Jack Zhai, Chairman, Abacus China shares an inside look at the real impact of deregulation
Many in the travel industry have heard about China travel deregulation, but not everyone understands what it actually means to them. As of October 1, a change in the Civil Aviation Administration of China (CAAC) Computerised Reservation System (CRS) saw foreign airlines begin to leverage distribution partners such as Abacus to enable access to their fares and content across a wider network of travel agents.
As stipulated in the CAAC provision, a “Foreign Carriers may, with the approval of CAAC, entrust its Sales Agent to directly access and use a foreign CRS and use the ticketing certificate of the said Carrier to sell foreign tickets” including “international routes which consist of domestic and foreign routes of China but does not include international tickets of domestic routes that have no code-sharing with a China air transportation carrier” and an “approved international ticket which has a code-share with either a China air transportation carrier or foreign transportation carrier.”
All this points to a good first step, with the CAAC opening up just a glimpse of the market – a taste of enhanced travel distribution in the China market in a controlled manner. Travel services in China are generally viewed as strategic service, and guarded heavily to prevent dissolving it from the monopoly that it is.
In the end, it’s all about traveller choice – more flight options, choice of itineraries, fares and rates all will help to driver greater growth in the Chinese tourism industry. In the long-term, all the foreign distribution players would hope for wider deregulation; not only to obtain a piece of China’s pie, but also to play a part in helping with the overall growth of China’s travel market.
This all in one of the world’s fastest growing airline markets – air gross bookings reached US$43.4 billion in 2011, and is expected to reach $53 billion through 20131. With 271 million passengers on domestic flights and 21 million passengers on international flights in 20112, China is rapidly expanding both in orders for new planes as well as hotel development to be able to satisfy this strengthening travel demand.
While this new provision in travel distribution is a welcome move, there is still a great deal of work yet to be done. Let us summarise what the recent deregulation actually means:
- All bookings and ticket services for Chinese airlines are still only applicable to local travel player TravelSky
- Participation by foreign GDSs are subject to approval by CAAC
The potential piece for foreign GDS companies actually represents less than 5 per cent of TravelSky’s total segments, as the company will continue to maintain a dominant role in air distribution in China. Although limited in scale, this increased competition will help to drive a higher level of customer service and better agency products in the market, especially as TravelSky will look to take an increasingly international view in cutting distribution costs in overseas markets.
China has taken a step towards deregulation to meet the needs of further development of its socialist market economy and to bring domestic regulations on trade and investment more in line with international practices. Deregulation has opened the Chinese travel market to competition. While local distribution and services remain largely the same, the power of travel distribution can help to drive lower costs, better services and more relevant solutions for both the travellers and travel companies alike.
Short-term, this looks to have minimal impact on distribution companies like ourselves. Long-term, however, there are potential great ramifications, and companies like Abacus should remain vigilant – through close relationship with foreign carriers servicing China, close relationships with key travel agencies in China and Greater China; a suite of relevant and innovative solutions; a sound understanding and presence within the China market; and a good working relationship with local travel leader TravelSky.
Deregulation works. I applaud China’s effort in taking a step from its traditional policies of protectionism and centralised planning to discovering the potential of the free market and delivering greater fares and productivity to travellers and travel companies alike.
1 PhoCusWright 2012
2 PhoCusWright 2012