May 31, 2017 - The value of the British pound fell sharply against Asia Pacific (AP) currencies following the surprise vote to exit the European Union last June. For many international consumers, the weaker pound made the U.K. a more affordable and desirable travel destination after Brexit. For Asian travelers, however, the U.K. has more trade-offs due to higher travel times and costs—London is more expensive absent direct flights from many Asian cities.
As a result, growth in AP travel to London was more subdued than other areas at the end of 2016, with arrivals up less than 10 percent from most AP source markets, despite the currency advantage. By comparison, U.K. cross-border arrivals from North America grew nearly 12 percent year-over-year (YoY) as the dollar grew stronger. Arrivals growth actually declined in multiple AP markets, including Japan (down 10 percent), Australia (-7 percent), New Zealand (-8 percent), Korea (-14 percent) and others.
Currency devaluations affect AP travel differently
A sharp decline in the value of the Japanese yen in mid-2015 had a very different outcome. Growth in AP travel to Japan increased significantly during that period as currencies in source countries strengthened against the yen—with arrivals up at least 20 percent in most cases, and by much more in others (China more than doubled). The vast disparity in 2015 and 2016 outcomes indicates factors beyond the benefit of a currency devaluation may be just as important in consumer travel decisions.
Tourism demand is price-sensitive, but unlike other services, additional factors beyond price typically influence it. There is a strong correlation between arrivals and travel cost, but as distance (and travel time/cost*) increases, the relationship between the two tends to break down.
Longer travel times impact travel decisions, too
For countries/regions with the longest travel time and most expensive airfares to the U.K. (mostly shown on the right side of the graph), the weaker currency alone was insufficient to overcome travel time to the U.K. and attract tourists. (London is a 13-hour direct flight from Singapore and nearly 22 hours with layover from Sydney, while Tokyo is a seven-hour flight from Singapore and nine hours from Sydney, both direct). Arrivals pick up significantly in countries/regions closer to Japan, such as Mainland China and Hong Kong. The ease and affordability of regional travel appear to play a big role in AP consumers’ travel decisions.
Is currency movement enough to shift traveler preferences?
(2016 U.K. arrivals after Brexit compared to 2015 Japan arrivals post yen devaluation)
Distance deters many AP travelers, despite benefit of stronger currency
Difference, Distance to London vs Tokyo (in km)*
Sources (charts 1 and 2): Visa Business and Economic Insights; VISIT database; Haver Analytics; Distance From To.
* Distance to destination is used as a proxy for travel time and flight cost
Visa Business and Economic Insights analysis in this report based on VisaNet data and VISIT. Additional sources include Haver Analytics, Distance From To, the United Nations World Tourism Organization, Ministries of Tourism and other government agencies in selected countries.
Methodology: Visa International Travel (VISIT) database is a proprietary model that combines Visa's cardholder data with publicly-available cross-border arrival statistics. The database provides a comprehensive view into high-frequency cross-border travel flows, currently encompassing the top 82 origin and destination countries, which collectively account for more than 80 percent of global travel.
VISIT combines unique counts of Visa cardholders that register a face-to-face transaction at a merchant outside their home country in a given calendar month with other transaction data such as average spend per cardholder, card usage patterns at lodging merchants and others. Visa uses this data to econometrically model official arrival statistics compiled by various government sources and to generate estimates that fill in the large gaps existing in the cross-border travel data.
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