A-P under the microscope
For ten years, Asia-Pacific has been the emerging star of the global economy, registering phenomenal growth figures across business sectors. But is its status now under threat in the light of the world financial crisis, and what are the implications for travel-retail? David Davies finds out
Spool back through the mists of time to 1999 and, to put it mildly, things look very different indeed. The world was emerging from a lengthy economic downturn and was, in general terms, set fair for a sustained period of growth. Rates of poverty were falling; business was expanding across borders; employment figures were on the rise. Economically speaking, the clouds had parted and the sun had come out.
It can be difficult to remember the good times when the international news media is bombarding us with gloomy forecasts day after day, but it is worth making the effort to recall just how recently the positive headlines were still rolling in. In early 2007, a survey conducted at that year’s World Economic Forum Annual Meeting in Davos found that a majority of global leaders were optimistic about the long-term prospects for economic growth, with 65% believing that the next generation would enjoy greater prosperity than the current one. In travel-retail, meanwhile, conference speakers were lining up to deliver presentations about the potential for further development in most world regions, not least Asia-Pacific.
In hindsight, the tide can be seen to have begun to turn in the opening months of 2008. Published in the first few weeks of that year, the World Economic Forum’s Global Risks 2008 report highlighted no shortage of emerging problems regarding access to credit, food and energy. 2008, it suggested, would see the highest levels of political and economic uncertainty for a decade. Significantly, the study also acknowledged the inherent dangers of a truly global economic model – one which had long earned the (in some cases almost
slavering) admiration of most world leaders.
Then, in the third quarter of 2008, the global financial markets entered their now legendary period of
turbulence, and it is no exaggeration to say that nothing has been the same since. Six months on, even the most optimistic of forecasts suggest that we will see only a modest recovery, sometime in 2010. Simultaneously, there are plenty of observers who fear that the multitude of problems now confronting us – disappearing credit, lack of business confidence, spiralling unemployment, political unrest – will ensure that the global downturn continues for many years to come.
Tracking A-P
Not surprisingly given its often breathtaking development during the last decade, there has lately been a great deal of analysis regarding the implications of the current crisis for the Asia-Pacific region. Can it survive the downturn, analysts have wondered, and emerge with its energy and dynamism entact?
Before pondering that question, we need to establish a few basics. As with many other, similarly imprecise geographical descriptions, the term ‘Asia-Pacific’ has never been set in stone, and accordingly there are various definitions. However, as a general rule, most do include the following countries: Australia, Brunei, Cambodia, China/Hong Kong, Macau, Taiwan, Fiji, Indonesia, Japan, Kiribati, North Korea, South Korea, Laos, Malaysia, Marshall Islands, Federated States of Micronesia, Nauru, New Zealand, Palau, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, Thailand, Timor-Leste, Tonga, Tuvalu, Vanuata, Vietnam, American Samoa, Guam and Northern Mariana Islands. India is among several other nations sometimes included in definitions.
While the contribution made by Vietnam, in particular, to global manufacturing has received plenty of media coverage in recent years, it is arguably China, Japan and Australia that continue to dominate discussion of Asia-Pacific’s economic development. In particular, China’s accession to the status of world’s fastest-growing economy was often the stuff of breathless reportage: hardly surprising when you consider that in 2007 alone its economy grew by 11.9%.
As indicated earlier, those paying close attention would have registered a change of tone in late 2007. Whilst overwhelmingly positive about current economic developments of the time, the International Monetary Fund’s Regional Economic Outlook: Asia and Pacific survey of October 2007 suggested that “the main risk for the region is a sharper-than-expected global slowdown”.
This, of course, is exactly what came to pass in Q3/08, and within weeks many political and business leaders had no choice but to revise their forecasts. The figures soon reinforced their opinions. In Australia, the economy contracted by 0.5% during the last three months of 2008 in response to declining demand for its natural resources. Japan, meanwhile, registered a drop in GDP of 3.3% during the last quarter of ‘08 – widely regarded as its worst performance since the 1970s. China, still the shining star of the region, recorded a drop in economic growth from 11.9% in 2007 to a still-impressive 9% during the following year. The country’s leaders were quick to respond, and in November the government launched a $586bn (£370bn) stimulus package.
In short, the outlook for Asia-Pacific at time of writing in late April 2009 is significantly more clouded than it was at this time last year. Business confidence has slumped and, increasingly, ‘job loss’ is replacing ‘job creation’ as a topic of conversation. But how long will this downturn last, and what implications does it have for aviation, airport infrastructure and travel-retail?
A matter of opinion
Certainly, there is no mistaking the air of concern surrounding recent remarks from many regional representative bodies for aviation and economic development. Simultaneously, there appears to be a desire to look for the upside and even a recognition that more stable business models could emerge from the malaise.
The Asia-Pacific Economic Cooperation (APEC) forum is among those organisations to have voiced their fears. “It’s time to get real,” urged APEC’s executive director, Michael Tay, in a press statement shortly after his appointment to the role in January. “It had to happen eventually. The world has outgrown the structures that existed. Things have changed dramatically in recent decades, but institutions have continued to operate in the same old ways. There is no viable way forward but to be open and to accept that things are going to be different now.”
Indeed, it is clear that Tay sees an opportunity to change the system for the better. He continued: “The global situation can be used as a platform on which to build financial systems that better accommodate globalisation; that do not so disproportionately favour the über wealthy; and that enable less developed economies to establish a solid business presence.”
IATA (International Air Transport Association) reported a 12.8% passenger traffic decline for Asia-Pacific carriers for the month of February, far outstripping the -7.8% capacity adjustment. Despite this, an IATA spokesperson tells Frontier that “even with this recession we still expect Asia-Pacific to become our biggest single market in a few years.”
The Association of Asia Pacific Airlines (AAPA) is also seeking to emphasise the positive, whilst acknowledging the challenging conditions. In a February statement, AAPA director general Andrew Herdman observed: “Asian airlines are responding to recessionary pressures with progressive adjustments to both capacity and route losses, exacerbated by losses on fuel hedging. Despite these enormous commercial challenges, AAPA carriers remain focused on surviving the current downturn whilst maintaining the very highest standards of safety, striving to achieve environmental goals and supporting goals for further industry liberalisation.”
Recognition of the need to publicise air services’ environmental and safety credentials can only be welcome, particularly at this time of uncertainty, and in the long-run it seems certain to bolster the industry and quicken its recovery. Success in this regard will have positive implications for future airport developments, the passenger experience – and travel-retail.
‘Major growth opportunity’
It is only logical to conclude this overview with some observations from a leading supplier with a high profile in Asia-Pacific travel-retail. Global drinks giant Diageo counts Smirnoff, Johnnie Walker, Baileys and Captain Morgan among its leading brands and, it is clear, continues to regard the Asia-Pacific region as a source of tremendous potential.
“Asia-Pacific is, of course, a major growth opportunity not only for Diageo’s brands, but also for just about every industrial and service sector,” says Phil Humphreys (pictured right), managing director, Diageo GTME. “The region is a vital target for suppliers and for the travel retail industry but we must never lose sight of the fact that we are actually targeting many different countries, each with their own unique characteristics, profiles and challenges.”
In recent times, Diageo has created a combined regional hub for its Asia-Pacific operations to strengthen the distribution of its brands in the region. The changes, says Humphreys, have enabled Diageo to “develop greater flexibility and responsiveness in meeting the challenges of a region that has a remarkable diversity in economic development and culture. Diageo’s global approach is built on the foundation that we aim to achieve leadership positions in every category, market and consumer occasion in which we choose to compete – and that applies to Asia Pacific and absolutely everywhere we operate within the region.”
In terms of brands, Humphreys emphasises the “strong resonance” with Asia Pacific consumers of offerings such as Johnnie Walker Blue and Ketel One. Whisky is Diageo’s single largest target for growth in the region, although Humphreys says that the company pursues an “holistic approach” and aims to grow in every area of the product selection.
Summing up, it is clear that Humphreys – like so many others in the business – remains impressed by, and enthusiastic about the contribution the region’s retailers continue to make to the development of travel retail per se. “We find that many of our retail partners in Asia-Pacific are in the industry’s vanguard of creativity and commitment to the shopping experience,” he observes. “Through sharing this approach, we will continue to work in close partnership with them to deliver a great retail experience and drive growth in every category over the next few years.”
While Asia-Pacific might not shine quite so brightly over the next few years, its long-term centrality to the future of aviation and travel-retail is in no doubt.
Acknowledgement: GDP figures derived from BBC News website country focus features.
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