Seminar on LCCs in Asia and Inbound Tourism to Japan(In commemoration of the 20th anniversary of Japan International Transport Institute (JITI))

The impact of the expansion of
LCCs on inbound tourism:
Strategic View
Tadayuki (Tad) Hara, PhD
Associate Dean of Finance and Administration,
Rosen College of Hospitality Management, University of Central Florida,
セントラルフロリダ大学ローゼン・ホスピタリテイ経営学部
財務・経営担当副学部長 原 忠之

Today’s Overview (Total 39 pages)
1. Strategic Reasons for the Tourism Policy Shift (P3-12)
1.

Assessment of Potentials and Challenges

2. LCC and Japan as Destination in Perspective (P13-19)
1.
2.

LCC in perspective in previous studies
Strategic Identification of hidden Assets – Airports in Japan

3. Tourism Public Infrastructure (P20-29)
1.
2.

Funding Scheme and Alternative Funding
Short Case of Orlando, FL, USA

4. Inbound Potentials and other Issues (P30-39)
1.
2.

Destination Marketing and implications for LCC
Other Issues (subject to availability of time)
1.
2.
3.

Ex - 1: LCC business
Ex - 2: Brief case of Sanford Airport
Ex - 3: Marketing and Sales Concept

1. Strategic Reasons for Tourism Policy
Shift in Japan• The history of Japan’s travel industry can bedivided into five eras:
1. pre-modern travel, before 1868;
2. deregulation of domestic travel and inboundpromotion, 1868-1945;
3. promotion of inbound travel, 1946-1970;
4. promotion of outbound travel, 1971-2003; and5. emphasis on the strategic importance of
tourism (inbound promotion), after 2003:
http://www.hotelscombined.com/Hotel/Fujiya_Hotel_Hakone.htm

1-1. Japan’s Inbound Tourism Promotionin Historical Perspective

5. Emphasis on the strategic importance of
tourism, after 2003

ÆWhy the latest shift in policy?

1-2. Strategic Reasons for the Policy Shift• Ultimate National Goals– Maintain & Improve Quality of lives of taxpayers (CS)• How?
– Secure Export Revenues (by hosting inboundtourists)• Facing Threats to Successful Japanese Model– Decreasing International Competitiveness of
traditional exporting sectors– Decreasing and rapidly aging population– Difficulty in sustaining the nation with the past
success models of 20th Century into the 21st Century• → Rely on Tourism as an Industry

1-3. Assessment of Potentials andChallenges

1-3. Assessment of Potentials
and Challenges
Figure 29: Size of Tourism GDP to National Economy
Country (Study Year)
Spain (2004)
Austria (2005)
Switzerland (2004)
New Zealand (2005)
Australia (2005)
United Kingdom (2003)
Germany (2003)
Norway (2005)
USA (2005)
Sweden (2004)
Finland (2005)
Canada (2006)
Japan (2006)

TGDP
11.0%
6.4%
5.1%
4.8%
3.9%
3.4%
3.2%
3.1%
2.6%
2.6%
2.4%
2.0%
1.9%

Source: Pre sentation by Tadayuki (Tad) Hara, PhD, at the 2008 UNWTO Confe rence in Bali
Pape r T itle: “Results of 7th Re search on Economic Impact of Trave l and Tourism in Japan”
Subtitle: “Quantifying the Relative Importance of Tourism as an Industry”.

1-3. Assessment of Potentials andChallenges
F IGURE 30: Size of Tourism Employment to Total Employment
Country (Study Year)
Norway (2005)
New Zealand (2005)
Switzerland (1998)
Australia (2005)
USA (2003)
Canada (2000)
Sweden (2002)
Japan (2006)

Employment %
6.8%
5.8%
5.2%
4.6%
4.2%
4.0%
3.0%
2.6%

Source: Pre sentation by Tadayuki (Tad) Hara, PhD, at the 2008 UNWTO Confe rence in Bali,
Pape r T itle: “Results of 7th Re search on Economic Impact of Trave l and Tourism in Japan”
Subtitle: “Quantifying the Relative Importance of Tourism as an Industry”.

1-3. Assessment of Potentials andChallenges• This is the 3rd time for Japan to seek for
Inbound tourists.
• What are the potentials and challenges?
• What should we do with LCCs?

1-3. Assessment of Potentials andChallenges
Historic Japanese Outbound Travelers and Balance of Payments
Year

Visitor Arrivals(persons)

1976
1981

914,772
1,583,043

Japanese Overseas
Travelers(persons)
2,852,584
4,006,388

1986

2,061,526

5,516,193

1991
1996

3,532,651
3,837,113

2001
2006

Receipts(mill ion
US$)
313
735

Pay ments(million US$)

Balance(million US$)

1,664
4,616

‐1,351‐3,881

1,463

7,229

‐5,766

10,633,777
16,694,769

3,435
4,078

23,98337,040‐20,548‐32,962

4,771,555

16,215,657

3,301

26,530‐23,229

7,334,077

17,534,565

8,471

26,876‐18,405

 Source: Pacific Asia Tourism Association (PATA)

1-3. Assessment of Potentials andChallenges

1-3. Assessment of Potentials andChallenges

F IGURE 22: Foreign Travelers Visiting Japan – Shares by Country (2007)

2 LCCs and Japan as Destination in Perspective

2-1 Literature Review on LCC over Tourism• Whyte and Prideaux (2007) argued that growth of LCC
to Cairns, Australia occurred at the expense of modes
such as drive, long-distance coaches and rail.
• The real bottlenecks of the air transportation system are
the runway systems of the major commercial airports in
N. America, Europe and Asia (US Dept.of Transportation
Airline traffic and Financial Reports)• Smith (2009) discussed effects of LCC on efforts todevelop cultural heritage tourism in Malta.
• Francis et al (2006) identified LCC market shares in theworld, and stages of developments compared to USA asa benchmark. (shown next page)2-1 LCC Market Shares Around the World
Low Cost Market Shares Around the World
Region (country)
North America
USA
CanadaEuropeUK/IrelandEU
EU expansion
Australia/NZ
Australia
NZ
Asia
Malaysia
Singapore
Japan
China
ThailandIndia
Rest of World
BrazilSouth Africa
Gulf States

Year low cost operations
began

Year(s) in which market de‐regulation took place

Share of Overall Market (%)

1978

1978

24‐25%

1996

1996

30

1995

1993

40

1999

1995

20

2002

2004

less than 1%

1990

1990

30+

1996

1984

30+

2001

2001

2

2001

2001

less than 1%

1998

1998

1

n.a

ongoing

n.a

2004

2003

less than 1%

n.a

2003

less than 1%

2001

1998

3

2001

1999

1

2004

2003

less than 1%

Source: Table 1 "Where next for low cost airlines? A spatial and temporal comparative study"
Francis, Humphreys, Ison and Aicken, Journal of Transport Geography 14 (2006)83‐94

2-1 Market Development Stages
Market Developments of Low Cost Airlines Compared to the US

USA (as abenchmark)CanadaUK

1. Innovation

V

V

V

V

2. Proliferation

V

V

V

V

3. Consolidation

V

V

V

4. Second Phase of
new entrants

V

5. Consolidation

V

6. Market Maturity

V

StagesEurope Eastern
Mainland Europe

Source: Table 2 "Where next for low cost airlines? A spatial and temporal comparative study"
Francis, Humphreys, Ison and Aicken, Journal of Transport Geography 14 (2006)83‐94

V

Asia

Australia

NZ

Rest of
World

V

V

V

V
V

V

V

2-2 Strategic Identification of Hidden Assets• There appear to be existence of high quality
airports with excess capacity in Japan– Japan has an extensive network of airports across thenation. Currently there are five first class airports which
are able to handle intercontinental flights.
• Narita International Airport (Narita: NRT)
• Kansai International Airport (KIX)• Tokyo International Airport (Haneda: HND)
• Chubu International Airport (NGO)• Osaka International Airport (ITM)2-2 Airports: Important
Infrastructure for Inbound Tourism• Japan’s airports system is well developed withfive first class airports near major cities, over 20
second class airports, some of which can handle
international flights, and nearly sixty third class“domestic only” airports.
• Capacity constraints exist predominantly with
two first class airports Æ three first class airports
and most regional airports have excess
capacities = critical infrastructure to meetincrease in inbound tourism already exists!

Source: Ministry of Land, Infrastructure, Transport and Tourism, Japan

3 Tourism Public Infrastructure3-1 Tourism Public Infrastructure– Business Model of Convention Center may be an useful example.

– Convention Center is usually built by
local/national government as a public facility• Often operated at losses if looked at its Financial
Statements (I/S, B/S).
• Draws certain tourists segments (longer staying,higher spending visitors) to the region, benefiting
wider hospitality industrial sectors– Hotels, Restaurants, Local transports, retail shops,
amusements, translators, destination service companies,
interpreters, AV rental, luxury limousine car…
– Resulting in job creation, tax revenue generation as a criticalinfrastructure for export revenues of the regional economy– Let’s see one case study on Tourism Public Infrastructure3-2 Case Study : Tourism
Public Infrastructure Orlando Convention Center

Partly Based on Presentation prepared by the Orange
10/18/2011
22
County Convention Center, Orlando, Florida, USA

3-2 Funding for Tourism Infrastructure
Government
Tourism Public Infrastructure(Convention Center)

Construction of Tourism Public
Infrastructure is often funded bygovernment’s ordinary budget.
And often the project does not
generate enough cash flow, so
government has to continue tosubsidize its operation while itbenefits industry and create jobs
by attracting visitors.

Attracts
Visitors

3-2 Alternative Funding of Tourism Infrastructure
Government
Tourism Public Infrastructure(Convention Center)

Attracts
Visitors

BOND

Bond Debt Service

Investors

Special Purpose
Account

Destination
MarketingGovernment issue a municipality bond to raise construction cost of the Tourism
Infrastructure. It is non-recourse and government offers no guarantee.
Government impose a special purpose tax (TDT) which will be used for (1) Bonddebt service (2) destination marketing only.

3-2 A Business Model for Alternative
Tourism Public Infrastructure Financing
1.
2.
3.

4.
5.

Local Government issues municipal bonds to raise construction costs
Local government imposes special purpose tax on consumption of
tourism commodities such as hotel rooms and rent-a-car charges.
Tax revenues are put into a special account and earmarked and for(1) tourism promotion (2) debt service for the muni-bond only. Neverput into general operating accounts
The bond is non-recourse and local government does not guarantee it,making it off-balance sheet.
Price competitiveness of tourism public infrastructure has to beemphasized to promote visitation, which benefits by far wider
stakeholders in the regional economy. Local government would rather
see tourism job creation and tax revenue generation instead of taxing
suppliers of tourism commodities.

3-2 Build a structure in which tourism revenues
will be circulated in regional economy andcontribute for growth of the revenue
観光収入が地域経済内で還元し、将来の増収に貢献する仕組み

z

Tourist Development Tax (local special
purpose tax on hotel room chargesz

オレンジ郡特別地方税としてホテル宿泊客に対し課税)

Visitation by tourists will generate special purpose
tax revenues ÆDo not put it in ordinary account but
earmark it for special purposes of tourism promotionÆDebt service for Convention Center & Budget
allocation for DMOz

観光客来訪で特別地方税収が発生→これを一般財源に入れず、会議場開発元利金返済と観光地マーケテイングとにのみ利用。
4-26
10/18/201126

$129 Million in 2006
TOURIST DEVELOPMENT TAX$140,000,000$120,000,000

RE VENUE S$100,000,000

6TH$80,000,000

5TH
4TH

$60,000,000

3RD
1ST & 2ND

$40,000,000$20,000,000$79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

FISCAL YEARTDT to be used for (1) Debt service for Convention Center Construction
4-27 Budget for Orlando
Municipality
Bond (2) Annual Marketing
10/18/201127
それを（１）会議場建設費地方債返済資金（２）観光地マーケテイング組織予算に還元

3 Issues with Tourism Public Infrastructure••

Airports are the very basic infrastructures for Inbound Tourism Growth. And Japan
already has tens of “high-quality airports” with excess capacities.
If the airport is owned by local government, relax strict insistence on landing
charges–––•[Tax on Tourism Commodity Providers, or Tax on the consumption by consumers (tourists)?] Do not
tax tourism commodity providers, but tax on the consumption of selected tourism commodities by
consumers (tourists).
Choose your fight. Educate hospitality industry (which benefits from tourism as an industry) about
Tourism Development Tax. Do not put tax burden on Tourism Commodity providers (hotels,
restaurants, transportation companies) but rather ask that over consumption by consumers.
Tax revenue generated from tourists should be re-used to enhance tourism destinationcompetitiveness – set up a special purpose escrow account and never mix-up with general accounts.

If the airport is owned by central government, the above concept should beemphasized as a mean to serve for clear goal of national strategy, so that
underutilized airports should be opened up to willing LCCs with competitive landing
charges.
–

Revenues generated from Inbound Tourism as an export industry should more than compensate lost
marginal revenues as a whole by the growth of regional economy.

Tourism Complex: Relevant Industrial Sectors
and Their Tourism Dependence (USA)Auto Rental &Leasing (58%)

Travel Agency(21%)

Amusement(20%)

Gas Station (7%)

Ships(17%)

Airplanes(76%)

Taxis(46%)

Cinema(18%)

Hotel (80%)

Shopping (3%)

Buses(23%)
4-29Sports(32%)

Restaurants(17%)

Source: Data based on Bureau of Economic Analysis, Commerce Dept, USA

4. Inbound Potentials and Other Issues

4 Promotion of Inbound – Hidden Asset• JITI funded academic research on perceptions of Japanamong US residents (FL, VA-2010) showed– “Food, High-tech” images as the strongest associations with Japan– “Airfare being too expensive” perception was statistically significant
among those who never visited Japan• LCC can definitely contribute to mitigate this perception.

– Bring first-time visitors to Japan and expose them to “Food & High-tech”.
• Some local airports have good land transports to major Rail systems.
• Almost all Japanese regions have distinctively tasty local foods &surprisingly abundant choices of International Foods. (Not marketed
to inbound visitors)• According to Japanese TSA, visitors impacts to railroads
are relatively larger in Japan– indicating possibility of joint-marketing by LCCs and JapaneseRail companies)

例“「日本への航空券コストが高すぎて行けない」” Airfare to Japan too
expensive”

To put this in statisticalframework, we do this
統計の枠組みに落とす

Ho: (Null Hypothesis) There is NO association between perception of
exorbitant airfare and existence of previous trip to Japan
帰無仮説：航空券コストのイメージの強さと来日経験有無には関係が無い
Let’s see if we have enoughevidence to refute the Ho’s claim.
帰無仮説を否定出来るに十分な証拠があるかを調べる

Ha: (Alternative Hypothesis) There is an association between perception of
exorbitant airfare and existence of previous trip to Japan. 対立仮説：航空券コストのイメージの強さと来日経験有無には統計的に有為な関係がある（＝傾斜がある）

If we refute Ho, We may consider that an alternative hypothesis (Ha)is verified. 帰無仮説を否定出来れば、対立仮説が検証出来た事に。
4-3232

Regression Analysis: Q2 versus Q3, Q4, Q5, Q6, Q7, Q8, Q9, Q41
The regression equation isQ2 = 1.96 + 0.472 Q3 + 0.180 Q4 - 0.0128 Q5 - 0.0173 Q6 - 0.0606 Q7 - 0.0094 Q8+ 0.0114 Q9 - 0.0880 Q41
Q2：Airfare too expensive
282 cases used, 19 cases contain missing values
Predictor
Coef SE Coef
T
P
Constant
1.96160.31096.31 0.000
Q3
0.47200 0.06602
7.15 0.000 (Domestic Transportation cost too high)Q40.18048 0.06159
2.93 0.004 (hotel costs too high)Q5-0.01282 0.04456 -0.29 0.774 (Japanese culture similar to China/Korea)
Q6-0.01729 0.04178 -0.41 0.679 (Japanese amenity similar to W Europe)
Q7-0.06057 0.05344 -1.13 0.258 (Japanese amenity similar to China/Korea)
Q8-0.00935 0.03706 -0.25 0.801 (Level of worries about language barrier)
Q9
0.01137 0.04752
0.24 0.811 (availability of English information)
Q41-0.08798 0.03539 -2.49 0.014 (previous trip to Japan)
While the model explains about 1/3 of the variances, it indicates interesting correlation with other variables.
There are strong association between the replies to Q3, Q4 and the perception of the airfare being too high.
In other words, once a person thinks the airfare to Japan too expensive, s/he tend to think the domestic transportation costs and thehotels costs are too expensive as well.
And we identified with enough statistical evidences that such perception (pre-occupation) certainly goes down once a person travel toJapan (Q41 with negative correlation).
This implies lack of updated information on Japan in the minds of respondents.
Not many ordinary American citizens know that hotels in Tokyo are available currently with Yen10,000 per night (US$100) inclusive of alltaxes, and sometimes with breakfast, and that prices of hotels in Kyoto, Hiroshima, regional metropolitan cities, can be even cheaper thanthat level, often around US$70~80 inclusive of all.
Systematic marketing efforts about updating price levels in Japan in the minds of potential inbound visitors appear to be in urgent need to
attract more visitors.
You just have to implement effective marketing efforts to address anxieties (worries) of those potential consumers, so that they can make4-33
a decision to come to Japan.
Source: Tadayuki Hara, PhD, Rosen College of Hospitality Management, University of Central Florida

4-2 Ex-1 LCC: Which industry it is in?
• Transportation and/or Hospitality industry?
– Safely transport passengers at profit• Newer planes to reduce maintenance costs• Reduce idle times between flights• Reduce operating costs (internet based ticketing)– Do we need strong organizational culture?
• This is a domain of hospitality management.
• Strong culture guides employees for higher
productivity and consistent services ÆHR
productivity is one of keys to ensure successful
operation.

Important Questions in Hospitality Management• In a manufacturing sector, you create yourtangible products at factories. You canstore them and check their quality before
sales. (Many MBA programs are still based on this model)• In hospitality industry, customers arepurchasing “experience” which is intangible,and cannot be produced and stored by thefactory. Employees produce it.
• How can you ensure the quality?
• How can you differentiate your productfrom others?

Importance of creatingstrong organizational culture!

Hospitality Management: Strategic usageof organizational culture• Is their organizational culture strong andunique?
• Is their organizational culture helping themto stand out in the competition?
Cleaning Crews – “Culture Committee”?
•

http://www.youtube.com/watch?v=V7P0T9IbYKU&NR=1

No Extra Charges•

http://www.youtube.com/watch?v=Jy0Yf1CAsuQ&feature=relmfu

Rap instructions•

http://www.youtube.com/watch?v=tnOxvbGOTbM•

This is NOT a transportation management issue, but it is a
strategic hospitality management issue in which customers arebuying intangible experiences, which otherwise are commoditizedand consumers purchase on price attributes only.

4-2 Ex-2 Case of Sanford Airport Orlando•

Orlando Sanford International Airport covers 2,010 acres (813 ha) and has four
runways:
–
–
–
–

•

•

Runway 9L/27R: 9,600 x 150 ft. (2,926 x 46 m), Surface: Asphalt
Runway 9C/27C: 3,578 x 75 ft. (1,091 x 23 m), Surface: Asphalt
Runway 9R/27L: 6,647 x 75 ft. (2,026 x 23 m), Surface: Asphalt
Runway 18/36: 6,002 x 150 ft. (1,829 x 46 m), Surface: Asphalt/Concrete

The airport is owned by the Sanford Airport Authority and managed by TBI plc, one of
the world's leading airport operators, which owns London Luton Airport, Cardiff
Airport, and Belfast International Airport in the United Kingdom, as well as StockholmSkavsta Airport in Sweden, and operates airports in South America.
Because of that affiliation, Orlando Sanford International Airport is served primarily by
British charter air carriers servicing the European market for leisure travel to Central
Florida. TBI is also the provider of ground handling services for airlines. Although it isprimarily a landing point for European travel, Sanford is also the second largest focus
city for Las Vegas-based Allegiant Air.

• Airlines http://www.orlandosanfordairport.com/airlines.asp

4-2 Ex-3 Marketing and Sales Concept• This is the difference between selling concept andmarketing concept for Tourism Products.
Lots ofpromotionmaterials

You do not use visitors’
detailed data

Selling
Concept

Starting Point
Japan (fromJapaneseviewpoint)

Focus
Means
Existing
Tourism Selling &Products Promoting

Marketing Market (potential
Concept inbound visitors)
Start from“knowing
customers”
10/18/2011

Simple Data on #visitors, expenditure
would sufficeEnds
Profits from Higher
Number of Visitors

Customer Integrated
Profits throughNeeds Marketing Visitors' Satisfaction

Focused marketingon differentiatedsegments

Detailed Data on
Visitors required
for measurement
38of success4 Future for Japan
Inbound Tourism• Strategic Alliance with LCC– Development of tourism as an high-growth regional export industry– Japan already has hidden assets (airports & ground transportation
system) for regional tourism export.

• Create Business Model to finance “tourism”– Consider taxation scheme to tax on consumption, not on
providers of commodities– Tourism must be marketed (not only to visitors but to residents)• Hospitality Management– Tourism surely benefits transportation industry but they may
have to be managed strategically as “Hospitality Industry”.

Thank you very much. Tad Hara http://www.youtube.com/watch?v=C0u9s0LWxqo