Theme Parks Benefit From Unexpected Investors

Tottering theme parks may find new life in corporate venture capital, largely for knowledge-transfer reasons. And while it may be too early to identify a trend, we are intrigued by the announcement that China’s Fuson Group will be buying a minority stake of the Dutch-themed Huis Ten Bosch park in Nagasaki, Japan.

Details of the transaction have yet to be announced publicly. But the arrangement appears to call for a 25% share in the Japanese amusement complex. The longstanding destination in southwestern Japan is now owned entirely by H.I.S., a Tokyo Stock Exchange-listed firm. The Japanese company is credited with turning around the park financially; Huis Ten Bosch declared bankruptcy in 2003. One new feature is a robot-operated hotel.

Shanghai-based Fosun may be best known in the entertainment world for its purchase of a chunky piece of Cirque du Soleil. The move was an early stepping stone in its desire to be master of the still-crude Chinese theme-park industry. The Huis Ten Bosch investment parallels that effort. The long-term strategy is to build, if not rethink the design of, expansive leisure complexes in China. We should expect to see other bolt-on, boutique acquisitions by this cash-rich corporation.

The dark side of this story is that US-based theme parks may be missing out on investment opportunities by Chinese firms. The lingering trade war between Washington and Beijing is likely taking its toll on the US leisure sector. We note that Chinese tourists now dominate the international travel business. Second-tier theme parks near major American cities could be lucrative targets. Until the political backdrop is more stable, however, Chinese capital will likely be deflected elsewhere.

Industry insiders acknowledge that the Chinese theme-park business is set to smolder for the foreseeable future, despite conventional wisdom on soaring growth. Dalian Wanda, another corporate behemoth, all but abandoned its expectations in this industry last year by selling off its theme-park assets. And while many analysts are looking for smoke signals from Shanghai Disney Resort, that campfire is still being kindled.

Our Vantage Point: Multinationals may look to bolster their entertainment-industry acumen by buying into the theme-park business. The move has less to do with generating cash from operations and more to do with knowledge-transfer possibilities.

Learn more at the Nikkei Asian Review.

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Image: Huis Ten Bosch builds on 400 years of trading ties between the Netherlands and Japan. Credit: H.I.S., Co. Ltd.

Saudi Arabia Drills for ‘White Oil’

Mada'in Saleh is near the modern city of Al Ula

Tourism has never been a priority in Saudi Arabia, ostensibly because of visitors’ lack of sensitivity to local customs. Peripatetic businessmen are one thing; individual or group travelers wandering about the country are quite another. Better to focus government energies on Muslim arrivals at Jeddah, en route to Mecca and Medina.

All that is about to tilt differently. Prince Khalid Al-Faisal, Governor of Mecca Province, contends: “Tourism is our white oil.” The sector is an important catalyst in Riyadh’s Saudi Vision 2030 master plan.

As part of its diversification from an oil-based economy, Saudi Arabia will announce standards for tourist visas by the end of March. Official statements indicate that tourist visas will be tied to Umrah, a religious pilgrimage that can be undertaken at any time of the year. That constraint limits the universe of applicants to those Muslims who otherwise have access to the country. Informal conversations suggest that the move is a stepping stone to marketing the nation more broadly as a vacation destination.

Official tourist-visa guidelines are overdue, amid speculation on the forthcoming framework. There was a rumor in circulation earlier this month that Saudi Arabia would allow single women travelers to enter the country. The report proved to be only partially correct. Those under 25 years old will still be required to have a male chaperone.

Foreigners of course will be drawn to Saudi Arabia. Expect to see a new wave of Red Sea resorts built to accommodate the influx, as well as a surge in environmental travel to sites like the Al Wahab Crater. The crown jewel of Saudi Arabian tourism, at least from an archaeological perspective, may be Mada’in Saleh, an ancient Nabatean city tucked away in the western desert. Think Petra before Indiana Jones.

The government wants to bring 30 million Umrah-based visitors a year to the Kingdom, representing about a 275% increase over current levels in a 12-year period. For context, that future number is about the same as now seen by Thailand. The Saudi Commission for Tourism and National Heritage might reach that figure. Or not. It took Thailand about 20 years to achieve its level from a similar base, yet with a truly global market for its hospitality sector.

Authorities have their work cut out for them. The draw of Dubai is inescapable among local and regional tourists; while the lure of Egypt dominates international travel agendas. Saudi officials will not budge on the country’s strict no-alcohol policies, given the proximity of many tourist venues to Mecca and Medina. There are staffing and training challenges. The key may be Saudi Arabia’s ability to promote itself among non-Arab visitors, including the middle classes of Indonesia, Nigeria, and Pakistan.

Our Vantage Point: Growth in the Saudi tourism is likely to pace at a moderate speed. While we are wary of unbridled fanfare, industry momentum could offer sustained benefits for cross-border investors.

Learn more at Gulf News.

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Unauthorized use and/or duplication of any material on this site without written permission is prohibited.

Image: Mada’in Saleh was at the crossroads of the incense and spice trade. Credit: Brizardh at Can Stock Photo Inc.

China’s Middle Class Sours on Cruise Industry

Woman sits on deck watching sunset

The sky was the limit. According to the China Cruise & Yacht Industry Association, the number of cruises from Chinese home ports grew from 28 in 2008 to 927 in 2016. As recently as May 2017, Bloomberg ran an article entitled, “Cruises Boom as Millions of Chinese Take to the Seas.” That outlook is now being re-written.

The trade bulletin Cruise Industry News estimates that cruise traffic in China will fall from 2.8 million passengers in 2017 to 2.4 million in 2018, representing a 15% decline. The figure is likely to be conservative. Wealth trends are rapidly favoring independent itineraries over group arrangements.

As a sign of failed optimism, Royal Caribbean is withdrawing ships from the Chinese market, while Carnival is rethinking its China-built ship orders. Norwegian, the other mega-player, just announced a broad management reshuffle for its Shanghai- and Beijing-based operations. The impact on local operators is opaque.

What went wrong so quickly? The industry misjudged its risks, failing to decouple the cruise business from impressive growth trends in the overall tourism sector. Consider these points:

Political Risk. In March 2017, China issued a ban on cruise travel to South Korea to protest the installation of a US THAAD missile system. Ports of call included Busan, Jeju, and Seoul. The ban knocked out prime destinations, realistically leaving Hong Kong and Japan as the other short-haul options.

Business Risk. Cruises lines are prohibited from selling tickets directly to the consumer in China. They are required to use an ever-powerful cabal of online travel agents—key names include Ctrip and Qunar—further depressing tight profit margins. Tickets are sold to these distributors in bulk.

But the overriding issue may be how swiftly travel preferences have evolved. Where the Chinese market was once characterized by standardized group travel offerings, consumers are now drawn to tailored, personal experiences. The cruise industry missed that shift, relying on generalized penchants for gambling and shopping.

Our Vantage Point: Investors based in the West tend to parrot the idea that an expanding middle class in emerging markets will drive investment opportunities. In practice, that concept overlooks the local character of many consumer-based industries.

Learn more at Skift.

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Unauthorized use and/or duplication of any material on this site without written permission is prohibited.

Image: In China, the cruise industry missed an overnight shift to individual travel. Credit: Gyn9988 at Can Stock Photo Inc.

Geography Lessons Are Expensive

Shanghai has a population of about 24 million

Marriott usually excels in diplomacy. It has hotel properties in more than 120 countries and territories. However, the worldview held by one corner of its marketing department has landed the firm in hot water. Chinese authorities shuttered its local website, albeit only for a week, over an online survey. On the form, Marriott listed Tibet, Taiwan, Hong Kong, and Macau as separate countries.

Nationalist sentiment seems to have overwhelmed Marriott’s attempt at damage control, given the degree of public shaming on Weibo, a Chinese-language service similar to Twitter. Market regulators have opened an investigation into suspected violations of cybersecurity and advertisement laws. Marriott’s chief executive, Arne Sorenson, rallied with an apology: “We don’t support anyone who subverts the sovereignty and territorial integrity of China and we do not intend in any way to encourage or incite any such people or groups.”

Marriott is not alone in this mistake. Coca-Cola, Burberry, and Apple, among others, have stumbled in the treacherous terrain of Chinese sovereignty. Other multinationals may repeat the error in the future. The interesting twist in the Marriott case is the degree of outcry over social-media channels. That sort of groundswell will ultimately impact the bottom line more than a traditional reprimand from public officials.

Our Vantage Point: When operating in emerging markets, multinationals sometimes forget that routine effort can become an act of lèse-majesté. One reason is that developing-world nations are unusually sensitive about Western perceptions of their countries.

Learn more at Asia Times.

© 2018 Cranganore Inc. All rights reserved.
Unauthorized use and/or duplication of any material on this site without written permission is prohibited.

Image: Shanghai is among those Chinese cities where Marriott is rolling out its Fairfield brand. Credit: SeanPavonePhoto at Can Stock Photo Inc.

Robots Streamline Air Travel

Check-in queue frustrate passengers

Airlines are getting serious about robots. Think ticketing kiosks on wheels, turbocharged with Siri. Air New Zealand just finished a test that involved using a robot to check-in passengers. The flag carrier is not the first to use robots to revamp customer service. There have been similar experiments in Seattle and Amsterdam. Eva Air uses them routinely in Taiwan. The idea is to help airlines manage the ebb-and-flow of flight schedules and the chaos of flight disruptions. Robots are programmed to issue boarding passes, answer flight questions, and provide gate directions, among other tasks. The story, however, may be less about tech-based investment and more about airline cost savings. Replacing customer-service agents with robots has allure for airlines, given the replicable and predictable nature of many requirements. But the use of robots may decimate any lingering pretense of brand loyalty among consumers, at least with economy-class passengers. The day is nigh when only premium ticket holders will have ready access to traditional ground staff.

Our Vantage Point: Robots provide a further opportunity for airlines to cut costs, er, manage passenger-related operations. But we are not sure how their widespread adoption will grow corporate revenue.

Learn more at the New Zealand Herald.

© 2017 Cranganore Inc. All rights reserved.

Image: Robots are set to take over many airport check-in formalities. Credit: Casanowe at Can Stock Photo Inc.