Currency movements influence Asia Pacific travel

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.

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.