I’ve been blogging about our world over the past two years and have been impressed as I travel around the US and in my own community served by John Wayne Airport. A lot has changed! I have encountered more travelers, more visitors from overseas and noticed that more people are traveling for leisure than solely on business as was the case in the past. Clearly, this is a sign that our economy is back.
The data bear me out. Airlines report record passenger traffic and profits. A record 74 million foreign visitors entered the US last year, bringing with them a record spend of $181 billion. Travel generates $2.1 trillion annually for the US economy and supports one out of every nine US jobs.
With this good news and an expansion of our global out-reach as a country, why are our airlines leading a highly-publicized charge against Open Skies?
That’s the unavoidable conclusion most would reach from the big airlines’ recent attacks—accompanied by an expensive Washington lobbying campaign—against a policy known as Open Skies. Open Skies agreements are essentially free trade for air travel, prohibiting countries from regulating routes and capacity among each other’s carriers. Such agreements have been in place for more than three decades—with the full and active support of US airlines—and the US now has 114 of these agreements in force with countries in every corner of the globe.
There is no argument that US consumers have benefitted enormously from the expanded options for international travel that have been facilitated by Open Skies—or that the US economy and job creation owe huge thanks to the numbers of visitors Open Skies agreements have brought to our shores.
But now the Big Three US airlines want our government to break some of those agreements in order to keep certain carriers from expanding in US markets. The CEOs of Delta, United and American outlined their position in a letter recently to the Obama Administration, after implying as much in their months-long campaign to get the government to “revisit” some agreements.
The agreements the Big Three want revisited are those with Qatar and the United Arab Emirates—collectively home to Etihad Airways, Emirates Airlines and Qatar Airways. Ostensibly, the US airlines’ complaint is rooted in $42 billion in subsidies they allege the three Gulf carriers have received from their governments that the Big Three contend violates our Open Skies agreements with those countries.
A closer look at their contentions reveals that our Open Skies agreements with the Gulf countries do not define what a “subsidy” is. So even if what the Big Three are alleging is correct, whether it constitutes a violation is yet to be determined. And even if the three Gulf carriers are being subsidized, all three of our major airlines received subsidies in their fledging years almost 100 years ago, most of which were in the form of US mail contracts. Later on, these same US carriers received major support in the wake of 9/11 and when economic times were tough for them, they received advantages in the form of lenient bankruptcy laws.
At the same time, it is puzzling why our Big Three would play the subsidy card against the Gulf carriers in particular when dozens of other airlines are vulnerable to the same argument. Why focus solely on the three major carriers from the Arabian Gulf region, for example, and not also on Europe’s flag carriers, many of which are tied into attractive consumer marketing programs with our Big Three airlines.
Look, we all want the US carriers to succeed financially. Air travel is far too integral a part of our economy to think about the alternative. And healthy businesses tend to have happy customers.
Open Skies agreements have benefitted our industry and consumers as well as communities around the world for more than 30 years now. Let’s work together to make these agreements even more viable. I’ve found that anything we can do to cut red tape, ease the visa process, make travel more economical or make it more comfortable for travelers to move around the world is a good thing. It’s a win-win all around.
From time to time, I like to tout the strengths of the world’s Travel and Tourism industry. I think most people know Travel and Tourism ranks among the most exciting and dynamic economic sectors on the planet. But, by any measure, 2014 was outstanding. The industry accounted for $7.6 trillion in revenues or 9.8% of the world’s gross domestic product (GDP) and was responsible for providing 105 million jobs, according to the World Travel & Tourism Council (WTTC).
Over the next 10 years, WTTC predicts global Travel and Tourism GDP will grow an average of 3.8% a year, directly and indirectly. Its GDP contribution to the world’s economy will rise to 10.5% and by 2025 it will account for 10.7% of the world’s employment. South Asia will be the fastest growing region (+7%) as India outpaces China. In the next tier of sub-regions with estimated Travel and Tourism growth of 4.6% to 5.6% a year through 2025 are Southeast Asia, Sub-Saharan Africa, North Africa and the Middle East. North America, the Caribbean and Latin America follow with growth rates of 3.3% to 3.6%, followed by Oceania (3.1%) and Europe (2.6%).
Among the major countries projected to experience significantly strong Travel and Tourism GDP growth will be India, China, Thailand, Indonesia, Peru and Kenya. Among the smaller economies: Myanmar, Montenegro, Angola, Tanzania, Bangladesh, Cambodia and Mozambique.
WTTC predicts that over the next decade, China, the US, Germany and the UK will retain their hold on the top four spots for outbound spending (in this order).
The industry’s strong 2014 performance was 8% better than its previous year’s results, underscoring that it continues to gain momentum even in the face of accelerating geopolitical instability, and health and terrorism concerns, said Ernst & Young in their annual Global Hospitality Insights report for 2015. They report a wave of new hotels will open in 2015 and a strong global hotel development pipeline of about 1.3 million new guestrooms is solidly in place.
These new rooms are coming on line just in time. UNWTO predicts by 2030, 1.8 billion tourists will be traveling beyond their national borders, with the growth rate averaging 3.3% a year, or about 43 million additional international tourists joining the tourism marketplace every year. In 2014, slightly over 1.1 billion tourists traveled outside their national borders, 51million more than did so a year earlier.
For its part, the International Air Transport Association (IATA) expects annual passenger volumes to reach 7.3 billion by 2034, representing a 4.1% annual demand growth rate and more than doubling current levels of 3.3 billion.
They predict China will overtake the US as the world’s largest passenger market by 2030. Both markets will remain the world’s largest by a wide margin. By 2034, flights to, from and within China will account for about 1.3 billion passengers a year, 856 million more than current levels and representing an annual growth rate 5.5%. Traffic to, from and within the US will grow at an annual average rate of 3.2% and will account for 1.2 billion passengers in the same timeframe (559 million more than today).
IATA also predicts the five fastest growing markets in terms of passengers-per-year will be China, the US, India, Indonesia and Brazil. Eight of the world’s top 10 fastest growing markets in percentage terms will be in Africa and in terms of city pairs, Asian and South American destinations will experience the fastest growth.
This phenomenal growth will most assuredly transform economic opportunities for millions of people around the world and IATA estimates that aviation alone will support about 105 million jobs and contribute $6 trillion to the global GDP in the next 20 years.
Taking note of these projections, Boeing, Airbus, Bombardier and Embraer predict the world’s aircraft fleet will double over the next 20 years. Boeing estimates the world’s passenger and cargo fleet will grow from 20,910 aircraft to 42,180—with 35,770 new airplanes being added over that time frame.
In the next 20 years, there will be more people with more wealth living in the world’s urban areas. Airbus says the urban population will grow from 51% of the world’s population today to more than 60% over the next 20 years to 5 billion people. Hundreds of millions of people will want to travel meaning worldwide demand for airline seats will drive the estimated growth. Airbus says about 27% of all trips will be to visit friends and relatives, reflecting recent global immigration flows. Similarly, the number of international students has nearly doubled since 2000, which has also contributed to aviation travel growth.
All the aircraft manufacturers agree that emerging markets will be the primary drivers of growth over the next two decades. Airbus says the emerging markets will represent 50% of new aircraft buyers, pointing out that 2/3 of the populations of these countries will take at least one air trip a year by 2032.
Asia-Pacific will lead the world in air travel 20 years from now, followed by Europe, North America, the Middle East, Latin America, the CIS and Africa. First-time flyers will come from the world’s burgeoning middle class that will grow from 2.2 billion persons today to over 5.2 billion in 20 years.
And for those who want to ride the wave of success offered by the Travel and Tourism industry, the WTTC has good news. With its projected growth, WTTC estimates the industry will need to create and fill more than 72 million new jobs in the next 10 years with talented, service-minded people at all levels, to meet the demand.
“Those who do not remember the past are condemned to repeat it.”
George Santayana - First and foremost Hispanic-American philosopher, writer and cultural critic
Let’s talk about History and why we all need to make knowing about our global collective past a priority.
The New York Times noted recently that since the recent recession, students on US campuses now view a college education as a vocational training ground and that spending time studying history and the other humanities offers no immediate pay-off. At Stanford University’s main undergrad division, while about 45% of the faculty is clustered in the humanities, only 15% of its students are enrolled in courses like history and geography. Nationwide, the percentage of humanities majors on US campuses today hovers around 7%–about half of what it was in 1970. Clearly, learning about our past is not the priority it once was.
This is a big deal. At no time in our history have Mr. Santayana’s words (quoted above) been more prescient than now. We can’t risk having a population that knows nothing about its history, other people’s perspective and with little understanding of who they are or where they came from. The result would be a population with no appreciation for the factual and who are happy accepting that what they believe IS, whether or not it actually is.
More importantly, however, the fundamental skills we need to grasp historic events and their consequences are the same prerequisites for success in any endeavor. Granted, most of us will never be asked who Patrick Henry was on a job application. But, historical knowledge arms us with the ability to understand causal relationships, how things correlate and how and why actions have consequences that extend well beyond their original occurrence.
Furthermore, historical knowledge provides us with a framework in which to understand ideologies like religion and social movements. It helps us understand human beings and their motives, why they believe what they believe and act the way they do.
No one doubts today’s world is more global and inter-dependent. Our political leaders are challenged daily by an increasingly dangerous world in which there are no easy responses and solutions. Meanwhile, the business community faces its own pitfalls as ownership, sales and production of goods cross borders, even as about 70% of those who do venture overseas either fail or face unexpected hiccups. In both these examples, government and business often neglect to understand the history and culture of the countries in which they’re involved.
Examples abound of our current government making foreign policy mistakes by simply missing or ignoring basic historic realities. This has been especially true in the Middle East where for the past 6 years a disregard for the region’s cultural psyche has resulted in disastrous outcomes.
In my book “You Can’t Lead with Your Feet on the Desk,” I speak of the need for a historic context when doing business in any foreign country. Most cultural challenges faced by governments and businesses are the result of an event that occurred in the far distant past. The examples are too many to list here, but some learnings from a historic perspective would be to not put an English CEO in charge of an operation in Ireland, or have a Pakistani executive lead an Indian enterprise, or a Japanese executive run a Korean company. Past historic events created conflicts between these national groups that may never be fully bridged culturally, even if these conflicts are no longer openly mentioned or discussed. Other examples include the division of Czechoslovakia into 2 independent nations, the former Yugoslavia into a number of independent Balkan states and recent Russian attempts to regain influence over some of its former states. Without a true understanding of the depth of China’s 5,000 years of history and the impact of the Opium Wars on it, one can’t begin to understand its current relationship with the West.
It’s time we reintegrate History into our collegiate curriculum especially for those who wish to pursue careers in business or government. As the ever pragmatic Harry S Truman once said, “the only thing new in the world is the history you don’t know.”
Recently, I attended a US-China Travel and Tourism Cooperative Event in Chicago hosted by the US Travel Association (USTA) and Brand USA. It was an exceptional conference that attracted such significant industry and government luminaries as US Commerce Secretary Penny Pritzker, US Ambassador to China Max Baucus, USTA CEO Roger Dow, Chinese Vice Premier Wang Yang, Chinese Minister of Tourism Li Jinzao, senior travel officials representing major Chinese travel companies, the Mayors of Wuhan and Qingdao and a host of US travel industry executives.
While we all expected to learn about the rosy future of Chinese travel to the US, we were blown away by the actual projections of what’s ahead.
- Chinese society is rapidly evolving into a consumer-driven economy. Last year, household expenditures grew almost 11%.
- Within five years, China’s outbound travel market will number around 200mn people. Even today, the sheer volume of outbound Chinese travelers is 3 times greater than its 2004 level and is growing exponentially.
- The US ranks second only to France with 54% of China’s citizens picking it as their primary aspirational long-haul destination.
- Last year, nearly 2mn Chinese visitors arrived in the US, up 21% over 2013. Industry officials expect to record another 25%-30% increase this year, about 50% higher than previous growth projections for 2015.
- Chinese travelers rank Number 1 globally in terms of overseas tourism spending, exceeding $130bn. In 2013, they spent about $21.1bn in the US and this number is expected to grow another 21% in 2014 after all travel-related receipts for the year are tallied.
- The US Commerce Department projects that President Obama’s new visa policy which extends validity limits to 10 years for Chinese leisure and business visitors and 5 years for student travelers and significantly eases the visa application process could mean that as many as 7.5mn Chinese visitors will come to the US by 2021 (3 times as many arrivals than in 2013) and will inject an estimated $85bn into the domestic economy.
- By 2016, China is expected to overtake the US as the Number 1 business travel market in the world and will account for 20% of all global business travel spending.
- Today, the average Chinese visitor spends between $6,000 and $7,200 per trip to the US, making this group the highest spending per person visitor group to the US. Among China’s middle and upper classes, 19% of their annual salaries is spent on overseas travel—dramatically more than any other US travel source country.
What all this means is that we can expect to see a rapid increase in the number of repeat Chinese visitors (currently 45% of the total), a huge increase in FIT/Semi-FIT traveler volume (currently these folks account for just 30% of the volume), accelerated Chinese visitor growth in communities beyond the traditional US gateway cities, shorter shoulder and longer peak seasons, more tourists from secondary Chinese cities and more MICE groups coming to the US.
Meanwhile, the profile of today’s Chinese traveler continues to evolve. Leisure travel is soaring, accounting for 63% of all outbound Chinese travelers. While package tours continue to dominate, traveler interest is shifting from a multi-destination to a multi-experiential focus and a new, highly educated and sophisticated Chinese long-haul traveler is emerging.
While their top 3 preferred destination attributes continue to be affordability, quality of food and safety, this group is primarily interested in shopping, sightseeing, fine dining, natural parks, art galleries and museums and entertainment attractions. These “Gen 2” travelers now account for 75% of China’s FIT market and 73% of its luxury market. Today, they comprise an urban population of 200mn, but within a decade, this group will be 3 times the size of the US baby boomer generation—and they will have as much clout to be impactful and effect change.
I could go on and on reciting more dazzling statistics. But the bottom line is clear. The long-expected impact of Chinese travel on the US travel industry and our communities is upon us and we need to prepare today to welcome these new visitors as quickly as possible because it’s no longer a case of “business as usual.”
To get started, begin by viewing on You Tube an excellent training video created by the Orange County Visitors Association to help prepare our local citizenry to host these new visitors here. You’ll gain valuable insights into the nature of these discerning visitors and how best to interact with them—in your businesses, at social events, at tourist attractions or simply in passing.
Then, work with your local authorities to translate key local road signage and directions into Mandarin Chinese. Follow suit by translating your selected promotional materials such as restaurant menus. If you’re a hotelier or restauranteur, consider offering a daily Chinese-language newspaper and access to a Chinese language news channel on your in-house TV.
Participate in local business and tourism organizations that are targeting the Chinese traveler and join in their promotional programs.
As you become more comfortable and knowledgeable about this important segment of our tourism source markets, you’ll find your efforts more than amply rewarded.
Xie Xie! Thank you!
Think about this: Last year, China’s Dalian Wanda Group got the attention of the global hotel community with its plans to build and operate in London the first Chinese-built and operated luxury hotel outside of China. Dalian Wanda soon followed up with another project in Madrid; and just this past summer, they told Chicagoans they will open the city’s third tallest building, housing a 5-star luxury hotel, apartments and retail space in 2018 on Lakeshore Drive East.
Not to be outdone, Anbang, China’s 8th largest insurance conglomerate stunned the hospitality community in 2014 with its $1.95 billion acquisition of the iconic Waldorf-Astoria. Later in the year, China’s Sunshine Insurance Group Corp. paid about $399 million for Sydney’s high-profile Sheraton on the Park hotel. And a month later, Shanghai-based Jin Jiang International Holdings Co. purchased European-based Louvre Hotel Group for around $1.2 billion.
If anyone today still doubts the seriousness of these recent moves, consider this: at the start of 2014, of the top 16 hotel brands in terms of numbers of rooms worldwide, five were Chinese; of the world’s top 10 hotel management companies, four were Chinese; among the top 10 hotel franchise companies in the world, two were Chinese. With rankings like this, it’s clear to see that China is quickly emerging as a powerhouse hotel owner and operator on the world’s stage.
This is where China’s “Sea Turtles” come in. Sea turtle, or “haigui,” is a term in China applied to someone who has studied or worked overseas. They are not a new Chinese phenomenon. Some 1,300 years ago, imperial China sought out the best and brightest people to become its civil servants. For centuries, these mandarins ran the world’s most advanced government of its time. The modern-day tide began with the Industrial Revolution in the 19th century and each wave of returning scholars since then has left its imprint on the industrial or political life of the country.
Since 1978, more than 2.6 million Chinese students, or Sea Turtles, have traveled abroad to study and their top choices have been America’s elite universities and colleges. Last year alone, these institutions claimed more than half of the 400,000 Chinese students who went abroad—positioning China as the top sender of international students to this country for the fourth consecutive year, beating out India, South Korea, Saudi Arabia, Canada and Taiwan. Today, China accounts for about one-third of the total international student population in the U.S. and a significant proportion of these students are enrolled in hospitality management programs across the country. This number is expected to grow exponentially in the years ahead as China’s industries, including its lodging brands, plant their flags overseas. As it has for the past several millennia, China is once again sending its best and brightest, its Sea Turtles, abroad to hone the skill sets it needs to operate successfully in a global environment at home and abroad. Perhaps, though, an even greater impetus to the expected growth of Chinese students at our colleges and universities in the immediate future is the recent U.S. government announcement that relaxes visa rules.
Today, Chinese visitors are allowed to return to the U.S. multiple times over a 10-year period for business or pleasure, and student and cultural exchange visas have been extended from one to five years.
These rule changes make travel between China and the U.S. less cumbersome and will be a huge impetus to tourism between the two countries. It is also likely to encourage Chinese hoteliers and other institutional and commercial investors to accelerate their global brand expansion plans. Hospitality management educators and students alike need to prepare to meet the demands and opportunities offered in this evolving environment.
The announcement last month about the reset of US-Cuba relations was big news here in the US. Many agree with President Obama that, after 50 years, the US trade embargo against Cuba was not working and that it is time for a change. Others opine that we should have pressed Cuba harder to democratize its political system and address its human rights concerns before agreeing to loosen trade restrictions between our two countries.
Only time will tell whose position is right. But, one thing is certain: while, for many, the US remains the world’s only shining beacon of freedom, much of what we value here in the US simply can’t be replicated elsewhere at this time. It’s foolhardy to insist that others must embrace our approach before we engage meaningfully with them.
The world is full of countries with which we have amicable, supportive and economically productive relations but whose political systems and approach to human rights values don’t necessarily line up with ours. Think Singapore, Thailand and the United Arab Emirates (UAE) as stellar examples. There are many, many others.
For its part, Singapore can be thought of as a hybrid. Its system of government is functionally a democracy even though there is little public participation in government and its People’s Action Party has won every election since Singapore became an independent city-state in 1965. Yet, its physical beauty and high standard of living is envied throughout the world, and it ranks as the world’s ninth best city to live in, visit and do business in, tying with Los Angeles.
Consider Thailand. It’s a constitutional monarchy existing under a parliamentary democracy since 1932. Yet its democratic system remains weak and the country has been ruled by a succession of military rulers in recent years. Nevertheless, Bangkok, its capital, ranks as the top tourist destination in Asia with 11.5 million visitors annually. The country is among the largest economies in Asia and it has positioned itself to become the logistical hub in ASEAN.
Then there’s the UAE. It can be categorized as a federal presidential elected monarchy since its president is elected among the seven absolute monarchs who rule each of the seven emirates that comprise the UAE. The country has elements of a democracy including a constitution and legislative and judicial branches. And who can deny the incredible economic and educational progress achieved by the Emirati people since becoming fully independent in 1971. Even so, today when the citizens of the UAE look across their borders to many of their Middle Eastern neighbors who earlier this decade embraced the Arab Spring, many wonder if democracy is an ideal form of government. They question if democracy fits different cultures and ask themselves if their regional culture has the discipline and patience for democracy to succeed.
For democracy to flourish, certain assets must be in place, including citizen discipline and patience. These include an educated citizenry that values democratic procedures, a national commitment to the free flow of information and association, a strong cultural support for a limit to the state’s powers and holding the state accountable for its actions, an involved and economically-strong middle class, a national spirit of tolerance, and an elaborate system of local self government where future leaders can gain experience.
This doesn’t mean that we shouldn’t speak up for freedom and human dignity at every opportunity. But, we also need to recognize that countries and their citizenry need to build their own roads to a democratic ideal.
An example is the contrasting paths taken over the past 25 years by Russia and China, both former major communist states. Russia rapidly embraced a form of democracy after the disintegration of the former USSR. Eventually, it devolved into a “gangland” which has been compared to the lawlessness that gripped Chicago during Prohibition and beyond. Today, Russia is a democratic dictatorship under President Putin with only a handful of its citizenry truly enjoying prosperity. Contrast this experience with that of China. During roughly the same time frame, China made monumental strides in creating a strong middle class while catapulting itself into becoming the world’s largest economy, even as it remains today a communist dictatorship.
Consider Tunisia. Its uprising in 2011 against an autocratic leadership inspired the Arab Spring across North Africa and the Middle East. This past autumn, Tunisia took its final step in a four-year transition to democracy by holding its first free national presidential election. The point here is that the Tunisian people took those first steps on their journey to democracy by themselves. Will they be successful? Only time will tell.
Now compare Tunisia’s experience with that of Egypt, Libya, Syria and Iraq. Since the Arab Spring, Egypt has reverted to military rule, Libya is struggling to survive as a country, Syria is disintegrating, and what can I say about Iraq that hasn’t already been said.
Bottom line – Managing a democracy like ours in the US is serious business. It may not be for everyone today, but it can be an ideal and an aspiration. We in the US owe it to those who would emulate our approach one day to ensure we protect and nurture Lady Liberty and the vision of our founders so that we do remain freedom’s shining beacon.
Recently, I came across a study of frequent international business travelers in which about a third of the respondents indicated that their personal security ranks among their primary concerns while traveling. So, to help address this concern, I asked my former colleague Alan Orlob at Marriott International, Inc. to share his thoughts on this subject. Alan currently is Vice President for Global Safety and Security at Marriott International and serves as chairman of the Orange County Homeland Security Council here in Southern California. He has served as a consultant to the US State Department’s Anti-Terrorism Assistance Program on Hotel Security and has testified before the US Congress on this subject. A frequent speaker on terrorism in venues across the world, he was named one of Security Magazine’s “Most Influential People in Security” in 2013. I believe you’ll find his perspective invaluable.
Ed Fuller, president, Laguna Strategic Advisors, LLC.
By: Alan Orlob, Vice President, Global Safety & Security, Marriott International, Inc.
In 2009, I was traveling though Asia. After spending a few days in Hong Kong, I made a short visit to Jakarta, Indonesia with my regional director to review the security at our hotels. We arrived in Jakarta in the afternoon of July 16th and met that evening with the general managers of our two hotels in the city—the Ritz-Carlton and the JW Marriott. These hotels are located across from each other in the Mega Kuningan area of Jakarta.
As we chatted, we had a general discussion of the security situation in the city. Indonesia had been rocked by terror attacks in the early part of the decade, beginning with attacks in Bali in 2002, followed by a suicide bombing at the JW Marriott Hotel Jakarta in 2003, the Australian Embassy bombing in 2004 and further bombings in Bali in 2005.
These attacks were perpetrated by a terrorist organization known in Indonesia as Jemaah Islamiyah or JI. However, for the 4 years prior to 2009, there had been no significant attacks and most of the security analysts felt that JI did not have the operational capability to launch another major attack. We went to bed that night, feeling confident that the authorities were dealing successfully with the terrorism threat in the country.
The next morning, I woke early, still dealing with the effects of jet lag. I was in the gym by 5:30 am for a work out, spent some time checking emails, then jumped into the shower. As I stepped out of the shower around 7:30 am, I heard the unmistakable sound of an explosion outside. As I looked from my window at the Ritz-Carlton, my view was of the front entrance of the JW Marriott Hotel. I could see smoke coming out of the back of the hotel and people running. As I quickly dressed, I heard another explosion, this one in the Ritz-Carlton.
The scene that met my eyes that morning, both in the restaurant where a suicide bomber had detonated his explosives in the Ritz-Carlton and in a meeting room across the street at the JW Marriott Hotel was utter devastation. Two people died in the Ritz-Carlton’s restaurant and another 9 lost their lives in a meeting room at the JW Marriott. As tragic as that was, it could have been much worse if we didn’t have the security precautions in place that we did.
Hotel security has taken on an entirely new meaning since the terror attacks in New York and Washington, DC, on Sept. 11, 2001. Prior to that, hotel security tended to focus on thefts from rooms and preventing slip and fall accidents. We still work diligently to prevent these types of incidents, but a large measure of what we focus on now is anti-terrorism. Twenty years ago, I felt comfortable as an American strolling down the streets of most countries in the world. Not now. When we go to Pakistan today, we travel with a security detail. We avoid certain areas in Egypt where demonstrations are still ongoing since their “revolution.”
We opened a beautiful JW Marriott Hotel in Tripoli, Libya two weeks before the Arab Spring started and found ourselves, several weeks later, faced with the task of evacuating all of our staff in the country and did so with a chartered jet. The security situation has still not stabilized in Libya; in fact, it has deteriorated. The US Embassy was closed 2 months ago and there have been recent attacks on the Egyptian and UAE embassies there. We don’t know if our hotel in Tripoli will ever reopen.
In the mid-90s, at Ed Fuller’s direction, who was President of International Lodging for Marriott at the time, we embarked on a program to enhance security to address the worldwide threats. We developed a crisis management plan that was distributed to all our hotel general managers. Contained in the plan were color-tiered “threat conditions” with specific procedures to be followed at each level. At the highest level, “threat condition Red,” we required bomb sniffing dogs to check every vehicle, walk through metal detectors and x-ray machines at every entrance.
Today, with over 4,000 hotels and 18 lodging brandings operating in 74 countries, the job is immense. The threat of terrorism continues to evolve and our procedures need to stay dynamic. We now have intelligence analysts, based in Washington and Dubai, that advise us on the threats they are seeing around the world. We have a training manager who ensures our security officers know how to properly inspect a vehicle and recognize images on x-ray machines that screen luggage.
After the attacks in Mumbai in November 2008, I testified before the US Senate Committee on Homeland Security. I advised them that security intelligence should not be left up to hotel general managers with no security experience and with no intelligence resources. Instead, security needs to be assessed by professionals who are looking at threats and terrorist organizations around the clock, around the world, everyday.
The terrorist organization that attacked the hotels in Mumbai in 2008 came from Pakistan. The threat of terrorism tends to be transnational in nature so having a local focus isn’t enough. In the past several weeks, our analysts have been watching the continuing threat from ISIS, the Islamic State in Syria. The entire intelligence community today is concerned by the number of foreign fighters going to Syria and worrying about the result when they return to their home countries with new skills and networks.
While today we put a lot of focus on anti-terrorism, other threats confront our guests and associates. In 2002, we were dealing with the threat of SARS in our hotels. Today, we are concerned by the threat of Ebola. Soon after the Ebola threat manifested itself, we had a team working on protocols to advise our hotels. One can only imagine what could happen if a guest checked into one of our hotels and found himself sick with the Ebola virus. Particularly, if he had been staying at the hotel for a few days, availing himself of its fitness center, restaurants, swimming pool and other amenities.
Natural disasters can wreak more havoc than any bomb could. We have dealt with destructive hurricanes in New Orleans and Cancun as well as tsunamis that caused hundreds of deaths in Thailand and Japan.
By chance, I was in our Marriott Hotel Moscone Center in San Francisco on October 17, 1989, when a 6.9 magnitude earthquake struck. I saw firsthand the effects of a strong earthquake; but more importantly, I realized that in any type of major catastrophe, we can’t rely solely on local authorities for assistance. We need to be self-sufficient. There are not enough first responders, communications are down and roads are closed. The hotel’s emergency plans need to account for all these eventualities. Our crisis plans give us a broad overview of how to deal with emergencies like these, but every crisis has its own nuances. Training is key.
The military spends a lot of time training soldiers so that when confronted by the enemy, they don’t need to think. They react to the training they received. We try to do the same with our managers by creating various scenarios into tabletop exercises and then train to the scenario. We see managers reacting in these types of exercises just as they would in a real world situation. Oftentimes, they are exhausted at the end.
The world has changed since 9/11. Prior to that time, travelers could wander around most cities of the world unhindered with little worries. The events of 9/11, the subsequent wars in Iraq and Afghanistan and now the threats from ISIS have changed all that for those traveling abroad. The world watched in horror as armed gunmen invaded the two Mumbai hotels in 2008. The hotel industry responded by monitoring worldwide threats and putting in security measures to meet the increased risk. In some countries, going into a hotel today is like going through an airport. Metal detectors, x-ray machines and bomb sniffing dogs are the norm.
We regularly study incidents involving hotels around the world. The attacks on the two Mumbai hotels provided good lessons for travelers venturing into high threat areas. Among these are:
- Understand that the world has changed and take more personal responsibility as you travel. This means planning ahead.
- Consult the US State Department’s OSAC website (www.osac.gov) for information on the country you plan to visit. This website shows traveler warnings issued by the State Department.
- If you decide to travel to potentially hazardous areas, have a good understanding of the area and its potential risks.
- Leave the flashy jewelry, clothes and luggage home. Keep a low profile.
- On arrival at your hotel, walk around it to familiarize yourself with the layout, including possible exit points.
- Travel with a small flashlight and keep it on your nightstand at night.
- When outside the hotel, be aware of what is going on around you. We call this situational awareness. If approached by people you don’t know, walk away. Keep your valuables close to your person.
- If there is a serious incident in the hotel, the best advice is to stay in your room, throw the dead bolt, close the night latch and stay put. Don’t answer the door for anyone. Call the operator for advice and let the operator know that you are in the room.
- If the fire alarm goes off, unless you can smell the fire, don’t automatically evacuate your room. Call the operator for advice.
- Consult with your travel agent for a list of security companies that can provide further information.
I don’t think I’ve seen a period in my lifetime where the world has seemed more unstable than it is today. Those of us , who work in hotel security, work hard to be forward thinking and evaluate the myriad threats that could impact us. We owe to you, our guests, our fellow associates, our hotel owners and the communities we serve.
Earlier this year, I blogged about the excitement in China generated by the news that its Dalian Wanda Group planned to invest $1.09bn to build and operate a luxury hotel in London. At the time of their announcement (made in the summer of 2013), it was the first luxury hotel venture announced by a Chinese firm outside of China. Since then, Dalian Wanda has added a luxury hotel project in Madrid and, just this past summer, they advised Chicagoans they will open a $900mn skyscraper, the city’s 3rd-tallest building, on Lakeshore Drive East housing a 240-room luxury, 5-star hotel, luxury apartments and retail space in 2018. Additional US markets targeted by Dalian Wanda include NY, Los Angeles and San Francisco.
This is just the beginning. Recently, Anbang, China’s 8th largest insurance conglomerate stunned the hospitality community with its $1.95bn acquisition of the iconic Waldorf-Astoria—the highest price ever paid for an existing hotel in the US. Not to be outdone, in October, China’s Sunshine Insurance Group Corp. invested AUS$463mn (about $399mn) in Sydney’s high-profile Sheraton on the Park, paying roughly $716,000 per room; and in November, Shanghai-based Jin Jiang International Holdings Co. purchased European-based Louvre Hotel Group for around $1.2bn.
Hotels are not the only targets as Chinese investors explore investment opportunities abroad. Last year, the US food industry was abuzz by Shu Anhui’s purchase of Smithfield Foods for $4.76bn and, this past June, folks in Virginia took note that China’s Tranlin Paper Co. had invested around $2bn in a paper and fertilizer plant that is expected to create 2,000 local jobs by 2020.
Over the past few years, Chinese money has flowed into the US, up from $58mn in 2000 to $14bn in 2013. Overall, Chinese investment in the US now totals nearly $40bn, and according to Deloitte, and Chinese investors are now the 2nd largest foreign investor group, after Canada, in US commercial real estate with an 8% share of the total cross-border investment. As the South China Morning Post recently commented, Chinese investment in the US now exceeds American investment in China.
Propelling Chinese investment here and in other countries are forces that are nearly identical with those that lured Japanese investment overseas three decades ago. Fortune Magazine reports China now has excess saving ($4tr in foreign exchange reserves), making valuation of US and European assets attractive because to Chinese private investors, foreign assets deliver exceptional returns.
At the same time, Chinese consumers are interested in acquiring everything American. They also feel their assets are better protected in the US. Today, these consumers represent more than 85% of investors who have applied for US EB5 visas that go to foreigners who invest more than $500,000 each in the US. CNBC reports these folks mostly put their money into the asset they consider the safest: US real estate.
So, given this backdrop, what can we expect for the hospitality industry? Simply this: Transformative change is coming here in the US and abroad. Keep in mind that 100 million Chinese are now traveling outside of China and industry leaders expect this number to grow to 200 million in the next 5 years or less. Chinese hospitality companies like Dalian Wanda expect their countrymen to provide a solid customer base from which they can draw as they expand abroad—just as the US and European travelers provided the foundation and impetus for the massive global expansion of their home-grown, powerhouse brands like Hilton, Sheraton, Accor, Marriott and others several decades ago.
In today’s world, while other markets such as Russia, Korea and Japan are growing, only China has the resources and volume of travelers to follow the US growth model. Already, one of its brands, Home Inns, ranks in the world’s top 10 global hotel brands in terms of rooms. Others will soon follow suit.
The bottom line is clear. Globally and in the US, Chinese brands and investors are going to grow significantly. This trend is important not only for industry students, educators and company strategists to heed, but also for local communities and the traveling public at large.
The facts tell the story. Since 2000 the rise of the world’s emerging markets has been one of the defining, but relatively little reported, features of the global economy.
Consider this: In the next ten years McKinsey & Co. predicts that the annual buying power of people living in just the world’s emerging markets will reach $30 trillion a year. Twenty years ago less than 20% of the world’s population earned enough money to afford little more than the basic necessities of life.
Over the past two decades, thanks to global urbanization, a rapidly expanding middle class, removal of trade barriers, leap-frogging technology, and other positive developments, the world’s consumer class has doubled to about 2.4 billion people. McKinsey predicts that by 2025, this number will double again to 4.2 billion out of a global population of 7.9 billion, and that for the first time in history, there will be more people in the consuming class than those who are still struggling to get by, and that the emerging markets will become the dominant force in the global economy, accounting for 70% of global economic growth. Today they are well on their way to dominance by claiming 50% of the world’s GDP in purchasing power.
We’re already seeing the impact. China is now the world’s largest automobile consumer. Recently its largest e-commerce company, Alibaba Group Holding Ltd., launched a share offering in New York that attracted global attention, becoming the largest stock debut in history. Sort of like a combination of Amazon and eBay, Alibaba is transforming life in China, where 80% of all on-line sales pass through one of its sites. Alibaba now focuses its business in China, but following its splashy September debut on the world’s financial stage, their strategic direction likely will broaden. Meanwhile, in another five years more than half of all Chinese households will be solidly in the middle class, up from 6% in 2010.
Leading the global transformation taking place before our eyes in the emerging markets is a generation of consumers who are now in their 20s and 30s. Last year these markets were home to 85% of the world’s population, 90% of which were under the age of 30. This number is expected to grow at three times the rate of the developed economies now through 2020. And while the BRICs (Brazil, Russia, India and China) are home to almost half of the world’s emerging market population, 1.3 billion other folks live in non-BRIC emerging markets -combining for a population considerably greater than all those living in the developed countries. It may be hard to believe but five non-BRIC emerging markets have populations of more than 100 million each – Indonesia, Pakistan, Nigeria, Bangladesh and Mexico.
So what does all this mean? This economic transformation carries with it a lot of pent-up demand – for a better education for their off-spring, for better food and health care and for the finer things in life, especially to see and experience the world beyond their national borders. For its part, Boeing sees a 5% increase in demand over the next two decades for more than 36,000 new aircraft.
As businesspeople, we need to begin developing a deep knowledge of these markets, their people, their customs and their current and ancient history so as to better understand them and communicate more effectively with them. We need to design our products so that they appeal locally – city by city. When crafting your needs/benefits message, think lifestyle. And finally, start now to carefully build your relationships by finding the right local partners.
I spent the last half of my 40-year career with Marriott International traveling the globe as president and managing director of the company’s offshore lodging division. During those years, I visited China at least 5 times a year. I was impressed, at the time, to find the nature of the Chinese people was always welcoming and hospitable. I also learned that their culture and value system was vastly different from ours.
Some of you may be wondering why you should care about this. You should because, in the not too distant future, vast numbers of Chinese visitors will very likely be coming to a town near you and they will have a huge impact on the world around you. Consider this: China’s tourists today are the largest group of travelers of any country. Last year, more than 100mn Chinese people from the mainland traveled abroad, nearly a million of them came to California. By the end of this decade, this number is expected to double. So, it makes a lot of sense to begin preparing the red carpet to ensure these visitors have an enjoyable experience in our communities.
Not only are these folks big-time travelers, but they also have enormous purchasing power. Last year, they overtook the US and Germany as the world’s biggest travel spenders by forking out more than $100bn. And the volume of their travel and the amount they spend when on the road are growing annually by double digits.
If you’re wondering why the Chinese people have suddenly begun traveling in such huge volumes, it’s because over the past 30 years China has transformed itself from a basically agrarian society into a global economic powerhouse. This has given birth to its rapidly expanding middle class. Coupled with the recent easing of the Chinese mainlander’s ability to get visas to visit other countries, the floodgates have opened wide. There’s now a huge pent-up demand in Chinese society to see the world. In fact, about 60% of today’s Chinese tourists are traveling abroad for the first time.
But, make no mistake about it. These are sophisticated tourists. They’re not much interested in seeing how many famous sites they can cram into a 14-day itinerary. They pay a lot of attention to the quality of their travel experience and they do their homework on the Internet before leaving home. More than 600 million Chinese citizens are Internet users, including the more than 53mn who logged on for the first time last year.
What makes the Chinese people culturally different from ours? Basically, their culture is rooted in the three pillars of Group Harmony, Respectful Communications and Relationships and Networks. These pillars date back several millennia and are based in Confucianism—a humanistic, ethical and philosophical belief system that values ethical conduct and the practical order of things.
As a result, unlike western cultures that put a lot of emphasis on “me, mine, my company, my house” and so forth, Chinese people talk in collective terms such as “us, we and our partnership.” So, when you interact with our Chinese guests, or try to forge a relationship avoid a “us versus you” posture. Speak with a Chinese person as though he or she is a partner, even if the relationship is just starting.
Respect, or what is sometimes referred to as Face, is almost everything to a Chinese person. And communication is one interaction where respect is shown. Early on, Chinese youngsters are taught to be humble and courteous. Thus, when a Chinese guest, customer or potential business partner doesn’t overly respond to your compliments, he or she inwardly very much appreciates them, but doesn’t overtly show his or her appreciation. On the other hand, when they say that one of your requests or ideas is “under consideration” or “being discussed,” indirectly this may be their polite way of saying “no.”
Relationship is EVERYTHING to a Chinese person and it is not forged overnight. Thus, if you want to do some serious business with someone from China, start with building the relationship first.
Here are some basic social tips to help you get started.
Take the long view in all your dealings with our Chinese visitors—they appreciate patience and the long-term goal.
Gift Exchanges – Everyone likes to receive gifts and none more so than the Chinese. But there’s a strict protocol to getting the gift-exchange right. Not only is the choice of the gift important, but so is how you wrap it, how you present it and to whom. When deciding on what to give, be thoughtful and considerate and avoid giving something over the top or overly lavish because it could be considered a bribe. Keep in mind that it’s the thoughtfulness behind the gift that’s paramount, not necessarily the cost. Plan to give the most senior person present the most expensive gift and never give the same gift to persons of different rank. And if you’re given a gift, don’t open it immediately.
Titles – As a general rule, refer to your Chinese guests by their professional titles such as Professor Wong, President Wu, Doctor So or Manager Chou or at the very least Mr. or Mrs. And, omit any defining words such as “deputy” or “assistant.”
Business Cards – Exchanging business cards is a big deal and there are some dos and don’ts associated with the exchange. Chinese people normally use both hands to present or receive the card to show respect. All cards should be carefully read. Never put the card into your back pocket or leave it on the table and never write on it.
Body Language – For Chinese people, overly exuberant smiles, using your index finger to show direction, excessive body language and departing before your guests do are all considered disrespectful.
Tipping – When dining out, one participant pays the bill for the table to show generosity and friendship; the western custom of “going Dutch” is frowned upon.
You’ll find no more appreciative guests than those from the mainland of China. Let’s work together to ensure that the hospitality we extend and the guest experience we deliver is positive and leaves a lasting impression that our country is a great place to visit and maybe to invest in.