, which is known in China as Tianxun and acquired homegrown metasearch Youbibi, performs better, especially among group tour purchasers, but still is used by less than 10% of travelers. TripAdvisor, which has competed in the Chinese market with a localized brand since 2009, attracts the highest percentage of Chinese travel bookers among foreignowned sites. The global review leader's Mao Tu Ying (known until recently as DaoDao.com), was used by 6% of online bookers.

Figure 24

OTA websites and apps account for approximately half of standalone hotel and air bookings. For car rental and indestination activities, booking channels were much more fragmented and more likely to be offline.

While online and mobile channels lead outbound travel shopping, offline channels remain significant. Nearly 40% of outbound travelers report booking their last trip entirely offline. Among those who do not book online, customer service and support if something goes wrong are the biggest reasons for choosing offline channels. Travelers 55 and older book offline at nearly twice the rate of the overall outbound travel population; as younger travelers age, offline channels will decrease in importance.

Payments

China's payment environment differs significantly from that of the U.S. or Europe. International credit cards on the Visa or MasterCard platform are available through Chinese banks, but they are not widely accepted as forms of payment by physical or online retailers. UnionPay is the national platform used by the country's banks for debit cards, but when they go abroad, Chinese travelers find that UnionPay is not widely accepted.

Meanwhile, online payment platforms are very widely used. Alipay, owned by ecommerce giant Alibaba, has 400 million registered users; Tenpay, launched several years laterby competitor Tencent, has more than 200 million. And these platforms have embedded themselves into daily life. Chinese consumers have become accustomed to using them to make payments via desktop and smartphone for everything from online retail shopping to taxis to dining.

China's biggest OTA, Ctrip (used by three quarters of outbound travelers who purchased online), accepts all common forms of payment for outbound travel, including hotel bookings international credit cards, UnionPay cards, and Alipay and Tenpay. Most Chinese sites accept at least UnionPay, Alipay and Tenpay. But global OTAs still do not accept them; nor do suppliers based overseas. Acceptance of Chinese payment methods is a competitive advantage for Chinese OTAs that is likely to

remain so for several years. Airbnb, the highprofile U.S. homerental site, implemented Alipay in 2014 as part of its expanding efforts to cater to the Chinese traveler.

Credit cards and cash are the most widely used forms of payment among outbound travelers (see Figure 25), in part because they are the most universally accepted forms of payment globally. Travelers 45 and over are the biggest users of cash. Debit card usage is relatively low. It is most frequently seen in air purchases (17% of Chinese outbound travelers) and payments for lodging (15% of Chinese outbound travelers) (see Figure 26). This slightly elevated usage of debit cards for air and lodging is likely due at least as much to lack of available options to pay with Chinese bank cards as it is to payment preferences.

China's online payment methods enjoy traction not seen in any other major travel market. Alipay and Tenpay/WeChat Wallet are used widely enough in Chinese ecommerce that the "alternative" online payments label used for PayPal does not fit. This distinction extends to travel; one in five travelers used one of these online payment services to purchase air and lodging for international trips in 2015. For travelers aged 1824, they are the second most prevalent form of payment, barely edged out by cash. This youngest group made up just 16% of outbound travelers in 2015. As this youngest segment ages and becomes a larger portion of the travel pool, Post90s travelers are likely to drive up the prevalence of Alipay and Tenpay in travel.

Figure 25

Looking at individual travel components, credit cards dominate for big components and the purchases most likely to be made pretrip. It is the most common form of payment for flights, hotels and vacation packages. Cash is king for components more commonly purchased in destination (activities and ground transport).

Figure 26

Online payment methods are not the leading choice among travelers when purchasing any trip component, but they do have significant adoption across all of them. They are the second most commonly used for flight bookings (21%) and hotels (17%). They also were used by more than 10% of travelers to purchase vacation packages, longdistance rail tickets and rental cars.

Some international hoteliers have taken note of the popularity of China's online payment methods. In September 2015, Marriott announced that it would begin accepting Alipay at several mainland locations as well as some in Hong Kong, and indicated plans to expand to more locations in 2016.2 However, no Alipay option is available for online bookings. Marriott and InterContinental Hotels Group are among the global chains that accept UnionPay for some online bookings.

Segment Spotlights: Lodging and InDestination Activities Lodging

Chinese outbound travelers' top choice for lodging is the midscale (threestar) hotel; 45% stayed in one during their last outbound trip. But they are also staying in a wide range of property types, from fivestar resorts to hostels and private rentals (see Figure 27).

Figure 27

Upscale experiences are an important part of travel abroad, even for travelers below the highest income bracket; 32% of travelers making ¥10,00014,999 per month stayed in a fourstar hotel on their last trip; just under one in 10 stayed in a five star property (see Figure 28). At the same time, a significant share of more affluent travelers also opted for budget accommodations. Chinese travelers are taking trips that include a mix of accommodations. Wealthier travelers sprinkle in value accommodations to help control their budgets, while the less wellheeled include highend accommodations on their itineraries for a taste of luxury. Travelers to longhaul destinations were more likely to choose upscale accommodations (see Figure 29).

Figure 28

Figure 29

As Chinese grow as a share of the world's outbound travelers, many hotel companies have publicly announced adaptations to better serve them, from providing tea kettles and slippers to accepting Chinese payment methods. Among possible adaptations, Chinesespeaking staff is the one most appreciated by outbound travelers (see Figure 30). One in five rated it as an important factor in choosing a hotel, ranking it ahead of Chineselanguage menus, onsite Chinese restaurants, Chinese TV channels and proximity to a local Chinese community.

Figure 30

More important than any Chinafocused adaptations, however, are several more basic features. Security ranked higher than anything else, followed by cleanliness, value for money and convenient location. Free WiFi, which is ubiquitous at hotels in China, was rated as important by 30% of respondents.

The importance of factors in hotel selection varies for different travelers and trips. The oldest group, travelers 45 and over, leaned heavily toward the most practical considerations. They rated value for money, convenience of location and complimentary breakfast much more highly than did any other age group. Younger travelers, meanwhile, were much more likely to value soft features friendly customer service, design and brand.

The class of hotel stayed in also has a strong bearing on preferred features. As Chinese travelers go more upmarket with their lodging, attributes like brand recognition, amenities and distinctive design become more important. Staying with a wellknown brand was much more important for those who stayed in fivestar properties; design and facilities/amenities (such as spa and fitness center) were also bigger considerations for travelers staying in four and fivestar properties (see Figure 31).

Figure 31

InDestination Activities

As they take more control of their trips and gain knowhow of traveling abroad, China's outbound travelers are seeking the same variety of intrip experiences other travelers enjoy. Shopping, sightseeing and dining out are the most popular activities, all done by more than two thirds of travelers on their last international trip (see Figure 32). Amusement parks and theme parks are also quite popular; 59% visited one on their last outbound trip.

Figure 32

The largest amount of activity booking occurs during the trip, a day or more in advance. But a substantial measure of bookings occurs pretrip and sameday. Online and offline channels are almost equally important as research platforms and booking channels for activities, reflecting the fragmented nature of the indestination activities and attractions market, where many suppliers have limited online distribution or mobile booking.

Looking Ahead: The Future of Chinese Outbound Travel

Despite the economic slowdown and financial uncertainty, Chinese outbound travelers remain optimistic about international travel in the near future. Neither the stock market crash of July 2015 nor the downward trend in Renminbi valuation seems to inhibit their willingness to spend while traveling outside of China. In fact, more than half say they intend to take more international trips, travel longer and spend more on outbound travel, especially on shopping, in the next two years. Fewer than 10% plan to cut back on the number, length or budget of their international trips (see Figure 33). These indicators clearly signal nearterm growth in outbound travel demand.

While Chinese travelers are extremely enthusiastic to experience what the world has to offer, many of them are still relatively inexperienced when it comes to international travel. Greater China and East Asia are the gateway destinations, but as travelers gain experience, they will show increased interest in traveling to Australia/New Zealand, U.S./Canada and Europe.

Figure 33

While optimism and passion for outbound travel is evident among experienced travelers, strong intention is also found among the 53% of travelers who did not take an international trip in the past year. When asked how likely they are to travel internationally in the next two years, three out of five nonoutbound travelers said they would be either slightly or extremely likely to go to Greater China (i.e., Hong Kong, Macau, Taiwan) in the next two years. Proximity to the mainland along with familiar language and culture combine to make Greater China a key gateway for China's newest outbound travelers. Southeast and Northeast Asia stand out as top destinations as well, with 40% of nonoutbound travelers saying they are likely to visit those regions within two years. Likelihood to visit longhaul destinations (i.e., Europe, North America, Australia/New Zealand) among nonoutbound travelers is relatively low (see Figure 34).

Figure 34

Slightly more than half of travelers did not travel internationally for leisure in the past 12 months. The top two deterrents are financial considerations and lack of vacation time. More than half cite these two factors as their primary reason for not traveling internationally (see Figure 35). About a quarter of nonoutbound travelers also indicated cultural concerns and challenging visa or passport processes as barriers to international travel. Only 12% of nonoutbound travelers said that they had no desire to travel; this data is extremely positive and presents a significant opportunity for outbound travel.

Figure 35

China's outbound travel population is relatively young compared to travelers in the U.S. and Europe; this correlation also is true of the pool of potential outbound travelers. Among those who did not travel internationally in the past year but say they are likely to do so in the next two years, more than 80% are under age 45 and more than 60% are under age 35.

Cost is the number one barrier to international travel, and, indeed, the population of potential outbound travelers is not as wealthy as the current crop. The vast majority of those who have not traveled abroad but say they are likely to do so in the next two years have a monthly household income of less than ¥15,000. Higherearning travelers are the current outbound travelers as they have more capacity to travel. Although those with lower earnings did not travel internationally due to financial consideration, they still exhibited strong desire and intention for international travel.

Young travelers are already the dominant force in Chinese outbound travel, and their influence will grow over the next several years as the Post80s generation builds wealth and the Post90s generation grows into adulthood. Their ability to gain some financial security will be a major factor in how much they will be able to act on their strong intent to go abroad. Although the country's economy faces challenges and decelerating growth, outbound travel has yet to show signs of weakness.

The growth of Chinese outbound travel is also somewhat of a selffulfilling prophecy, as industry players with a stake in the market's growth have taken steps to encourage it to continue. Several countries have relaxed visa regulations over the past two years, including the U.S., which now offers 10year visas to Chinese leisure travelers. Hotel chains are adjusting their amenities and marketing techniques to better reach and serve Chinese travelers. Airlines are adding Chinese connections to their route plans. Destination marketing organizations are building partnerships with Chinese distributors and working with their travel supplier constituents to forge more direct access to Chinese travelers. Overseas tour operators are calibrating their group travel and package options to keep pace with quickly changing aspirations.

Developments within China also promise to make international travel more accessible. Government proposals from the most

recent meeting of the People's Congress included a handful intended to stoke travel activity. And a significant amount of entrepreneurial energy is focused on the outbound opportunity. The Chinese outbound traveler young, upwardly mobile, techsavvy and increasingly independent has only begun to emerge, and the race is on to attract them, serve them and gain their loyalty.

Appendix: Demographics

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