This is the final installment of a three-part series examining the impact of the Chinese market on Canada’s lodging industry, with special emphasis on the city of Vancouver (Read second installment here). This installment examines the impact of Chinese inbound tourism into Canada, trends hoteliers are seeing in Vancouver, and what hotel operators must consider in order to capture their fair share of this rapidly growing source of demand.
The number of Chinese tourists to Canada has seen strong year-over-year growth since China granted Approved Destination Status (ADS) to Canada in 2010. In 2013, China overtook second place as Canada’s largest inbound tourism market, just behind the United Kingdom. Double-digit growth is projected to continue year-over-year for at least the next several years. Chinese tourists are interested not only in Canada’s renowned natural beauty, but also in educational tourism. Visiting the country can also be a way for Chinese tourists to consider potential immigration opportunities.
Metro Vancouver is the top spot in Canada for Chinese tourists to visit because the city combines a large, established Chinese community with renowned scenic splendor and natural beauty; the flight time to Vancouver from China is also short relative to other Canadian locations. Not every hotel in Vancouver has a plan for targeting the Chinese tourism market, but given the projected growth and sheer size of this demand segment—a market potential of 1.5 million visitors from China to Canada within the next two years—operators in Vancouver should begin strategizing how to capture this market. To secure their fair share of Chinese tourists, hoteliers need to focus on two main areas: they need to build strategic relationships with Receptive Tour Operators (RTOs) to drive room nights into their hotel, and they need to develop experience programs tailored to this market through offering culturally attuned amenities that make Chinese guests feel at ease. Dealing with RTOs is the main means of gaining access to this demand segment, but this niche market also has specific expectations that hotel operators need to meet in order to be competitive. Prior to investigating these issues, we will look at the conditions supporting rise of Chinese tourism in Canada and the shape, size, and projected outlook for this market in the Canadian context.
The History of Government Policy Changes and the Significance of Approved Destination Status (ADS)
Before the creation of ADS in 1995, outbound tourism from China was extremely limited. The People’s Republic of China (PRC) government made outbound tourism essentially impossible as a means to maintain political and economic control. The PRC had adopted an inward-looking philosophy that isolated China from the rest of the world. The PRC began to initiate economic reform after the death of Mao Zedong in 1976, which brought about the end of his Cultural Revolution that aimed to impose “Maoist orthodoxy,” which included communist ideals and the elimination of capitalism. As part of the sweeping economic reforms that were initiated, restrictions on outbound tourism to international markets were gradually relaxed. The country first began to experiment with outbound tourism in the early 1980s, when citizens were for the first time allowed to visit Hong Kong and Macau in order to see relatives. Outbound tourism into international markets first got underway in the beginning of the 1990s, when citizens were permitted to travel to other Asian countries.
The PRC government has used outbound tourism as part of a strategy for gaining political concessions from other countries. Global tourist destinations had a strong desire to capture the large, untapped tourism production that China could provide, along with the associated economic gains, and the PRC used gaining access to their citizen’s tourism dollars as leverage in its pursuit of its own modernization goals. The ADS system, which was formalized in 1995, became the lynchpin of this strategy. In the ADS system, leisure travel is permitted, but only through organized group tours, and only to ADS-approved destinations. Gaining access to the Chinese tourism market is therefore contingent upon a country securing ADS status, which essentially requires being in good economic or political standing with the PRC government.
In 2010, the PRC government granted ADS to Canada, inaugurating Chinese organized tour group travel to the country. Canada has since experienced consistent double-digit growth in visitation from China, and this trend is expected to continue for the foreseeable future.
The Potential of the Chinese Tourism Market for Canada
Statistics and information provided by the Canadian Tourism Commission (CTC)
As with many established global markets today, much of Canada’s visitor and tourism expenditure growth is tied to China. Since China granted ADS to Canada in 2010, Canada has experienced double-digit growth in the number of visitors from China, mainly through the tour group and Frequent Independent Traveller (FIT) market segments. With Chinese outbound travel at an all-time high, Canada—in part due to its natural beauty and desirable quality of life—is a destination that is very much on the radar of Chinese tourists and investors. In 2013, China was Canada’s second largest source market for expenditure by visitors, behind only the United Kingdom. The Chinese FIT segment aged 20 to 45 was the fastest-growing segment coming to the country. Out of 2.56 million international visitors to Canada in 2013, China accounted for 13% of the total, reflecting astonishing year-over-year growth of 22.3%. Receipts for the Chinese market totalled $603.2 million in 2013, a 24.2% increase from 2012.
The numbers show that Canada is gaining traction as a destination of choice for the Chinese tourist. Canada has seen significant tourism growth in educational experiences, as well an increase in the number of multi-visit visas issued. Demand for access to the country is particularly strong, as Canada has the most direct flights from China next to the United States—approximately 75 flights per week. Vancouver, being a destination that has a shorter flight time than other parts of Canada and many North American cities, is greatly favoured by many Chinese travellers.
The Chinese tourism market is projected to bring 1.5 million visitors to Canada over the next two years. The average length of stay for this market is 14 nights, with average total spending of just over $1,800 per trip. British Columbia is the region of Canada that Chinese tourists visit the most, with a special preference for Vancouver and Victoria. Generally, Chinese tourists are interested in viewing wildlife, participating in adventure experiences, experiencing the Northern Lights, taking cruises, and scenic sightseeing. British Columbia is able to answer all of these interests in spades. There is also high interest in viewing the Canadian Northern Lights; however, Canada currently lacks the tourism infrastructure to capture and grow this potential demand, and the opportunity has yet to be exploited. At present, the number of flights to the Yukon and the Northwest Territories are too few to accommodate the demand.
For both Vancouver and British Columbia, China overtook the United Kingdom as the largest source market for overnight visits in 2013. Tourism Vancouver projects the number of Chinese overnight visitors to Vancouver to increase 15% in 2014. In general, Canada is perceived to be an expensive country to visit, but it nevertheless enjoys a high repeat visitation rate from Chinese tourists. As noted by the CTC, many tourists that visit the West Coast will also eventually visit the East. Moving forward, Canada is projected to accommodate 394,900 Chinese visitors for overnight trips in 2014, up 18.2% from 2013, and the receipts are forecast at $725.9 million, reflecting growth of 20.3% over the previous year.
The Characteristics of the Chinese Tourism Market
The Chinese have never been wealthier, and they are seizing this opportunity to travel globally. For many Chinese tourists, their experiences while visiting Canada will inform and inspire their plans for future immigration and investment in the country.
In Vancouver, hotels are seeing Chinese tourists predominately from the tour group segment, which reflects the structure of the ADS bilateral agreement. The Chinese tour market looks for economical rates with packaged goods and services. Having a hot breakfast—with Chinese items—included in the room rate is highly favoured. As with any tour group market, there is a strong preference for low room rates. For Chinese patrons, they prefer to pay less for rooms so they can allocate more dollars to shopping. Interestingly, Vancouver is seeing a higher influx of Chinese travel coming in the winter and shoulder seasons, when room rates are generally lower, which is allowing hoteliers to achieve higher occupancy levels during a time that they traditionally would not. Although the ADR for this developing market can be a significant discount from Best Available Rate (BAR), it is important to remember that the surge in Chinese tourists that began in 2010 with Canada attaining ADS status from China came at the same time as the Vancouver market was reeling from the effects of the economic downturn; producing a lower rate.
The commercial and group incentive market segments have also seen growth, which is usually observed in developing foreign tourism markets. Commercial demand consists mainly of business travellers, while group incentive demand would be categorized under the meeting and group segment, which consists of demand associated with meetings, seminars, conventions, trade association shows, and similar gatherings of ten or more people. Leisure FIT demand is also expected to show consistent year-over-year growth moving forward. At this point in time, however, online travel agents account for a very small portion of Chinese bookings because Chinese tourists have a strong preference for the comfort of travelling with tour groups instead of travelling alone.
In addition, Chinese tourists generally lack confidence to travel alone with limited English-speaking skills in an unfamiliar culture. This preference for being among familiar cultural references helps explain why occupancy rates for the Chinese market in the Greater Vancouver Area are highest in Richmond, where 60% of the population is of Chinese and South Asian descent. With that said, hotel room rates are also higher in Downtown Vancouver, which further cements Richmond as a better alternative for today’s rate-sensitive Chinese tour groups. In terms of staying patterns, the Chinese want to see everything when they are in the Vancouver area. It is not atypical for guests to stay for a week in Vancouver while making occasional day trips to Victoria and Whistler.
Capturing Your Fair Share of the Chinese Tourism Market as a Hotel Operator through Understanding Culture and Working with Receptive Tour Operators.
From a hotel operator’s viewpoint, understanding the ADS system and the service requirements of Chinese tourists is a prerequisite for obtaining a fair share of this rapidly increasing source of demand. There are essentially two things that a hotel operator has to consider. The first is to work with Receptive Tour Operators (RTOs), which is the only way to gain access to this demand. The second is to establish Chinese cultural references within the hotel to create a connection with this market.
Operators need to work with RTOs in order to capture their fair share of the Chinese market. RTOs are accredited Canadian tour companies that have extensive knowledge of specific markets in Canada. More significantly, they are the only tour operators permitted to receive Chinese nationals into the country through travel agents approved in China. The accreditation is provided by the Canada-China Inbound Tour Operator Accreditation Office. Tour operators must re-apply each year for renewal of accreditation status. In general, RTOs act as brokers of Canadian hotel packages, and they work with the international tour operators in China, who market and sell these packages to Chinese citizens. In the ADS system, only selected government-approved travel agencies can sell travel packages in China, so RTOs are unable to directly market their packages in China. In essence, RTOs work as the intermediaries between government-approved travel agencies in China and the more open Canadian lodging industry.
Providing familiar cultural references is of strategic importance for attracting Chinese tourists to a hotel. Obtaining a share of this market really comes to down one thing: understanding Chinese expectations with respect to courtesy and hospitality. Some global brands have launched tailored hotel programs for the Chinese market. Hilton Hotels & Resorts offers the “Hilton Huanying,” which means “welcome” in Mandarin; Starwood Hotels & Resort has a specialized program called “Starwood Personalized Travel”; and Marriott International features the “Li Yu” program, which means “Serve with Courtesy” in Mandarin. These programs are to a large degree the same, as the simply reflect the necessary elements that relate to Chinese culture, which is what Chinese guests expect. These programs attend to every aspect of a Chinese guest’s stay experience, beginning with Mandarin-speaking staff and finishing with tailored guestroom and food and beverage amenities. For food and beverage options, hot breakfast with Chinese breakfast items is featured, as are dim sum lunches. The guestrooms have such amenities as slippers, tea kettles with assorted Chinese teas, and Chinese television programming. These elements may seem to be small gestures of hospitality, but they function to give great comfort to Chinese guests dealing with the stress of a foreign culture. Moreover, the Chinese traveller simply expects these amenities and assumes that they will be provided. With the rise of the Chinese tourism market, these tailored hotel programs are soon to be the new standard. Global brands are leading the way in the creation of these programs to stay one step ahead in this highly competitive market, but other hotels will soon walk the same path.
At a minimum, a Chinese-tailored experience program needs to include specific guestroom amenities and food and beverage options. The following “must haves” are reflected in the special programs of the above-mentioned brands:
- Hire Mandarin-speaking staff. It is absolutely essential to have staff that can effectively communicate with Chinese guests in Mandarin at the guest’s first point contact with the hotel. Having staff that speak Cantonese would also be advantageous, but the major source of demand is coming from Mainland China, where Mandarin is most widely spoken. Providing a good first experience and building that initial connection is key in this market, as in any other.
- Include amenities in rooms that Chinese guests can relate to. Slippers, tea kettles, assorted Chinese tea, Chinese snacks, chopsticks, Chinese TV programs, and Chinese newspapers are among the things to include. Offering welcome tea and fruit is also a gesture that is appreciated, as this is done in many Asian cultures to show hospitality.
- Know your numbers. Numbers 2, 3, 6, 8, and 9 are considered lucky in Chinese culture. This is mainly due to these numbers being pronounced in a way that is similar to other words that are associated with positivity. The number 2 is considered lucky because of the Chinese saying “good things come in pairs”; “3” is associated with growth; “6” is associated with good business and wealth; “8” is extremely favoured for being associated with prosperity and wealth; and “9” symbolizes longevity. In contrast, the number 4 is highly disliked because of its association with death. These examples are similar to the number 13 in Western culture, where it is associated with bad luck and negativity. For operators looking to gain their fair share of this market, be sure to let your reservations and front desk team know which rooms and floors to assign to this group!
- Provide Chinese food and beverage menu items. Food has the power to make someone feel at home. Chinese travellers look for this comfort, and having Chinese food and beverage options will win this market over.
Moving forward, Vancouver’s hotel operators can expect steady double-digit growth from the Chinese market, as there are yet no signs pointing to an imminent slowdown. Canada as a whole has already experienced double-digit year-over-year growth in this segment since receiving ADS status from China in 2010. Although the demand potential from this market is astonishing, operators will need to implement tailored guest experience programs to capture this market. Hiring Mandarin-speaking staff and having Chinese-tailored amenities in guestrooms, while providing other familiar cultural references, are essential for creating connections with this group. A Chinese-tailored experience program that does not include all the essential amenities and services may very well cause a hotel to lose its share of this market. Operators will also need to work with RTOs to drive room nights into local hotels from this market, in order to a build customer base from China. The opportunities associated with this market are plentiful, but ultimately operators will need to work carefully in order to build trust with this demand base. Once trust is built, the returns are potentially long lasting and highly rewarding.