A UNITED STATES DEPARTMENT OF COMMERCE PUBLICATION y ' r 4Tt! O* ' 7,2; ^27/1/,/ A STUDY OF JAPANESE TRAVEL HABITS AND PATTERNS Volume 1 U.S. DEPARTMENT OF COMMERCE United States Travel Service Office of Research and Analysis A STUDY OF JAPANESE TRAVEL HABITS AND PATTERNS Volume I Results of an exploratory study assimilating secondary data and personal interviews with indivi- duals representing organizations of the Japanese travel trade. Conducted by Karol Gess in conjunction with Gaither International, Inc for UNITED STATES DEPARTMENT OF COMMERCE United States Travel Service Office of Research and Analysis October 1972 For sale by the Superintendent of Documents, U.S. Government .f Printing Office, Washington, D.C. 20402. Price $1.50. < TABLE OF CONTENTS Page INTRODUCTION 1 I. THE JAPANESE FOREIGN TRAVEL MARKET 4 A. Travel motivation factors 7 B. The social structure of the market 14 C. The size of the market 21 D. The expenditure pattern of the market 23 E. Seasonal travel patterns 26 II. PRINCIPAL SEGMENTS OF THE JAPANESE TRAVEL MARKET 28 A. Package tours 30 B. Affinity groups 32 1. Special study tours 33 2. Incentive travel 35 a. Work force incentive 35 b. Commercial incentive 38 3. Visiting friends and relatives 40 4. The transit travel market 40 III. COMPETITIVE ASPECTS OF THE MARKET 41 A. Area competition 41 B. Material competition 52 C. Other competitive elements 53 IV. THE UNITED STATES TRAVEL MARKET 55 A. The effects of revaluation 55 B. United States travel destinations 57 V. ROLE AND STRUCTURE OF THE PRODUCING INDUSTRY 67 A. Distribution structure 69 B. The wholesale sector 71 C. The retail sector 72 D. The wholesale cost structure 73 E. The role of the carriers 74 F. Market penetration 75 11 TABLE OF CONTENTS (cont'd.) Page VI. THE GEOGRAPHIC STRUCTURE OF THE JAPANESE TRAVEL MARKET 76 VII. THE ECONOMIC BACKGROUND 79 Outlook for the future 82 VIII. EXISTING STUDIES 84 IX. PRIMARY RESEARCH SURVEY DESIGN AND WORKING HYPOTHESES 85 X. NOTES ON ABBREVIATIONS, STATISTICAL UNITS, AND CURRENCY CONVERSION VALUES in Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://archive.org/details/studyofjapaneseOOgess INTRODUCTION METHODOLOGY The present report is based on the findings of an exploratory study carried out in Japan during July 1972 as Phase I of a study of travel from Japan to the United States. Specifically, information was obtained on the following: 1. The social expenditure patterns and the geographic source structure of the market; 2. The principal segments of the market, and their relative potential for the future (including the tour and charter market; the special purpose market, the youth market, the transit market, the visiting friends and relatives market, etc.); 3. The structure of the sales function in the travel industry, as between wholesalers and retailers of travel; 4. The role and contribution of the carriers, both scheduled and non-scheduled, and assessments of the potential effect of fare changes; 5. The effects of dollar devaluation; 6. Patterns of destinations and the competition perceived to exist among them; 7. Resumes of existing studies in the field. This explanatory phase of the study covered usually extensive interviews with travel wholesalers and retailers, airlines, the publishers and editors of specialized travel publications and of the travel section of a leading Tokyo newspaper, as well as with a range of quasi-official bodies concerned with the tourist industry as a whole, and with sources of pertinent economic and social background information. A number of existing surveys were obtained, together with their publishers' permission to quote certain extracts in this report. In all, extensive in-depth interviews were held with 34 individuals representing 26 companies and organizations involved in travel in Japan. KEY FINDINGS Perhaps the key finding of this exploratory phase is that Japan is in the midst of a veritable travel explosion of substantial proportions, with strong indications that this is merely a prelude to a projected quadrupling of foreign expenditures over the five-year period from 1970 to 1975. ly„ the Japanese overseas travel market has so far developed few ay lines of traditional or favored destinations; to some extent, the urge to travel is at least as important as the desire to travel to a specific destination. This malleability is reflected in the very important advisory role of the travel -producing industry. Nevertheless certain preference patterns have already developed, notably Hawaii's popularity with the youth market -- an important and fast-growing segment of the total -- and Guam's special place in the low-cost honeymoon market segment (in which Hawaii is a close competitor). Europe, largely for reasons of historical interest, exerts a powerful attraction on would-be travelers' imagination and is in virtually all respects the number one competitive destination to the U.S. mainland -- a feature that has come into sharper focus with recent reductions in bulk fares, which will be further lowered when new off-season fares come into effect. The foregoing discussion indicates that Japan's largely novice market is price sensitive, and the cost advantage of Europe as a destination is in part a function of the structure of fares to United States destinations east of the Pacific Coast gateways. Given present U.S. fare structures, the break-even point at which a group fare to a U.S. mainland destination equals that of the (off-season) fare to any European destination lies somewhere west of a north-south line drawn co the west of Denver, Colorado. The strongest travel motivation that emerged in the course of this study, particularly among the young, was the desire to gain insight into the daily life of average men and women in medium or small -size American towns. This urge for people contact rather than for sights or specific named destinations appeared to be highly important. Given a growing labor shortage, and the inclination of Japanese industry and commerce to grant greater fringe benefits in preference to higher cash salaries of wages, worker -incentive travel (in its most recent form as an employment incentive) is gaining in importance, in part through the efforts of certain travel producers who are quick to see new opportunities and to apply their dynamic efforts to their realization. The extraordinary dynamic character of Japan's overseas travel market is in large measure a function of an equally extraordinarily dynamic and creative travel -producing industry which is not only alive to new opportunities but is ever alert to create them. It is aided by high capitalization — in turn a function of big industry and commerce recognition of the profitable investment in this sector of economic life. In summary, not only does the Japanese market offer maximum opportunity for the further development of travel to the United States, but the commerci and organizational infrastructure is there to aid and to support that deve] I. THE JAPANESE FOREIGN TRAVEL MARKET The leading members of Japan's travel industry -- producers and carriers alike -- are unanimous in expressing the view that the country's foreign travel market represents one of the world's greatest development potentials. This view is borne out by the details and background data obtained in the course of the far -ranging interviews and observations in Japan on which this report is based, as well as by the concrete statistical and factual material collected in the course of the present study. The impelling forces of what is often called Japan's "foreign travel explosion" are relatively complex, for they rest as much on psychological and historical factors as on economic considerations and on recent shifts in the country's social structure. Similarly, the manifestations of this travel explosion stem from an amalgam of mixed and at times disparate stimuli which requires exploration in some depth if an accurate and actibn- related portrait of the market is to be obtained. The report thus deals quite extensively with the overall Japanese foreign travel market, as well as with its specific United States-bound segment. Some stress on the overall market is essential if the United States market is to be placed in proper competitive perspective. The need for a degree of balance in presentation stems, among other elements, from the fact that at least one of the basic motivations of travelers (and potential travelers) is "to see the world" -- a motivation that may at times precede a specific choice of destination. The eventual choice of destination may then be determined as much by Japan's relative geographical situation (which determines the cost of travel involved) as by a concrete desire to visit the place or area eventually chosen. As a new travel market, the initial stress is still largely on the first-time traveler and on his overriding desire "to travel abroad," which is only subsequently refined to the specific destination choice. In broad terms, however, this initial desire to travel tends to be subject to more specific destination parameters within the important and fastest growing youth market segment. Here, Europe, Hawaii, and the United States mainland tend to represent the prime competitive choice targets based both on general appeal and on vogue or fashion. Again, of course, the economic realities of costs often determine the final choice. While business travel tends, of necessity, to be on an individual basis, package and group tours attract the great bulk of the tourist or vacation traffic as well as the growing element of incentive travel. The prevalence of package/group traffic again rests on factors of differing importance and motivation, depending on broad age groups. For the young, package tours based on Group Inclusive Tour fares offer the overriding attraction of low cost, possibly at the sacrifice of individual freedom of movement. For the older generations, on the other hand, package tours offer a high degree of security and guidance in unfamiliar surroundings and help to overcome language problems. The distinction between these two basic market elements is important in terms of area competition. It is appropriate to note that inter-area competition has, in the most recent past, been sharpened by a new element: something approaching a free (buyers') market in airline bulk fares to selected destinations, determined largely by the existence of airline overcapacity. Current trends and forecasts suggest that this competition will become sharper in the coming years, particularly if and when Japan relaxes its current policy regarding overseas charter flights. It is appropriate to note here that, in the view of the travel industry, the concept of foreign travel has not previously included Okinawa; since reversion to Japan of that territory in May 1972, however, major efforts to develop tourist facilities have been put in motion by airline and hotel interests, but the industry does not envisage any meaningful competitive impact on travel to foreign destinations that are roughly equidistant, e.g., Guam. A. Travel Motivation Factors ^Ai^ t A v A^i^_J t i > -J t X a J^^J^lL_§®. i s > according to a broad concensus among all sources of expert information, the major reason for Japan's fast-growing overseas travel market. In this new mass market, the urge and desire to travel is, for the time being, at least as important as any specific des- tination preference, which tends to be dictated by the means available to the individual rather than by a strong desire to visit a given place or country. As all generalizations, that expressed above is subject to exceptions: where travel costs to different places are roughly similar, destination preferences do, of course, enter into the picture; in still other cases, choices are made between destinations irrespective of cost. In the latter case, the related economic choice may simply be expressed in a willingness to save for one year in order to visit Guam, or to save for two years in order to visit Hawaii. Such area choices, dealt with in a later chapter, tend to be subordinated to the primary motive, which is to see the world outside Japan's home islands. In the most basic and most frequently expounded terms, Japan represents the case of an island people, oriented toward the sea and with a strong curiosity to see what lies beyond the native coastline --a curiosity compounded by extensive press and television reporting on foreign lands and a growing awareness that, as citizens of an economic world power, the Japanese should know what the world is like. The country's shell of insularity has been broken; now its people in turn want to experience the outside world. 8 Cultural awareness is cited in second place among motivating factors. There is awareness, even if its thrust and depth varies at different intellectual levels, that Japan's society has historically been influenced by a wide range of foreign cultures -- Korean, Chinese, Portuguese, Spanish, and British, and most recently, America. The definition of these cultures and of their influences differ . The intellectually-oriented seek historical sites and atmospheres, while others, and particularly the young, may simply seek the places "where one should be"; "where the action is"; where new clothes, new songs, new expressions may be obtained. whichever the motive, it tends to be clearly defined and enunciated in terms of a purpose: travel industry and government classifications of travelers distinguish between "business" and "sightseeing" travel, in which the latter category comprises a wide range of specific activities or purposes that range quite far from the basic definition of visiting worthwhile sites. Being on "the right beach" with young Americans in Hawaii would, as a scheduled activity or tour theme, be classified as sightseeing. It is not the intention of this report to present the foregoing findings as an iron-clad assessment of the market's requirements or wants: at the least, however, the apparent need to define a trip purpose and theme represents the Japanese travel industry's own reading of its market, and there is little doubt that this reading is, for the time being, a highly successful marketing approach. It should be stressed that a significant number of travel wholesalers and retailers discussed the question of travel motivations spontaneously and in some depth, often with substantial philosophical insight, suggesting that they perceived their own function as one of vocation as much as an expression of more prosaic material considerations. Thus it was noted that, to the more literate public, Japanese history abounds with medieval and later tales of often dramatic voyages by priests and grandees, usually to China and Korea, but the drama lay in traveling abroad. In more modern times, it was the rich and the intelligentsia which traveled abroad prior to the virtual closing of Japan's frontiers in 1936. Relatively few took the grand tour of Europe, or studied abroad, and yet there were enough of such individuals to now constitute at least an identifiable element in the current travel market: those who wish to see their old haunts once again and to indulge in reminiscence. Related to this group of older people is a far larger segment of those who might have wanted to travel abroad between 1936 and 1956, but could not due to the succession of war situations in which Japan was involved. Travelers from this group are now strongly motivated to make up for what they had missed in their younger days. The next group in chronological order is virtually glossed over in all interviews, but an occasional hint given suggests that wartime visits or duty stations are a travel motivation which, for obvious reasons, is not readily expressed, though occasional mentions came up in the course of the study with reference to specific places, such as Saipan (Micronesia). The role that these and the more mundane motivations of the youth market play in the overall travel market's social structure and in the field of area competition will be discussed under the appropriate headings later in this report, but it may be noted here that Taiwan represents a special 10 attraction with a mixture of motivations: as Formosa it was under Japanese control from 1910 until 1945, and in the words of several travel producers, it was well administered so that Japanese visitors there feel at home and can be sure of a warm welcome. Beyond this, Taiwan offers Chinese food, which plays a very special role in Japanese travel motivation. The Japanese are extremely fond of Chinese food and to eat well is a strong factor in a travel decision, particularly among the middle aged. Also popular for the individuals of this age group, particularly the men, are Korea, Hong Kong, Macao, and Bangkok , Group travel to the historical sites and shrines of Japan is virtually part of the normal Japanese primary and secondary school education. This fact, coupled with heavy crowding at Japanese resorts, enhances the call of distant places to the young in particular. The growing popularity of skiing now practiced by some five million young men and women -- has led to the overcrowding of Japan's limited facilities and to the growing popularity of ski tours to Europe, to Alaska and, to a lesser extent, to Colorado resorts. While certain survey findings on travel motivation are summarized below, members of the travel industry believed that the overriding interest was in meeting p eople , in living with them if possible, and in see ing and experiencing the specific way o f life of other peop 1 es a nd cultures. In social terms, foreign travel is undoubtedly a status symbol which, in the event, has an interesting impact on the field of area competition, for a trip to Europe implies, at the least, visits to several countries; more commonly the returning traveler is asked how many countries he had visited. The traveler who has been to Europe will normally have visited at least 11 three to five countries, while visitors to Hawaii or even the U.S. mainland will have been to "only" one country. There can be little doubt that many of the motivating forces and factors described above will undergo change in the coming years and a growing segment of Japan's population will have made a first trip abroad and will seek new destinations and perhaps new purposes of travel. At the same time, there are strong indications that a perhaps more significant number of people will be able to take their first trip abroad, and to the extent to which many of the motivations described here are those of a novice market, their validity will hold true for some time to come. More so, there are signs that some form of incentive travel is likely to become a feature of Japanese industrial and commercial life. 12 Findings of available surveys One of the most informative surveys in terms of presenting data on travel motivations found in the course of the present preliminary study is that carried out annually by the Mainichi Newspapers . The 1971 survey shows the following totals under the "Motive for travel" heading: Necessary for my work 46.7% Wanted to go from before 27.8 Wanted to come into contact 19.1 with foreign life Have gained time to travel 10.6 Yearning for the unknown 10.3 Cost of travel has become cheaper 8.5 Wanted to get away from worldly cares 8.4 Invitation trip 6.5 Honeymoon trip 6.2 After reading advertisements 2.2 Upon advice of travel agency 2.2 Others 6.9 Source: "On Japanese Overseas Travelers" by permission of the Mainichi Newspapers, Tokyo, 1971. While the first category covers primarily business and other work or career -connected travel, close to 507 o of the respondents wanted to get to know life outside Japan, to explore what was to them the unknown, or to escape from daily cares. It might be stated that while the " escape " element is not strong so far, it is, according to the travel indiastry, an element of increasing motivation, particularly in the Tokyo area where pollution is a progressively more serious problem, particularly during the summer months. A survey among college students and young commercial and industrial employees carried out by the newspaper Kobe Shimbun suggests particular 13 interest in ski tours abroad (and specifically to Europe) among the younger generation, with 33.2% (of a total of 680) believing that such special-purpose travel will increase or increase substantially over the next five years. * The greater part of the remaining information obtained from that survey in terms of desired destinations and activities indicates a strong trend toward escape goals, such as "fishing on the seven seas" and similar romantic travel goals. * Travel survey among 680 young respondents, carried out by the Kobe Shimbun . October 1970. Courtesy of Japan Travel Bureau. 14 B. The Social Structure of the Market Japan's social structure and, even more significant, its social mores, are undergoing rapid .and drastic change -- largely without fanfare, established pattern or direction. The changes are evolutionary in character, but the tempo of this evolution is accelerating with continuing prosperity and industrial growth. The change is particularly noticeable among the younger generations: here, social ceremonial is becoming more relaxed; informality is gaining ground, and with these changes, new attitudes toward life and toward the outside world appear to undergo almost continuing modification. Much of this change is generated by industrial growth and a deepening labor shortage, particularly among young white and blue-collar employees, both male and female. This group is thus in great demand, and in return is making claims for higher cash salaries or wages -- claims that the older workers have so far not matched. Attitudes toward "the job" are also changing, with greater stress on full use of rights and privileges. The impact of these changes on the Japanese travel market is deep: with the change in social mores, the younger generations feel that foreign travel will be free of fears of the unknown, fears of being old-fashioned, or simply odd to foreigners. Young women, becoming rapidly more emancipated, are anxious to travel on their own, in groups or with friends. The same applies to married women, particularly those whose husbands travel abroad on business; in this group, growing numbers travel on their own, claiming their own right to seeing the world, to the cosmopolitan aura that had been the privilege of their husbands. 15 One of the most interesting phenomena of the current labor shortage is a growing practice to offer subsidized trips abroad as an employment inducement and, to a lesser extent, as an added fringe benefit of continued employment. While this practice will be dealt with under the heading of Incentive Travel, it is appropriate to note here its growing prevalence, for there are indications that it is becoming part of the market's social pattern. An authoritative occupational breakdown of Japanese travelers abroad during 1970 is provided by the Annual Report on the Tourist Situation , issued by the Office of the Prime Minister, May 24, 1972. Based on passport issue data collected by the Ministry of Justice, the following breakdown of all travelers (regardless of purpose of travel) indicates those occupational groups whose members would be likely to travel for non -business purposes. Of the total 644,684 passports issued in 1970, 599,500 were for single journeys, with the balance constituted by multiple-journey passports (45,184) and official passports (11,048). The percentage breakdown by occupations was as follows: Office employees 34.1% Business executives; managers 27.3 Housewives; children 7.9 Students 6.4 Manual workers 6.0 Salesmen 5.5 No occupation 5.3 Technicians 4.4 Teachers 2.1 Artists 0.5 Unknown . 5 A brief comparison with earlier reports in the same annual series shows a significant increase in the "market share" of office employees, up from 16 21.7% in 1967 , and a corresponding decrease in most other categories other than business executives and managers (up from 18.37c in 1967). In broad terms, then, there appears to have been a degree of polarization among the total traveling public, both toward the business -travel category and toward the white-collar salaried -employee groups. Subsequent reports in this series issued by the Office of the Prime Minister are unlikely to furnish commensurate data as multiple -journey passports came into common use in 1971, in a government effort to eliminate the formalities connected with foreign travel. In terms of income distribution , the comprehensive survey based on mail questionnaires by Japan Air Lines and published under the title The Overseas Travel Market of Japan, 1972 , published April 1, 1972, shows that 327c, of those covered by the survey who had traveled abroad at least once by 1971 had incomes of under $5,000, while 497 had incomes between $5,000 and $13,000, with the balance of 197 having incomes in excess of $13,000. By way of a clarifying note, it may be stated that a median industrial executive cash income of $10,000 is considered a normal salary for a person in a responsible position; bearing in mind the high fringe benefits prevalent in Japanese industry and commerce, someone in that salary bracket need deny himself few luxuries. At the present time, a median cash salary of ¥100,000 per month could be considered a "normal" white-collar salary that would, on average, be annualized on the basis of multiplication by 17 to cover the usual summer bonus (two months' salary) and Christmas bonus (three months' salary), but excluding the equally usually special profit bonus accorded by most major companies. The average annual total of ¥1.7 million, or roughly $5,500, is well within foreign travel range for a single man or woman, the more so that single young people tend to live with their parents. 17 It may also be noted that current labor shortages among the younger workers had led to a trend in wage increases of between 15 and 18% annually. Older employees -- perhaps because of the almost total job security that is part of the Japanese industrial and commercial pattern -- have not matched these demands and would probably be refused if they tried. Again, there is a trend toward a liberalization of most firms' vacation policies: 25 days of paid vacation per year is a rule -of -thumb average, with rights cumulative to two years or 50 days. More significant, however, is the fact that in the past, an ambitious white-collar worker, entitled to seven days' vacation annually, would at best take this entitlement in one- day installments tacked on to a weekend, in the belief that he was indis- pensable and that such parsimony showed proper respect for the job. The liberalized entitlement now more prevalent is still a point of discussion between employer and young employees: a seven-day vacation is about the maximum consecutive timeoff that employers feel they should tolerate, but the younger workers will press for, and obtain, ten-day periods. Thus, the growing disposable income and leisure time of the youth market make a prime target for the travel industry -- a target of whose potential the industry is well aware, as will be shown later in this report. Given discernible trends, even the latest published reports and surveys on travelers' age and sex appear to be outdated, for the statistical point of departure is almost inevitably the previously mentioned report of the Office of the Prime Minister which, though published in May 1972, is based on Ministry of Justice data for the year 1970. A collection of these data 18 published in The Overseas Travel Market of Japan, 1972 (Japan Air Lines) , shows the following trends from 1964 through 1970: Breakdown of Overseas Travelers by Sex Male Female Total 1964 99,400 30,100 129,500 1965 127,000 35,900 162,900 1966 169,500 44,900 214,400 1967 214,800 54,200 269,000 1968 274,300 68,800 343,100 1969 388,500 104,400 492,900 1970 514,800 148,700 663,500 Notable is the fact that the growth rate of female travelers began to overtake that for male travelers in 1969 (527 against 42%) and in 1970 (42% against 33%) -- indicating a trend that is borne out strongly by the travel industry in respect of the subsequent years through 1973, for whi ;h initial tour -reservation data are already available as indicators. Breakdown of Overseas Travelers by Age Under 19 20-24 25-29 30-49 50 & over 1964 12,900 11,600 16,000 61,500 27,500 1965 16,300 14,300 19,100 76,900 36,300 1966 15,800 17,500 25,100 105,700 50,300 1967 28,200 23,900 31,400 128,600 56,900 1968 20,000 36,000 45,100 170,500 71,500 1969 34,600 51,000 65,000 237,400 104,900 1970 34,600 84,900 93,600 320,000 130,400 Source: Japan Air Lines, The Overseas Travel Market of Japan, 1972 , courtesy Japan Air Lines. 19 In this breakdown, the 20-24 age group, with growth rates of 51%, 42%, and 66% respectively for the years 1968, 1969, and 1970, has overtaken all other age brackets in consistent growth -- and by all accounts the trend shown will be even more sharply defined once later statistics become available. The data shown above cover all travelers , regardless of purpose of trip, but a further refined breakdown of travelers stating tourism (sightseeing) as the trip's primary purpose for the years 1969 and 1970 only, shows the following composition in percentage terms: Age Group 1969 1970 Under 19 years 3% 3% 20 - 29 years 28% 34% 30 - 39 years 24% 23% 40 - 49 years 19% 18% 50 years & over 26% 22% Source: Background data courtesy Mr. Jim T. Moritani, Publisher, Travel Journal , Tokyo . Social patterns, however, are by no means uniform for all destinations. Relatively distinct age and sex patterns are beginning to evolve with respect to certain points or areas of destination; these are discussed in the chapter entitled "Competitive Aspects of the Market." Finally, there has developed a new social segment in Japan's travel market: the well-to-do married women whose husbands are frequent or sometimes constant business travelers. Until recently, they stayed at home, far removed 20 from their husbands' world of action, but in the past two or three years more and more of them have gone on overseas trips, usually with women friends, mainly joining tour groups, and very much on a quid pro quo basis -- if the husband can travel and broaden his horizon, so can they. Certain producers are very much aware of this segment's potential, but so far have made no determined effort to tap it. 21 C. The Size of the Market While available statistical data on the size of Japan's foreign travel market suffer some shortcomings, they do illustrate the market's dramatic growth over the past three years, as follows: Number of Overseas Travelers Calendar Year Total* Busines s* Pleasure* 1967 267,538 159,300 108,200 1968 343,542 195,900 147,600 1969 492,880 246,600 246,300 1970 663,467 315,300 348,200 1971 961,135 * Excluding travelers to Okinawa. Sources: Totals from Annual Report on the Tourist Situation , Office of the Prime Minister, May 24, 1972. Business/Pleasure breakdowns from T he Overseas Travel Market of Japan, 1972 , Japan Air Lines, courtesy Japan Air Lines. The figures shown above rely heavily on passport-issue data, and these tend to raise two problems of a statistical -definition character: (1) A growing number of multiple -journey passports has been issued since 1971; and (2) with the virtual abolition of limits on foreign travel funds, more and more businessmen find it more convenient to apply for tourist rather than 1 business passports. 1 It is understood that holders of business passports are still supposed to claim the travel fund allowance of $3,000 per journey through the Bank of Japan, while tourists can obtain the same allowance with virtually no formalities from their own bank. The allowance excludes transportation costs prepaid in Japan. 22 Available passport-issue data for 1971 suggest a business to tourist travel ratio of approximately 20% to 80%. The greater difficulty, however, lies in reconciling the above data with actual airport embarkation figures which, for 1971, show that over 1.6 million Japanese travelers embarked for foreign destinations. Assuming that the 300,000 (mainly tourist) travelers who applied for passports to Okinawa in 1971 made only a single journey, the overseas embarkation figure for Japanese citizens would still be approximately 1.3 million,, There is thus some validity for the belief that Japan's foreign travel market is, in fact, perhaps one-third as large again as official passport issue data suggest. Even disregarding this probability of a larger multiple- journey market than is commonly assumed, the average annual growth rate of total overseas travel between 1967 and 1970 was 33%; that for pleasure travel was 44% annually; with at least equivalent increases forecast for 1972 and 1973. In the longer run, available forecasts* suggest that Japan's leisure-time expenditures will rise from $10 billion in 1965 to $29 billion in 1975, an increase of 190% during that period. While expenditures for overseas traveling amounted to 0.8% of the total leisure expenditures in 1965, in 1975 they are expected to increase to 1.9% of the total leisure expenditures. * Office for Research on R & D, Bureau of Minister's Secretariat, Economic Planning Agency, Trends of Leisure-Time Activities and Prospects for Future 23 D. The Expenditure Pattern of the Market Official balance of payments data indicate a more rapid rise in total foreign travel expenditures than in the number of persons traveling; in other words, over the past five years at least, Japanese have traveled farther and/or spent more per person than they did in 1966. On the otiier hand, actual increases in (non-transportation) expenditures abroad have lagged behind the increase in total travel expenditures, suggesting that a substantial proportion of the increase in overall travel expenditures has been in transportation costs. This would suggest a net increase in the average distance traveled, per person. While this is a plausible finding, backed by the concensus of industry opinion interviewed during the current study, there remains the grey area of prepaid tour (ground) costs; here it is at least probable that the actual transfers of funds between organizing travel agencies concerned are classed as commercial transactions, which would not show up in the data cited here. Since 1966 Japan's balance on travel account has evolved as follows: Calendar Year Credits Debits Net (U.S. $ million) 1966 77 117 - 40 1970 232 315 - 83 1971 172 510 - 338 Source: Bank of Japan, Economic Statistical Annual , 1972 (Tokyo, March 1972), and Economic Statistical Monthly, May 1972 . 24 By comparison, the item "Expenditure of residents abroad" rose from ¥53.8 billion in 1966 to ¥106.1 billion in 1970, the latest year for which full information was available at the time of writing. This secondary item thus barely doubled over a time span during which total travel expenditures almost tripled, suggesting the greater expenditures on transportation mentioned above. While total spending patterns could not be established in the course of this preliminary study, some insight into the topic was made available by the Moritani publication, Travel Journal , based on that weekly publication's survey among 800 overseas travelers. The data made available fall into two groups: overall trip budgets, and budget allocations of spending money over and above the inclusive tour costs involved. Total Trip Budgets Amount Budgeted Per Person ¥100,000 and under ($325) ¥100,000 to 150,000 ($325-$486) ¥150,000 to 200,000 ($487-$649) ¥200,000 to 250,000 ($650-$811) ¥250,000 to 300,000 ($812-$974) ¥300,000 to 350,000 ($975-$l,136) ¥350,000 to 400,000 ($1, 137-$1,299) ¥400,000 and over ($1,300 and over Allocation of Spending Money Amount Budgeted Per Person ¥50,000 or less ($162) ¥100,000 ($325) ¥150,000 ($487) ¥200,000 ($650) Over ¥200,000 (Over $650) Percentage of Respondents (out of 800) 3.5 10.6 13.6 17.4 19.8 11.0 24.1 Percentage of Respondents (out of 800) 16.9 40.0 17.3 17.2 7.1 Source: Courtesy Mr. Jim T. Moritani, Publisher, Travel Journal , Tokyo, issue of July 10, 1972. 25 The findings shown above suggest a fairly heavy response for travelers to points beyond the Hawaii cost equivalent, with a spending -money alloca- tion somewhere in the $300 to $400 bracket, on average. This spending budget, in turn, is in part predetermined by the traditionally obligatory bringing of gifts from a trip. Some sources estimated an average per capita expenditure of about $200 for such gifts alone. As an important sidelight on the survey findings shown above, the same source indicates that 87.3% of the respondents concerned paid for their trip out of savings; 11.6% had received all or a major part of the trip costs as a gift; while 5.5% had financed all or part of the trip through a loan. On a broader basis, the major tour producers with their own credit facilities put the proportion of trips financed through these facilities at about 2.5% of total travel volume. In tne view of some knowledgeable members of the travel industry, there is a growing impetus to save for a trip to a chosen destination --in other words, to defer, if need be, the time of travel in order to accumulate the necessary savings even if an earlier trip to a cheaper destination might be realized as an alternative. To some extent, this point, if eventually found to be applicable as a generalization, would seem to somewhat narrow down the initial statement made in this report: that the motivation to travel is stronger than the motivation to visit specific destinations. While the initial findings retain validity, industry concensus points to the lure of "distant places," and while the definition is obviously relative, there appears to be a strong urge among Japanese travelers to voyage as far as possible on the means available and to some extent, at least, to defer pleasure in order to attain greater distance. 26 E. Seasonal Travel Patterns Japan's basic public holiday and vacation schedule is slowly beginning to evolve certain patterns that are common to most highly industrialized countries -- a trend toward additional short stretches of "off-season" consecutive days outside the traditional (summer) vacation period. Such short-term vacation periods are developing centered on New Year's Day (January 1) and over "Golden Week," a stretch of time marked by the Emperor's Birthday (April 29) and Constitution Day (May 3) . A long weekend is also beginning to evolve on or about Vernal Equinox Day (March 20) . A winter vacation stretching at either end of New Year's Day is becoming increasingly popular as more and more people seek to escape from domestic festivity and family visits -- a trend that may receive some additional impetus this year when particular low off-season air fares to Europe will come into effect. (See Chapter III). The travel industry believes that the five-day week is on the point of becoming institutionalized in Japan -- certainly in the non-industrial urban business sector -- and that such a development will add to the number of short-term vacation periods during which travel abroad will become possible. Similarly, they expect a lengthening of the currently popular mini -tours to Guam and to other nearby destinations such as Taiwan and Hong Kong. Much the same is likely to apply to spring skiing in Alaska -- in brief, there is likely to be a degree of flattening of current seasonal peaks in favor of a slightly more even distribution of travel over the year. 27 Something of this trend can be detected even in the extremely short time span covering the years 1970 and 1971, for which monthly overseas departure patterns (Japanese nationals only) are shown in the table below. Available data, unfortunately, do not permit isolation of travelers to Okinawa, included in the figures shown. Seasonal Patterns of Overseas Departures by Japanese Travelers, 1970-71 Month January February March April May June July August September October November December (Including travel to Okinawa) 1970 1971 (thousands) 62,8 86.9 7 2 .. 6 103.2 71,9 108„8 73,3 98.0 63,1 95.4 62,3 84.4 86,4 114.5 106.8 136.3 70,5 89.8 91.5 124.2 89,4 116.5 81,0 110.1 Source: Office of the Prime Minister, Annual Report on the Tou rist Situation , Tokyo, May 24, 1972. In addition to the basic holiday schedule noted earlier, it should be mentioned that April and May, and October and November are the traditional wedding months, with a corresponding increase in honeymoon traffic to Guam and also to Hawaii. 28 II. PRINCIPAL SEGMENTS OF THE JAPANESE TRAVEL MARKET As already noted earlier, almost exactly one-half of Japan's 663,467 statistically recorded overseas travelers in 1970 traveled on business. As noted, the number is probably rather higher in view of the trend toward the issue of multiple -journey passports, particularly for businessmen. In 1971 other considerations related to currency formalities tended to encourage business travelers to apply for tourist passports and no clear-cut attribution of the 961,135 passports issued that year is possible on the basis of available data. The official 20 to 80 ratio of business to tourist travel would imply under 200,000 business travelers -- a figure that becomes acceptable when it is considered that some 1.3 million overseas journeys by Japanese nationals were recorded in 1971 to destinations other than Okinawa -- in other words, it may be assumed that the roughly 200,000 recipients of business passports in 1971 made a total of 530,000 journeys abroad, while the 770,000 recipients of tourist passports made single journeys only. The great majority of the business travelers move on an individual basis; the remaining 770,000 travelers (in 1971 ) --a figure based on the 20 to 80 ratio explained above -- were tourists . There is a fairly high degree of consensus in the industry assigning the mass tourist element of the total market to the following segments: 1. Package tours 55% 2. Affinity groups 45% 29 This rule -of -thumb ratio may be somewhat high for nearby destinations, notably Guam, to which there is at least some individual (honeymoon) traffic, but it is increasingly applicable to the more distant destinations, e.g., Hawaii and beyond. Both market segments represent the greatest growth potential, and it is proposed to discuss them, and various sub -groupings in some detail. An initial word of caution is important at this point on two salient factors which are discussed in subsequent chapters of this study. The burden of this word of caution is that both the current air fare structure and the structure of the travel producing industry are such as to favor the develop- ment of mass travel, whether in the form of package tours or of affinity groups of one type or another. Thus, the preponderance of these two segments in the tourist market is at least to some extent an effect of external technical circumstances rather than an accurate reflection of market demand. As will be shown later, the producing industry is geared to the generation of mass travel -- and does so effectively -- and airline fare structures strongly favor this form of travel. 30 A. Package Tours Available surveys, and notably that carried out annually by the Mainichi Newspapers under the title The Japanese Overseas Trave lers, confirm informa- tion obtained from the travel industry that the proportion of travelers using package tours varies substantially by destinations, wich Hawaii and Guam well in the lead (at 79,7 and 63.8% respectively), followed, in order of package tour utilization, by Hong Kong, Europe, Taiwan, and the U.S., mainland. In terms of absolute numbers of travelers s roughly 150,000 of the estimated 185,000 Japanese tourists who visited Hawaii and Guam in 1971 used package tours -- and about one-half of these were accounted for by the four largest tout wholesalers' production. The producing industry believes -- and the belief is borne out by extant surveys -- that package tours provide the great bulk of the travelers, and especially those making their first trip abroad, with a comprehensive travel framework covering an acceptable cost; free of subsequent surprises in terms of hidden expenses; convenient departure dates geared to employees' vacation schedules; trip lengths adapted to these schedules; and full descriptive advance information on the schedule and events of the cour. Beyond these basic considerations, virtually ail tour operators stress their own creative effort in evolving tour theuies and itineraries of broad appeal: of tailoring their packages co a wide range of demand segments, with special stress on the youth market and other "specialized segments,'" including the substantial honeymoon segment (with Hawaii and Guam as prime destinations), 31 Industry opinion on whether package tours as an institution actually meet the market's needs or requirements tends to be divided. Producers who cater predominantly to an older clientele and/or one of modest socio- economic status feel that package tours are the definitive answer to their clients' needs, providing guidance and security in strange settings, and ensuring in advance and as far as possible that there will be a minimum of "cultural shock" in the form of a collision with alien life styles. Producers with predominantly young clientele and/or one of a higher socio-economic status feel that package tours primarily offer a pragmatic answer to the cost problem: that the low bulk fares involved in most package tours are the principal attraction that outweighs possible disadvantages. The negative element involved here hinges, once more, on the strong desire for people contact , which the industry sees as a prime motivating force for travel, particularly among the younger generations. In its creative efforts, then, the industry tries to maintain a balance between the pragmatic element of cost and the creative element of tour theme with social contents. 32 B. Affinity Groups The affinity group segment of the market, estimated at somewhat over 300,000 travelers in 1971, is difficult to define in a positive sense, for it covers great breadth of ground. Affinity groups travel at bulk fares where available and if they meet the essential 45-person requirement for the application of bulk fares. If these criteria are not met, such groups travel at the somewhat higher Group Inclusive Tour (GIT) fares. One of the more important cohesive entities in the affinity group market segment is the Association of Agricultural Cooperatives, or NOHKYO , which operates Nohkyo Tours, a commercial organization geared primarily to the needs of its members, though non -members may freely join Nohkyo group tours. With a total annual production in excess of 10,000 tour passengers, the cooperative organization caters to roughly 20% of the farmers' foreign travel market; some 30% of total production relates to tours of special agricultural interest, either in terms of farming methods or of marketing arrangements. In the latter context, itineraries of special interest comprise the produce terminal at San Francisco, and Farmers' Markets at Seattle and Los Angeles, as well as supermarkets in various parts of the United States. As rice farming is progressively replaced by dairying in Japan, there is growing demand for tours to the Netherlands and Scandinavia. At the same time, Japan's cooperative movement is highly integrated, along the lines of similar movements in the Middle West of the United States and in Scandinavia: thus Nohkyo tours have covered such special interest 33 topics as cooperative insurance (e.g., to Columbus, Ohio), cooperative banking, credit and social service organizations. Similarly, young farmers' tours visit 4-H clubs in the U.S.A. and a range of European institutions of special interest. 1. Special Study Tours To some extent, the Nohkyo activities described above constitute special study tours, but with the distinction of a separate occupationally-oriented organizational framework which acts as a wholesaler -retailer geared to all travel needs of one major population group. The bulk of study tour organizers are, however, producers -- both wholesalers and retailers -- who cover the market as a whole, without sub- stantive specialization toward one industry (or population) sector. They tend to arrange tours on request, although some are active in a dynamic sales effort, proposing such tours to trade or industry organizations and then carrying out the necessary organizational work. Topics range far and wide, as do destinations: retail distribution and construction (especially of high-rise buildings) were substantive areas that came up most frequently in the course of the trade interviews. Such tours may include visits to conventions, particularly in the United States, but interest appears to center on actual facilities where new methods can be observed in action. It is precisely the latter point that is beginning to generate some resistance in the host countries and particularly in the United States. Most of the travel organizers alluded to growing unwillingness among U.S. manufacturers to receive such tour groups for plant visits. 34 Analysis of the overall interview information obtained in the course of the present study suggests a split of reactions obtained from potential hosts by tour organizers: 1. Potential hosts appear to react somewhat more favorably when approached by trade bodies or individual corporations in Japan on a specialist-to-specialist basis. 2. A more negative response appears to result from an approach by tour organizers as such, unless the organizers themselves have a substantive connection with the industry or company concerned. These exceptions include the farmers' cooperative, Nohkyo, as well as the travel producers which are outright subsidiaries of certain major Japanese industrial and banking corporations, e.g., Mitsui and Mitsubishi. So far, it appears that the first point is of largely theoretical significance, for the burden of generating study tours rests largely on the travel industry, as does the entire organizational burden. Nevertheless, it is worth drawing attention to the vacuum that has arisen in this field, in large measure in purely organizational terms. These restrictions do not apply, of course, the non-competitive visits such as study tours to urban renewal projects (e.g., California and Philadelphia); to trade exhibits (e.g., Transpo 72 at Washington, D.C.); and to educational tours comprising English courses at American colleges and universities. On average, study tour groups have between 10 and 40 participants, and unless the organizers can combine several tour groups on the outbound and inbound transpacific flights to the West Coast or to Europe, the groups do not benefit from the low bulk fares applicable -- as a vehicle for travel 35 abroad as such, then, these tours are less attractive than the package tours. It might be stressed that most organizers seek to build seminar or discussion periods, preferably in Hawaii, into their study tours in order to provide time for rest and relaxation. The total volume of special study group travel is still comparatively modest, but it is symtomatic of the Japanese market's growth potential. At the time of the present study in the country, the Minister of Education announced a plan providing for study tours abroad for a total of 100,000 public school teachers over an, as yet, undetermined time span. (Japan Times, July 22, 1972). 2. Incentive travel The topic of incentive travel contains a number of disparate elements which tend to dictate different marketing approaches of which the travel - producing industry appears to be aware. a. Work force Incentive As briefly noted earlier, Japan's industry and commerce are under the increasing pressure of manpower shortages, particularly among the younger employees -- among the generation that will have to carry the productive and managerial burdens in the years to come. Equally salient is the fact that Japan's industry and commerce have tended toward a system in which cash-salary or wage remunerations are only part of a total that is often heavily supplemented by substantial fringe benefits or job privileges which 36 tend to create a strong and lasting bond between employer and employee. Thus the rewards for diligence flow directly and in tangible form from the company to the worker, compensating the latter" s lack of freedom of action with virtually absolute job security. Recent industrial growth, however, has led to the creation of many new. small firms -- a trend that has been paralleled by greater expectations at the lower end of the work force, both white and blue collar. In a further parallel development, many of the younger workers are willing to trade job security for higher cash wages and for a new life style with a broader horizon. In this context, foreign travel is becoming an increasingly desirable goal, in particular among the young women whose mass entry into the economic life of industrial Japan is a comparative innovation. Given this background, the travel producers have become increasingly alert to the potential of organized overseas travel as an employment induce- ment and as an incentive to workers to stay with one employer. Similarly, the travel industry's approach finds an increasingly sympathetic response among employers, the more so that this type of incentive remains within the accepted pattern of preferring to award greater fringe benefits than higher cash wages. As will be shown below, certain incentive travel plans evolved by the travel producers may contain a compromise element in which actual cost is split between employer and employee -- an added attraction to the former. In a final note of explanation it must be noted that the average marriage age in urban Japan tends to be between 26 and 29 years for men, 37 and between 23 and 27 years for women. There is thus an extended period during which young people are without major family responsibility and, living with their parents, with relatively high disposable incomes. Against this background, the travel industry, or its most dynamic elements, has been able to generate a form of incentive plans under which, for instance, a company will offer new employees a trip abroad at the end of one year of continuous employment -- possibly on the implied understanding that the worker will stay with the company at the end of that year. In practice, to cite an actual example, the employer will hold ¥10,000 per month (roughly $39) from the worker's wages, as well as between ¥40,000 to ¥60,000 of the bi-annual bonus (another deep-rooted institution, which on the average, annualizes the monthly wage base to a 17-month year). Thus an amount of ¥180,000 ($585) in savings can be generated by a worker -- in this example, a clothing -plant operative -- in the course of one year. The company will apply this amount to the cost of a European group tour costing, say ¥273,000 ($886); the balance of ¥93,000 or $310 is the company's subsidy or incentive payment . * There was some indication in the course of the relevant discussions that the incentive element involved in this type of program was not the trip as such, but the fact that the company provided the means for traveling to a far-distant (and costly) destination; for the workers concerned could, without hardship, save enough to finance a trip to Hawaii entirely on their * The group tours in question comprise 45 workers at a time; the two- week tours visit London, Paris, Geneva or Zurich, and Rome. Stress is laid on the fact that four countries are visited. 38 own. Alternative plans, however, provide for savings plans to, say ¥100,000 ($325) with a company subsidy of about ¥35,000 ($115) to cover the cost of a trip to Hawaii. Prime targets for this type of incentive market include, at the present, medium-sized plans and commercial companies, department stores, and other service industries.* The hotel industry, in particular, provides room and board for its staff, so that cash salaries can be saved virtually in their totality. A variant on this type of incentive travel used by some commercial companies and banks comprises an element of goodwill liaison with foreign branches or agencies: here the company subsidy may be larger, and is given on the understanding that the group will exchange views with its foreign counterparts, observe foreign methods -- in brief, add a utilitarian element to the company's benefits. b. Commercial Incentive Incentive travel in the form of a recognition of suppliers' or retailers' services to a company is also growing in volume, though possibly not as fast as the work force incentive variant. It was understood that the commercial incentive form is hampered somewhat by a legal limit of ¥100,000 ($333) on the cash value of any incentive offered. There is, however, no such limit on performance bonuses, so that firms which offer group tours as an incentive do so in the form of a cash bonus to the supplier or dealer * It may be noted that an experienced department store sales clerk will earn 1.5 million yen annually, including bonuses ($4,780). 39 concerned. fit is understood that the cash bonus will be applied to the cost of the trip offered." 1 Such trips tend to be classed officially as study tours (given the fact that Japan's largest industrial companies, with activities covering the full spectrum of industrial production, also own travel agencies'), with a significant proportion produced through in-house facilities and not readily accessible to the producing industry at large. « Commercial incentive tours covering dealers and/or suppliers are typically composed of some 100 persons, with destinations varying by tour theme and product concerned, and ranging from low-cost tours to Hawaii or Hong Kong, to tours to the U.S. mainland, possibly as far as the East Coast or to Europe. Parallel tours for staff tend to have Hawaii or Hong Kong as prime destinations in the case of in-house tour production, for timing is then closely geared to company staff requirements (see footnote *) . An interesting form of incentive travel that, perhaps may be grouped in the commercial category, is that arranged, at cost, by certain labor unions in selected industries where annual model changes require a complete plant shutdown (i.e., the automobile industry): here some trend has developed toward very low-cost four or five-day tours to Guam, geared to the financial capability of older workers with family responsibilities. "The type of integration discussed here is, interestingly, a deterrent to staff incentive travel: corporate headquarters tend to discourage their travel agencies' creative efforts in this direction, fearing dislocation of (modest) vacation schedules. Such attitudes are, however, expected to change with the growing shortage of labor. 40 3. Visiting Friends and Relatives (VFR - ) During the entire study, only an isolated mention was made of VFR travel (to Hawaii^ in the overall categorization of tourist travel, and in that one instance it was regarded as very much of a peripheral issue. An interesting variant is, however, developing in the sector of incentive and staff vacation tours developed by the travel subsidiaries of the major industrial and commercial corporations. Such travel has particularly appealed to young people, as they can discover new destinations, make local contacts, and stretch their funds by visiting company employees stationed abroad. 4. The Transit Travel Market Given the producing industry's stress on the tourist segment of the market, and the concentration of its efforts on that market segment, little meaningful insight could be obtained into the character or size of the transit traffic thorugh the United States beyond the fact that business travelers between Japan and the United States increasingly liked to stop over in Hawaii for a day or two, and that stopovers met with growing acceptance by their principals. Beyond that, transit traffic, with its sub -segment of round-the-world traffic, was held to be either minimal or insignificant. Varig, the Brazilian airline linking Tokyo with Lima (Peru) and Rio de Janeiro (Brazil) via Los Angeles was unable to estimate the impact of transit stopovers at Los Angeles, but the airline's share of total transpacific air traffic is within the 3% segment not held by the three coastal national carriers and is, in turn, shared with the Taiwan and Korean carriers. The overall indications were that the transit element of Japan-U.S. traffic is very small indeed. 41 III. COMPETITIVE ASPECTS OF THE MARKET The present chapter deals primarily with the topic of area competition so as to place the ensuing discussion of the United States as a destination in proper perspective; peripherally, the chapter also covers competition the extent to which the desire for consumer goods might offer competition to the travel market. A. Area Competition 1. Market Overview The latest available concrete information on the destination pattern of all Japanese overseas travel over the past three years shows the following distribution: Number of Travelers Destination 1969 1970 1971 United States 136,528 207,455 311,066 Thereof: Hawaii (48,803) (93,665) (200,000) * Guam (21,230) (35,774) ( 67,500) ** Taiwan 143,624 177,446 255,699 Hong Kong 143,746 168,473 237,950 Italy 94,600 150,300 170,500 United Kingdom 59,100 82,461 100,465 Thailand 42,872 46,952 - - South Korea 32,181 51,711 96,531 Spain 25,007 32,700 60,000 Singapore 25,546 32,739 45,057 Philippines 15,202 15,838 23,589 Canada 18,525 22,011 - - Australia 9,024 11,217 - - * Estimate by Hawaii Visitors Bureau. ** Estimate by Guam Economic Center. Source: Office of the Prime Minister, Annual Report on the Tourist Situation , Tokyo, May 24, 1972. 42 The figures shown above are supplemented here by the following additional data for selected other tourist destinations (1970 only): Germany 14 1 , 3 2 7 Switzerland 100,455 USSR 56,800 France 49,640 Denmark 43,368 As the table on the preceding page illustrates, travel to the United States holds not only a numerical lead, but also has shown greater rate s of increase over the past three years than any other single national destination , with Hawaii as the prime destination within the country. The data for Europe are difficult to evaluate, for Europe is traditionally a multi -destination market, which makes for heavy duplication of travel figures among the leading tourist countries there. Nevertheless, a 1971 volume of well over 250,000 Japanese visitors to Europe is probably a reasonably conservative estimate. While Japan's geographical situation predetermines, to some extent, the choice of tourists' destination -- certainly in terms of travel costs -- Japan's tourist geography has been substantially modified by a change in air fares introduced in the spring of 1972 with additional low winter fares (to Europe) expected to occur later this year. In the area of bulk fares, these reductions have been over the order of 50% or more (up to 63% in the case of a new Affinity Group fare to Europe) . The resultant new fare-based tourist geography of Japan is illustrated in schematic form on the following pages. The chart shown is a representation of comparative air route mileages and the applicable lowest bulk or IT fares, based on Tokyo. 43 SCHEMATIC REPRESENTATION OF COMPARATIVE ROUTE MILEAGES AND MINIMUM AIR FARES TO MAJOR TOURIST DESTINATIONS Base : Tokyo Note: The minimum air fares shown apply to GIT base or GIT Bulk base where available, 44 o o I o o o o o u-i c < I o :r: u ,— I o Pa p., 00 CD CO P r-\ O tH % oo S3 o C3 125 O a CO co O 00 W Ph <; Eh O o o CO O W CO o o -■: o CM I* C o Cfl CO CU CO 00 •H CO M 0) e ^ I cfl •H G H •H H S O O o o o o CN '1 o o CO o o oo CT> O tn a o o 1 o o o o o o CO vD u (25 o o o K o o o o o o o m CJ o o !* w Pj «3 H o o m I* I -i 1 8 o o o 1 c 45 Two important considerations flow from the fare structure shown on the preceding page: (1) Fares to Europe have become relatively more favorable than those to U.S. mainland destinations, given the relative distances involved; and (2) the fare handicap of U.S. mainland destinations beyond the West Coast has been further increased in the absence of any truly competitive promotional bulk or group fares beyond West Coast gateways -- a situation discussed in the specific context of the United States travel market below. At the time of the current study, the Japanese travel industry had already begun to see a heavy increase in winter tour bookings to Europe, when off-season fares are expected to reach a new low point, and when the seasonally overcapacity on the routes to Europe, and particularly on the Polar Route (via Alaska) is likely to be at its highest level. The schematic map on the following page illustrates mid-summer 1972 flight frequencies (with indications of capacities) on transpacific routes, while the following table shows flight frequencies and indicated capacities on the major routes to Europe. Polar Route Trans -Siberia Route Mideast Route 5 6 4 2 1 2 6 1 2 2 1 2 1 2 4 1 Legend: (1) Boeing 707; McDonnell-Douglas DC 8 or DC 8/62 or 63; or VC-10 aircraft (2) Boeing 747 aircraft Airline Polar Route Japan Air Lines (1) 6 (2) 3 Air France (1) - (2) 2 BO AC (1) 3 Lufthansa (1) 4 (2) - Alitalia (1) - KLM (1) 1 SAS (1) 2 Swissair (1) - Sabena (1) 1 Aerof lot (1) 46 THROUGH FLIGHT FREQUENCIES JAPAN - UNITED STATES AND POSSESSIONS Also shown are services to Canada and Mexico with onward connections to U.S. mainland points Note: Japan Air Lines flights between Tokyo and Europe via the Polar Route have traffic rights between Tokyo and Anchorage . 48 The flight frequencies shown in the preceding table and chart illustrate Japan's growing importance as a world economic power and Tokyo's position as an international business hub . They also illustrate the capacities that must be taken up by tourist traffic to ensure profitable operation. The net result of existing, and seemingly growing, overcapacity has in effect been the creation of a buyers' market in terms of bulk or group air fares from Japan to various overseas destinations, probably including Hawaii and the U.S. mainland: in brief, there was recurring mention of additional fare discounts available to bulk buyers (e.g., purchasers of 10,000 seats or more at a time). In addition, it was understood that the Soviet airline, Aeroflot, which is not a member of the International Air Transport Association (IATA) , was free to offer additional discounts on its flights to Western Europe. At the moment, further reduction in air fares has not generally affected overall tour costs, but there are early indications that a discount tour market may develop in the short term, with one small wholesaler -retailer identified as a discounter. Cost factors are not, however, the sole determinant of destination c hoice , and the following tables are offered as available indicators of country images among Japanese travelers, based on The Mainichi Newspapers survey. 49 a. Countries Which are Easy to Travel To Percentage of respondents answering in the affirmative Taiwan United States Hawaii Switzerland Germany Australia Thailand Hong Kong Canada Italy Netherlands Sweden Korea Male 44.8 28.6 28.4 26.5 23.4 19.3 18.6 16.5 14.6 14.3 13.7 11.8 11.8 Female 17.0 24.0 35.7 29.8 19.9 17.0 12.3 9.4 17.5 22.8 19.9 7.0 4.1 Source: On Japanese Overseas Air Travelers , Tokyo, August 1971, courtesy of The Mainichi Newspapers. The findings illustrate not technical ease of travel but an overall appeal in terms of feeling comfortable with the thought of a visit. b. Places One Would Like to Visit for Sightseeing (Tourism) Overall choices by those who would like to make a sightseeing trip Europe 51.6 Asia 8.7 North America 8.2 Mid-East; Africa 8.0 Oceania; S. Pacific 6.4 Hawaii 5.3 Hong Kong 1.2 Taiwan 1.1 Guam 0.5 Source: Ibid. 29 & under 30-39 40-49 50 & over N.A 30.6 28.3 25.5 13.9 0.6 27.8 26.4 25.0 20.8 - 44.1 17.6 25.0 11.8 1.5 28.8 30.3 18.2 22.7 - 32.1 35.8 18.9 13.2 - 20.5 34.1 36.4 6.0 - 10.0 20.0 40.0 30.0 - 35.5 17.8 17.8 8.9 - 50.0 25.0 - 25.0 - 50 The figures shown above tend to be responses to an open question which allows fairly free rein to the imagination -- possibly a far cry from the eventual real destination choice: perhaps this is the reason why these figures tend to be contradicted by the evidence of the major tour producers, both in terms of overall destination preferences, and perhaps more important, the favored destinations of the youth market. The present preliminary study, concentrating on the largest wholesalers and retailers in the Japanese market elicited the following rankings of the most popular tour destinations in terms of seven of the largest producers' actual sales covering the 1971 and 1972 seasons (with percentages of total tour production where available) : Producer Code: _A B C D E F G* Hawaii 112 (35%) Hong Kong/Taipei 2 2- (22%) Guam 2 2 1 (22%) Europe 4 5 (11%) U.S. West Coast 5 4 3 (5.5%) Producer "G," marked with an asterisk on the above table tends to cater primarily to older age groups and has an appreciable production of tours to Korea (c. 16% of production), ranking in second place. 2 (30%) 1 (52%) 4 3 (9%) 3 (22%) 3 (13%) 1 1 (78%) 1 (32%) 2 (30%) 3 - 4 (11%) 4 (10%) 2 - 5 ( 3%) 6 (3.6%) 5 4 (5.5%) 51 Distribution of production by main destination is, of course, also a factor of individual producers 1 social and age make-up of clientele. In broad terms, a young clientele tends toward greater production to Hawaii and Guam, while an older clientele favors South -East Asian destinations. Europe, popular with the young seems, in terms of production, to be a function of a given producer's ability to gain a strong foothold in the worker incentive travel segment. Producers agree that what might be called social status values play a part in the destination fashion of the day. In the most prevalent scale of such values gained during the industry interviews, it appeared that Guam might be regarded as "the poor man's Hawaii;" while in rarer instances Hawaii was "the poor man's U.S. mainland;" particularly in the context of "knowing the United States," though Hawaii stands very much on its own merits in terms of fashion and prestige among the young, however, Europe represents Hawaii's strongest competitor in the youth market's scale of values In the specialized segments of ski tours, Europe has so far offered strong competition to Colorado resorts, particularly Aspen -- despite a basic European price disadvantage of some $100 (¥230,000 to St, Moritz, Zermatt, Courchevel and similar resorts, against ¥200,000 to Aspen, both inclusive tour minima). Colorado's disadvantage stems largely from a repu- tation for extremely high costs for extras and, to a lesser extent, from an assumed need for the latest in gear and equipment. In this segment, however, all sources agree that Alaska offers a substantial growth market, with obvious 52 stress on the young. With Japanese resorts hopelessly crowded during the season, the impetus to ski abroad is growing rapidly among Japan's five million skiers (80% of them in the youth market bracket) . Producers report heavy bookings for the early spring season of 1973. In volume, however, they are likely to lag behind European bookings, encouraged by low off- season fares. B. Material Competition Since tourist travel is normally a discretionary expenditure, it is, at least in theory, in direct competition with alternative, equally dis- cretionary, expenditures. Classical competitors of travel expenditures are such products as appliances and automobiles. None of the expert sources consulted in the course of this study, however, assigned any significant competitive role to consumer goods in relation to travel, citing three main reasons for the competitive primacy of travel as a consumption goal. 1. The near-saturation level of ownership of the principal appliances such as television sets, refrigerators, and washing machines. 2. The important role of the youth market, in which household equipment plays no part at all, while the parental home provides television. 3. The fact that automobiles -- potentially strong competition for the travel market -- are so expensive that they would constitute a long range savings goal that is not sufficiently attractive to win out over a trip abroad, which can be attained with one or two years' savings. Households 85.0% Households 82.3% 81.7% 42.3 31.1 45.2 93.6 93.4 93.7 91.2 87.7 92.2 84.4 85.6 84.2 26.8 30.0 26.0 24.7 48.7 18.4 53 This view is borne out by available data on ownership penetration of selected "comfort" goods shown below. Diffusion Rate of Consumer Durables (As of February 1971) All Households Agricultural Non-agricultural Television, b&w Television, color Washing machines Refrigerators Sewing machines Automobiles Motorcycles, scooters Source: Government statistics, courtesy of Japan Economic Yearbook , 1971 , published by The Oriental Economist , Tokyo. In the context of the above table, it may be noted that the cost of a superior-make color television set starts at ¥84,800 ($275), or almost exactly the minimum cost of a three -day package tour to Guam. The largest such set at ¥148,800 ($480) closely approximates the cost of a six-day package tour to Hawaii or Alaska (in each case, per person). C. Other Competitive Elements Considerable capital is currently being channeled into the construction of tourist facilities in Okinawa, 180 minutes' flying time from Tokyo, and every effort is being made to develop the islands' tourist potential. Nevertheless, the travel industry discounts their competitive impact on the foreign travel market. They have, with reversion to Japan in May 1972, 54 lost whatever little aura of foreigness they might have had previously and they still retain the image of a poverty area. Beyond that, if tourist development plans succeed, Okinawa will become as crowded as other Japanese resorts, with commensurate crowding on transportation facilities. In 1975, however, an International Ocean Exposition will be held in Okinawa, and the sponsoring association expects some four million visitors -- some 3.7 million from Japan. During that year, then, the islands may offer an added competitive attraction. Competition on a very small scale is also likely to arise in due course through the establishment of a domestic Club Mediterranee --an integral self-contained vacation village -- under the terms of a joint venture between the French parent company and C. Itoh, one of Japan's largest trading companies. The vacation villages normally have a French or foreign flavor, and may thus offer some degree of direct competition to foreign travel, but the actual scale of competition will be minimal. Lastly, mention must be made of the possibility that the Japanese govern- ment has some interest in supporting efforts of South-East Asian countries to attract more Japanese tourists in order to help those countries, many of which receive Japanese development aid, to achieve more favorable payments balances. Thus interest attaches to Japanese government participation in the Southeast Asian Promotion Center for Trade, Investment and Tourism, which held its first council meeting in Tokyo in late July 1972. 55 IV. THE UNITED STATES TRAVEL MARKET A. The Effects of Revaluation It is important to note at the outset of this chapter that changes in international currency parities which occurred between August and December 1971 produced a complex shift in the method of calculating air fares on the lines serving Japan. The former IATA dollar base was converted to a yen base at ¥360 per $1 (the pre-August 1971 parity). As a matter of international convenience, however, the yen-based fare is once again usually quoted in U.S. dollars, calculated currently at the post-December 1971 "central rate" of ¥308 per $1. In U.S. dollar terms, then, Pacific area air fares have thus gone up by approximately 17%. In terms of revalued yen, they have not changed at all -- and since yen revaluation has been greater than that of all other non -dollar currencies, base fares have, in general international terms, gone up. As noted earlier, on the other hand, bulk fares were lowered substantially in the spring of 1972, in part to offset the rise in individual fares. While the point could not be clearly established in the course of the talks with industry leaders, certain experts in the field held that an essentially similar recalculation had been applied by tour producers in respect of U.S. ground costs, thus increasing their profitability to the trade -- an increase that is progressively swallowed up by inflationary pressures and, specifically personnel costs. 56 In all, the effect of the 1971 revaluations on basic travel and tour prices in the Japanese market has at best been marginal, and producers dismiss the question as one that has little relevance beyond the fact that Japanese tourists abroad, and particularly in the United States, find that their spending money goes somewhat further than it did a year ago. 57 B. United States Travel Destinations The only concrete statistical data on Japanese travel destinations in the United States, already quoted earlier in this report in the context of overall area competition, show the following broad distribution and growth over the past three years: Number of Travelers Destination U.S. Mainland Hawaii Guam Total 1969 2 1,230 1970 78,495 78,016 48,803 93,665 35,774 136,528 207,455 1971 200,000 * 67,500 * 311,066 Source: Office of the Prime Minister, Annual Report on the Tourist Situation , Tokyo, May 24, 1972. * Estimates by Hawaii Visitors Bureau and Guam Economic Center respectively. The 1971 figure for mainland destinations cannot be reconstructed from the data shown above. It would be thoroughly misleading since the Hawaii figures include a substantial stopover traffic, i.e., tourists who visit both the mainland and Hawaii. There are, however, strong indications from the travel production industry that travel to the mainland has not shown the record growth rates of Hawaii and Guam . Cost in relation to attraction is cited as primary reason. In addition, the West Coast, currently the financially most 58 reasonably attainable destination, lacks the youth appeal that Hawaii and Guam currently exert. The point can hardly be exaggerated in the light of producer information that the youth market share within the Japanese segment of tourists to Hawaii rose from 577o in 1970, through 62% in 1971, to 70% i n 1972, while the comparable current Guam share is also at 707 o . The reasons are, of course, largely economic, but there is little question that Hawaii in particular is now the "in" place for the young, that to be seen at certain spots in the islands is a status symbol--in brief, that the fashion or vogue element in destination selection is strong. A systematic attempt to elicit the travel industry 1 " s own overview or evaluation of destinations beyond the West Coast favored by Japanese travelers produced an interesting result in the form of a highly consistent concentration on a prime attraction. The top priority destination, particularly among the youn ger clientele, is "the typical average American town ," preferably of small or medium size, where pe ople conta ct is feasible, where the typical daily life would be visible to the traveler, and better yet, where he might participate in that life. Just where that typical average town was -- its name -- were matters of secondary importance. It might be noted that these replies came primarily from producers who were knowledgeable and highly experienced, with substantial market insight and who had the competitive urge to probe their market's true requirements. 59 Given this level of analytical insight, the more dynamic members of the travel industry are constantly on the lookout for new tour destinations and, more important, tour themes in the form of a catchy title for their promo- tional materials, with a predominantly people -oriented context. A feature that several of the leading wholesalers and retailers noted with great appreciation was the wagon-train trip arranged by USTS /Tokyo. The industry tends to assign itself a dynamic and determining role, particularly in relation to the selection of U.S. mainland destinations. European itineraries, they maintain, are easy to arrange because most pros- pective travelers already know where they want to go. Rome, Paris, London, and either Geneva or Zurich are the primary stopovers on a European trip. The U.S. mainland, however, tends to be virgin territory to the traveler or, more correctly, the best-known destinations such as New York and even Chicago, are in a high-fare price range and do not readily lend themselves to pre- arranged activities beyond big city sightseeing. Is is thus for the travel agents to evolve more elaborate itineraries that allow for, at leasL a degree of, the prized people contact. Aside from these considerations, all producers have, of course, a quite consistent list of priority destinations for the most high-cost tours whose function is to show the visitor as much as possible of the country. The list includes, without specific priorities, the following: San Francisco New York Los Angeles Buffalo (Niagara Falls) Las Vegas Chicago Grand Canyon A major western National New Orleans Park 60 Interestingly, there is totally divided opinion on the attraction of Disneyland. Some agents believe that it is an attraction of the highest order, while others say that replicas exist in several places in Japan and that its attraction to Japanese tourists is minimal. Only one wholesaler, catering mainly to elderly clientele, noted the potential personal danger involved in a visit to New York City. The industry, not unexpectedly, stressed certain technical points that bear strongly on its own choice of standard production itineraries. One, that can be dealt with briefly, is the industry's need to plan fairly fast- moving comprehensive itineraries. This need, however, is hampered by the cost of U.S. hotel -keepers , whose practice is to offer advantageous weekly races which are tempting to the organizers, but impractical in terms of saleable itineraries. The point is of marginal interest. It is a case of some difficulty in adjustment to a new frame of reference, for organizers have become used to weekly hotel rates in the context of the high volume of tours to Hawaii, which tend to remain based on one hotel for all or most of the tour's stay. It is a case of knowing of a volume -purchase discount when one cannot buy on that basis. The second point is related to air fares beyond the West Coast, and is discussed under the separate heading below. The Role of the Air-fare Structure Virtually all producers contacted during the study noted, often with regret, that while bulk fares to Europe were available to any combination of 61 specific destinations or circuits, the fare structure to the U.S. mainland became progressively more involved the farther the trip from the West Coast gateway. It is thus pertinent to review this topic in some detail and to offer certain sample air-fare costs, reconstructed on the basis of available background material --a somewhat complex task for a foreign travel agent or carrier who is not thoroughly familiar with the country's airlines and their route geography. Applicable minimum fares to U.S. Pacific destination and gateways (round trip) Destination Fare Base Yen U.S . $ Guam Excursion 57,900 187.90 Honolulu \ GIT 91,800 298.00 Anchorage} U.S. West Coast GIT 133,200 432.00 GIT - Group Inclusive Tour fare Beyond the West Coast gateway -- San Francisco, Los Angeles, or Seattle the foreign visitor pays the Discover America fare, based on a 50% discount on the regular domestic (one-way) fare between each point visited. The fare is applicable regardless of the number of persons in a group. It is the individual fare multiplied by the number of passengers. In brief, while U.S. points between Japan and the U.S. Pacific coast are accessible at attractive and competitive, usually bulk fares, points 62 beyond the West Coast become progressively less competitive the farther east they are located and the more stopovers included in the itinerary. The point does not stand in abstract isolation, but should be read against a strong competitive attraction of European destinations. The first obstacle, for example, for a tour group to the East Coast is the prior requirement that the organizer be able to assemble one or more groups in such a way that the transpacific journeys -- outbound and inbound -- are made in groups of at least 45 persons in order to qualify for the GIT fare without which the overall tour cost becomes prohibitive. Given lower demand for inland tours, the organizer may have to coordinate the movement of two or more groups so that the 45-person requirement is met on the two Pacific legs of the journey. Beyond the West Coast gateway, the fare structure becomes not only costly, but, as organizers stress, it becomes unpredictable, for the Discover America discount has, so far, been enacted for a calendar year at a time, being renewed so late in the preceding year that organizers in Japan -- used to long lead time for bookings -- remained uncertain through November or even later whether or not they could enter into new commitments at that fare. The point had gained added competitive impact in 1972, for the new low (November 1972 onward) IATA GIT fare to Europe had been announced exactly 12 months in advance. In practical terms, the difference between the Tokyo-Paris and Tokyo-West Coast bulk fares is $65, so that the break-even point at which the combination 63 U.S. mainland fare (GIT to the Coast gateway, plus Discover America discount beyond the gateway) is along a north-south line drawn well to the west of Denver, Colorado. The added cost of en-route stopovers (which bring sector fares into operation) adds to the price of multi -destination travel. For instance, while the Discover America round-trip fare between the San Francisco gateway and Boston is $170.00, it would rise to $186.50 with stopovers (on one leg of the trip) at Buffalo and Chicago, both close to the straight line direct route. The more stops, the higher the fare. In fact, where there are no inter-line through fares, a mere change of airline will raise the fare. Thus, for instance, the tourist areas of New England, largely lacking through service by major national carriers, are further penalized by being placed even farther beyond the reach of the Japanese tourist who would find there at least some of the historical appeal and the people -contact which he so values. It should be stressed that, in all the discussions with leaders of Japan's travel industry, the element of attractive fares was held to be a decisive factor in their own readiness to generate tour traffic to any given area . For, while the traveler sees only the comprehensive tour cost, it is the organizer, who must construct the total cost, who reacts as a "purchaser" on the basis of both fare and ground costs. The discussion so far has stressed the advantage that European destina- tions enjoy in terms of air fares over U.S. mainland destinations beyond the West Coast. Air fares, however, cannot be equated with total inclusive tour costs, and in the latter terms the table below illustrates that total tour costs covering roughly equivalent territorial sweeps in Europe and in the 64 United States are virtually equal. Given the lower cost of ground (land) arrangements in Europe, there are indications that th e Japanese travel industry holds to the view that a European tour will attract greater traveler interest than a U.S. mainland tour as long as relative costs are within a narrow range of each other -- that, in fact, Europe can bear a slight cost disadvantage because it is perceived by the public as a farther trip in terms of distance and one covering several countries, against a perceived greater proximity of the U.S. as a "one-country" destination . In brief, Europe's advantage in air fare terms translates into a greater profit margin. Relative Costs of Inclusive Tours to U.S. and Competitive Destinations Wholesaler' s T our Trade Name Air Adventure Diamond Look JALPAK Diamond JALPAK Look JALPAK Air Adventure Diamond Look Kyoshin Travel JALPAK JALPAK Look JALPAK Look Look Look JALPAK Look Look JALPAK JALPAK JALPAK Look Theme '-'-'/ Destinat ion Guam Guam Guam (family plan - 3 persons) "Sweet" Hawaii Guam Hong Kong Guam and Saipan Alaska Hawaii Hawaii Hawaii Alaska Dynamic Tour "Sweet" Hawaii "Young" Hong Kong -Bangkok-Singapore Los Angeles-San Francisco West Coast West Coast-Las Vegas West Coast-Mexico West Coast -New York-Las Vegas Europe "Young" Europe "Young" Transamerica "Young" Europe (9 stops) "Young" Europe (11 stops) "Young" USA (West and East Coasts) USA (West Coast -Chicago -Buffalo - New York -New Orleans) Duration Cost (Days) (Yen) 3 77,000 3 77,000 4 226,500 6 85,000-89,000 6 107,000 4 115,000 5 117,000 6 137,000 6 138,000 6 138,000 6 138,000 b 148,000 6 185,000 LO 180,000 9 200,000 H 220,000 9 265,000 in 328,000 18 375,000 L2 388,000 22 415,000 22 415,000 18 425,000 27 462,000 30 475,000 L8 545,000 * Tour themes, almost always printed in English in promotional literature, are quoted directly and indicate special interest appeal, e.g., "Young" tours are designed to appeal to the youth market; "Sweet" tours are honeymoon packages. 65 Phase 2 of this study is likely to provide confirmation of the accuracy or otherwise of the industry's reading of the market. However, the present exploratory report rests on an impression that the industry is clearly attracted by the apparent profit potential which is offered by a reduction in fares if the resulting saving is applied, at least in part, to profits. (It should be noted that Europe is a major long-distance attraction to the Japanese traveler and that air fares are the largest cost -element in all long-haul tours.) It would follow that our discussion deals with two sets of relative cost elasticities: 1. Total tour costs , that is, at what level could or would a U.S. tour gain a competitive edge over a European tour of equivalent extent? 2. Fare costs alone , that is, at what fare level would the travel industry perceive an inducement to promote U.S. tours over the European alternative? An answer to the question's first part may emerge from the survey phase of this study; the answer to the second part must limit itself to the educated hypothesis that a greater profit potential, arising from a reduc- tion in fares, would in fact induce the industry to enhance its creative ef fores in a direction benefiting the U.S. travel market. Beyond the marker segment of package tours sold "over the counter," the industry's cost calculations become highly sensitive in the more competitive wholesale situation of the incentive tour field. In this largely corporate market segment of great development potential, finely adjusted pricing can 66 result in a European tour cost of ¥273,000 ($890) for 14 days in England, France, Switzerland, and Italy during the winter low-fare season. No competitive mainland tours were encountered in the U.S. destination sector of this market (in which Hawaii is popular, but in a different price group). The travel industry members interviewed agree that interest in visiting the United States is high, but feel that the unfavorable fare structure beyond the Pacific coast gateways inhibits full-scale development of the potential market. It is thus a working hypothesis that a reduction in the applicable fares might act as a market stimulus if its benefits were divided (by the travel industry) in a realistic proportion between savings (over current costs) passed on to the public on the one hand, and the industry's own profit margin. It would, of course, be for the industry to define the "realism" referred to here. 67 V. ROLE AND STRUCTURE OF THE PRODUCING INDUSTRY The overall impression of Japan's travel producing industry is one of a highly dynamic, knowledgeable and creative business sector to whose members travel is a professional vocation. The producing industry, especially in its wholesale sector, is highly integrated in the sense that there are relatively few, large-scale units, with strong capitalization and close corporate ties to Japan's leading industrial and banking firms, who in turn have recognized the great commercial potential of Japan's burgeoning travel business. The term "creativity" recurs throughout this report, for it reflects the role in which the producing industry sees itself; the role of being the link between the urge of people to travel on the one hand, and a practicable trans- lation of this urge into arrangements, schedules, and itineraries that will fit the needs and purses of a traveling public consisting largely of novices. Faced with mass demand, the industry has responded with mass travel arrangements, and yet there is a broad range of choices for the traveler -- the consumer --so that almost every variant of destination preference or special interest can be met within this mass-oriented framework. While the industry is competitive in its creative efforts, survey data suggest limited "shopping" for actual travel arrangements, with 48% of 1 respondents to one survey indicating that they decided on a given travel 1 March 1972 survey among 800 travelers, carried out by Travel Journal and published in that journal's July 3, 1972, issue; courtesy of Mr. Jim T. Moritani, Publisher. 68 arrangement after visiting only one travel agent (with a primary offering of one wholesale tour brand), while 21.6% explored competitive tour brands through two travel agents. Reasons for the choices made are interesting. The same survey cited above shows the following global distribution of reasons for selecting one of the four leading producers' brand tours: Percentage of Respondents Citing Attribute Attribute as Key Reason for Selecting Tour Brand (out of 800) Recommendation by others 29.7 Reputation of the company 19.7 Kindness of personnel (agent) 15.4 Convenient location (of offices) 13.3 Size of the company 8.5 Other reasons 18.7 While cost and tour departure dates play a major determining role in tour selection, the same survey cites other leading reasons, which include, notably, the credibility of information material, and the helpfulness of the sales personnel. It appears justified to say that producers and their clientele tend to see the producer and his agents as counselors in an expert -to -layman relationship, but one in which the couselor is in a highly competitive situation in which he must give of his professional best. 69 A. Distribution Structure Japan's travel industry is, in broad terms, divided between firms that are primarily wholesalers, with production centering on package and group tours, and firms which are primarily retailers. The lines are, however, blurred. Most of the major wholesalers also handle individual travel on a retail basis and, in most instances, through wholly-owned retail subsi- diaries or through partial corporate investment, also act as retailers for their own and their competitors* production. Among the retailers, on the other hand, several also produce their own tours which they wholesale through their own and others' retail facilities. Such production tends toward specialized output -- for instance tours to a small number of destinations, or incentive tours. The trade structure is affected by the recognized fact that the travel industry has become Big Business and a profitable investment sector for Japan's leading industrial and banking firms. In an extension of this fact, and the earlier discussion of the growing importance of incentive travel, some of the country's largest industrial firms, notably the Mitsubishi and Mitsui companies, have established their own travel agencies or acquired agencies which handled their extensive business travel. Such agencies have become in-house travel production facilities which, in one leading instance, also serve the general public on an over-the-counter basis. As indicated, lines of corporate control are also indistinct. At least two major wholesale producers are in fact controlled by, or have significant 70 capital participation on the part of, groups of important retailers. To compound the breadth of the picture, one of the largest wholesalers is owned by Japan Air Lines (JAL) , with minority participation by several major travel retailers. Another major wholesaler is a joint venture of a government controlled (domestic) tour organization and a subsidiary of a major freight -forwarding company. The industry thus tends to strong interlocking ties not only among its internal segments, but also with the leading carrier and, in the last analysis, its own bulk clients. The facts of corporate control, however, do not seem to preclude a strong element of competition and, more significantly, individual creativity at each focal point, whether wholesale or retail. The key interviews with the top executives of the major producers in both market segments yielded strong impressions of thoughtful, indeed philosophical, analysis of the role of foreign travel in Japan's national life, and of the needs and desires of the people which such travel must meet. This point, perhaps unusual in a western context, appears to be at least one key to the Japanese travel market and to the dynamic basis of the industry which serves it. 71 B. The Wholesale Sector Despite the overlapping of wholesale and retail functions in the industry as a whole, a small number of travel organizations currently generate the bulk of Japan's outbound package and group tour production. In terms of the estimated total package -tour production of about 420,000 travelers annually (see Chapter II) > the following six producers account for almost 50% of the total in their wholesale activity only (with overlapping retail sales excluded) : Corporate Entity Japan Travel Bureau Nippon Express } Japan Creative Tours World Tour Operators Nohkyo International Yusen Air & Sea Service Kintetsu International Tour Trade Mark "Look" "JALPAK" "JETOURS" "Diamond" "Holiday" Of these, Japan Creative Tours is a subsidiary of Japan Air Lines, with minority shareholdings by various leading retailers; Kintetsu International is a subsidiary of the Kinki Nippon (local) Railway Co.; and Nohkyo International is the international travel branch of the National Association of Agricultural Cooperatives. World Tour Operators is a joint entry by several retailers into the wholesale field. 72 C. The Retail Sector As will have become apparent from the preceding sections of this chapter, the retailers are not necessarily disinterested, neutral agents in the sale of branded package tours. At the same time, however, the retailers' freedom of action vis-a-vis their clientele is somewhat limited by the fact that the major wholesalers have created a fairly high degree of brand consciousness among the public by assiduous advertising in the press and on television, and by the generous distribution of what can only be termed a plethora of attractively illustrated tour booklets, which are to be seen and had at all travel agencies, at department stores, banks, and other commercial establish- ments that attract any form of consumer traffic. Nevertheless, the retailer is the ultimate adviser, not only in terms of helping his customer in the selection of a given tour, but often also in the selection of the destination. In both respects the retailer is a financially interested party. With a standard retail commission of 10%; his interest lies in selling the highest- priced tour possible, if he can generate substantial sales of any one tour brand, he may qualify for an additional bonus of 3%. It is thus in the retailer's interest to persuade the potential customer to "trade-up" -- an important point in the context of this study. Some retailers interviewed stressed that they would, selectively, try to persuade potential buyers of tours to Hawaii, for instance, to "trade -up" to a tour to the U.S. West Coast. (The impression was, however, gained that any "hard sell" tactics are excluded.) 73 D. The Wholesale Cost Structure While mention has already been made of the prevailing retail commissions of from 10 to 13%, it is of interest to briefly review the producers' own basic cost structure. Wholesalers purchase air transportation on a net basis, that is to say, they do not receive the airline agent's commission which is usual in the case of individual travel transportation. Land arrangements (hotels, meals, sightseeing tours) are also generally purchased on a net basis, with the sum of these base costs then subjected to a mark-up of 20%. The gross total is then subject to the retailer commission: to the resulting total, some 7% are added to cover promotional costs (about 3%) and profit. In only one instance was it possible to obtain some insight into the relationship between a Japanese producer and United States travel agents acting on his behalf in respect of tour ground arrangements. This producer stressed that his firm did not require any exclusivity from U.S. agents; the Japanese company had made it a policy to prepay the U.S. agency in advance of any tour's arrival and to create a relationship in which the U.S. agent would act as an extension of the Japanese principal. Stress was placed on a good human relationship with agents on a man-to-man basis in the interest of harmonious cooperation. 74 E. The Role of the Carriers In terms of the United States travel market, three carriers -- Japan Air Lines, Pan American World Airways, and Northwest Orient Airlines -- account for close to 97% of total transpacific traffic out of Japan, with the balance accounted for by three third-country carriers: Varig (Brazil); China Airlines (Taiwan); and Korean Air Lines. In the Japan -originating tour market, Japan Air Lines is in a favored position, for the producers tend to the view that it is best equipped to cater to the comfort and needs of Japanese travelers, particularly as a substantial proportion of first-time overseas travelers have also never flown before and therefore feel more confident in a setting that has at least some familiar elements, e.g., cabin service and so forth. The carriers' role in generating overseas travel generally consists of advertising their services to given destinations, stressing the virtues of those destinations, and thus hopefully, motivating the public's interest to travel. Over-the-counter sales of travel arrangements tend to be, modest in comparison with the total volume generated by the retail segment of the producing industry, but the U.S. flag carriers offer -- mainly to that industry package tours organized in conjunction with U.S. travel operators -- a service geared primarily to the needs of some of the smaller Japanese retailers. Japan Air Lines' role differs from that of the U.S. carriers, for JAL controls its own tour wholesaling agency, Japan Creative Tours. The carrier thus has the benefit of substantial forward integration into the producing industry and, through some capital participation by retailers, into the consumer mar ke t . 7 5 F. Market Penetration At the end of 1971, there were 61 IATA-approved travel agencies in Japan with, among them, a total of 258 outlets throughout the country (115 of them in the Kanto area, comprising Tokyo, and 58 in the Kinki area, comprising the cities of Osaka and Kyoto). Available survey findings are to the effect that 977, of all tickets and tour arrangements for overseas travel are purchased from travel agents, 2 with the remaining 37, purchased directly from the carriers or other outlets. 1 Source: Japan Air Lines, The Overseas Travel Market of Japan, 1972 , courtesy of Japan Air Lines. 2 Ibid. 76 VI. THE GEOGRAPHICAL STRUCTURE OF THE JAPANESE TRAVEL MARKET In the broadest terms, 557, of Japan's overseas travel is generated in the "Tokkaido megalopolis" -- the densely populated and highly industrialized region of Honshu Island between Tokyo and Osaka. The western section of Honshu, comprising the Okayama and Hiroshima prefectures, and the islands of Shikoku and Kyushu, accounts for 35% of the national overseas travel market, while northern Honshu and Hokkaido account for the remaining 107 o . This basic interview finding of this study can be supplemented by passport- issue data reproduced in the Japan Air Lines survey cited above (footnote 1, preceding page) in terms of areas, that is, groups of prefectures, as shown below. Reference is made to the prefectural map on the following page, on which the location of these areas is indicated. Area (Chief City) Percentage (1970) of Total Overseas Travel Production Hokkaido (Sapporo) 2 Tohoku 3 Kan to (Tokyo) 51 Koshinetsu (Niigata) 2 Tokai (Nagoya) 9 Hokuriku 1 Kinki (Osaka) 21 Chugoku (Hiroshima) 3 Shikoku 2 Kyushu (Fukuoka) 4- Others 3 Source: Japan Air Lines, The Overseas Travel Market of Japan, 1972 , courtesy Japan Air Lines. 77 AREAJJAP_(F_JAPAN 1 HOKKAIDO 21 GIFU 2 AOMORI 22 AICHI 3 IWATE 23 MIE 4 MIYAGI 24 FUKUI 5 AKITA 25 SHIGA 6 YAMAGATA 26 KYOTO 7 FUKUSHIMA 27 OSAKA 8 NIIGATA 28 HYOGO 9 TOYAMA 29 NARA 10 ISHIKAWA 30 WAKAYAMA 11 NAGANO 31 TOTTORI 12 IBARAGI 32 SHIMANE 13 TOCHIGI 33 OKAYAMA 14 GUMMA 34 HIROSHIMA 15 SAITAMA 35 YAMAGUCHI 16 CHIBA 36 TOKUSHIMA 17 TOKYO 37 KAGAWA 18 KANAGAWA 38 EHIME 19 YAMANASHI 39 KOCHI 41 SAGA 42 NAGASAKI 43 KUMAMOTO 44 OITA 45 MIYAZAKI 46 KAGOSHIMA 47 OKINAWA 20 SHIZUOKA 40 FUKUOKA OHOKU KANTO A comparison with data for 1967 indicates that the greatest comparative growth in overseas travel has occurred in a broad range of the less populated areas: within the high density part of the country, the Kanto area showed a rise of 136%, while the Tokai area, comprising Osaka, showed a growth in overseas travel of 201%. An analogous rise in U.S. visas issued by the Consulate General at Kobe (serving Osaka) was also noted by consular sources in Tokyo, interviewed in the course of the present study. Guam, somewhat nearer to Osaka (and consequently cheaper to reach) than to Tokyo is the prime U.S. destination for Osaka -based overseas travel. 7 4 VII. THE ECONOMIC BACKGROUND The size of the Japanese overseas travel market and its growth rates over the past five or more years are clear evidence that the market rests not only on a sound economic basis, but also on one that is broadening in the sense of bringing the earnings of more and more people within range of being able to afford trips abroad. A wise travel agent, asked about the travel explosion's economic base, counselled a walk down the Ginza -- Tokyo's principal shopping street -- would provide eloquent answers to the question. It does so, indeed. The shops are not only full of the broadest range of consumer goods; they are also full of buyers, and if visual impression serves, the majority are young, certainly under 35, inevitably well dressed. The very young are in the latest fashion, indistinguishable from average urban young Americans or Europeans except that their spending power seems to be larger. The substantial purchasing power rests on social mores, particularly relatively late marriages, and on a growing labor shortage, already discussed earlier in this study. But a salient feature of Japan's economic growth has been the broadening social base of prosperity. A series of statistical background indicators, presented on the next page, illustrate the character and directions of this growing prosperity that is the underlying base of the travel development with which this report is concerned. 80 Unless other sources are indicated, all the statistical data presented here are drawn from the comprehensive collection of government data contained in: 1. Bank of Japan, Economic Statistics Annual, 1971 , Tokyo, March, 1972; and 2. Bank of Japan, Economic Statistics Monthly , May 1972, Tokyo Gross National Product at Market Prices FY 1965 ¥32,838.0 billion ($106.6 billion) 1970 73,213.7 billion ($237.7 billion) +123% over 1965 1971 80,220.0 billion ($260.0 billion) +144% over 1965 (est.) 1972 90,055.0 billion ($292.0 billion) +174% over 1965 (proj.) Note: Designation FY denotes Financial Year (April 1 to March 31) CY denotes Calendar Year. Average (Monthly) Compensation of Employees (Total for Japan) FY 1965 ¥14,698.8 billion ($ 47.7 billion) 1970 32,355.7 billion ($105.5 billion) +120% over 1965 Personal Consumption Expenditure (Total for Japan) FY 1965 ¥18,656.6 billion ($ 60.6 billion) 1970 37,585.5 billion ($122.0 billion) +101% over 1965 1971 42,448.2 billion ($137.8 billion) +128% over 1965 In all, while the average monthly receipts Of worker households increased by 73% between 1965 and 1971, expenditures for other than basic essentials of food, shelter, and fuel rose from ¥19,402 ($63) in 1965 to ¥35,629 ($116) in 1970 -- an increase of 84% from 1965 to 1970. During 1971 expenditures for other than basic essentials were ¥39,781 ($129) per month. 81 Personal Disposable Income (Total for Japan) FY 1965 ¥22,261.7 billion ($ 72 billion) 1969 39,650.2 billion ($129 billion) + 78% over 1965 1970 47,016.7 billion ($153 billion) +111% over 1965 Source: Economic Planning Agency, courtesy of Japan Economic Yearbook , 1971 , and pre-publication data which will be included in the 1972 edition of the Yearbook (published by The Oriental Economist ) Both the growing satisfaction of consumer -goods demand and rising incomes are illustrated in the following sequence of data on the development of household consumption propensity and, conversely, the saving propensity in recent years i Household Consumption and Saving Propensity Average Household Average Saving Consumption Propensity Propensity (in percentages) CY 1467 81.6 18.4 1970 79.7 20.3 1971 79.9 20.1 The high saving propensity indicated above is dramatically illustrated by the following data on the number bf bank accounts (deposits) by individuals , by size of deposits, as of end of March 1972. Size of Deposit Number of Accounts Held by Individuals Under ¥100,000 (Under $325) 74,841,296 ¥100,000 - 500,000 ($325-$l, 619) 31,752,085 ¥500,000 - 1 million) ($1, 620-$3 , 299) 6,538,048 ¥1 million - 10 million ($3 ,300-$32,499) 3,702,461 ¥10 million - 100 million ($32, 500-$325,000) 50,555 82 For a total population as of March 1972 of 105.8 million, excluding Okinawa, and allowing for multiple accounts, the data shown on the preceding page illustrate the substantial spread of savings and thus of purchasing power as living standards rise. Outlook for the Future Available forecasts indicate that the trend of the years from 1965 through 1970 or 1971, illustrated in the preceding section, will continue at a somewhat accelerated rate through 1975. Thus total sales of the leisure market rose at an average annual rate of 18.37o between 1966 and 1970, and are forecast to rise between 1970 and 1975 at an average annual rate of 19.27 Q . The specific cate- gory of expenditure on overseas travel is illustrated as follows: Overseas Travel: Total Sales Average Annual Growth Rate (Per cent) (¥ 100 million) ($ millions) CY 1966 ¥ 451 ($ 146 million) 1970 ¥ 1,214 ($ 394 million) 1975 ¥ 4,253 ($1 ,380 million } - , 28.1 28.5 On the basis of this projection, overseas travel expenditure -- which will remain the fastest growing category in the total leisure market -- will virtually quadruple between 1970 and 1975, indicating more travel by more people, but also probably travel over greater distances and for longer periods 1 Leisure market projections from Business Japan , July 1972, courtesy of the Ninon Koyo Shimbun , Tokyo. 83 by at least some of them. In these terms, the U.S. mainland market, duly- promoted, will come within the reach of a growing number of people and will, by definition, enter into growing competition with the European market. Despite the obvious inflationary pressures which have in past years eroded a part of the growth in monetary magnitudes indicated throughout this chapter, package tour prices have declined in propcrtion to disposable income, and if mass air travel can lead to a relative further decline in air travel (and perhaps in ground) costs, tour cost ratios should continue to decline. The past trend in this respect is illustrated in the following research data contained in the Japan Air Lines study, The Overseas Travel Market of Japan, 1972 . Ratio of Tour Prices to Annual Family Income (Percentage of annual income required for a trip by an average family to the destinations shown below) 1970 22 i I 22 6 Courtesy Japan Air Lines The development indicated here is the most vivid illustration of the extent to which overseas travel has progressively come within the reach of more and more people, and socio-economic groups in Japan. If the trend holds up, as other data suggest and as the travel industry expects, the "travel explosion" with which this report has dealt will be a mere prelude to the development to come. Destination 1965 Americas, excluding Hawaii 82 Hawaii 48 Europe 74 South -East Asia 23 84 VIII. EXISTING STUDIES The following listing covers existing studies on Japan's overseas travel market which came to the attention of this preliminary exploration in the course of a systematic effort to identify and, if possible, to obtain such studies . The following listing covers those studies which the industry and other expert sources in the travel field deem to be the most meaningful and interesting: 1. Japan Air Lines, The Overseas Travel Market of Japan, 1972 . 2. The Mainichi Newspapers, On Japanese Overseas Air Travelers (annual) . 3. Jim T. Moritani, Publisher, Travel Journal , Tokyo, July 3 and 10, 1972; survey (mail) among purchasers of package tours, on attitudes and factors related to specific travel decisions. 4. Office of the Prime Minister, Annual Report on the Tourist Situation ; compendium of official data on travel and tourism. 5. Jim T. Moritani, Publisher, Travel Journal , Tokyo, Fact About Japanese Travel Market and Forecast of India's Potential Share of the Overseas Japanese Travel Market , April 1972; a specific presentation containing useful background material on Japan's overall overseas travel market. Not listed above are sporadic surveys carried out by various smaller newspapers, based on restricted samples. Mention must, however, also be made of the overseas segment of a compre- hensive travel survey carried out by Japan Tourist Association and published in March 1970. 85 IX. PRIMARY RESEARCH SURVEY DESIGN AND WORKING HYPOTHESES The second phase of the Japanese market study will consist of a probability sample of 2,500 Japanese adults (18 years of age or older) in urban areas, stratified into four groups: intercontinental or long-distance travelers, international or short-distance travelers, domestic travelers, and non- travelers . Each of the stratum will be analyzed individually as well as collectively to determine characteristics of trips to the U.S., average/specific attitudes towards the U.S. as a vacation destination vis-a-vis alternative destinations, and positive and negative attributes of the U.S. In addition, all Japanese travelers to the U.S. will be analyzed by four U.S. destination areas: Guam, Hawaii, Alaska, and the rest of the U.S. mainland. It became evident throughout the exploratory phase that the greatest information gap exists in terms of why a given destination is chosen -- both for past and future travel. This category embraces, in essence, the process by which the basic desire "to travel" has been channeled into certain directions, to end in a specific decision. There is a lack of information on the specific appeal of given destinations; more important, whether that specific appeal led (may lead) to the given destination choice, or whether the destination as such exerted some other kind of magnetism. Such information is likely to provide a better picture, largely lacking so far, of w hat the traveling public (and potential future travelers) looks for : a first step in a possible adjustment of pinpointed promotional efforts on 86 behalf of specific places or regions in the United States, or in the promotion of topic or action-oriented U.S. itineraries. Beyond some hypotheses, little is known about the acceptability of group travel as a whole. Is it accepted because it is a cheap, easy way to travel, or does it really meet a basic need? Given the structure of air fares to the United States (mainland) , the answers might point the way to combine bulk travel to West Coast gateways with highly individualistic itineraries and arrangements beyond that point. Given the clearly important and growing purchasing power of the youth market, it will be especially important to isolate the pertinent travel -decision "portrait" for the -- say -- 16 to 30 age groups. Similarly, is there a specific travel decision portrait of married women who travel alone or in groups by way of compensation for their husbands' extensive business travels? The sources of information pertinent to a specific travel decision are also of interest: there is an abundance of tour information, but this is an integral whole covering one tour or another: where (if anywhere) do travelers draw information on places and areas as such, and where do images stem from? The specific areas of inquiry developed are as follows: (1) Travel Patterns (applies to intercontinental and international travelers) (a) Principal destination as well as other secondary destinations in route (b (c (d (e (f (g (h (i (i When trip was taken Length of stay Purpose Mode of transportation (principal and secondary) Type of accommodation Expenditures Places visited within country, activities engaged in, etc Incidence of scheduled vs. charter air carriers Incidence of package tours vs. individual travel 87 (2) Attitudes Toward the U.S . (applies to intercontinental, international domestic travelers) (a) General knowledge of familiarity with the U.S. (b) Appeal of U.S. (c) Image of U.S. (d) Specific places traveled to and those they would like to see (e) Factors which motivate travel to the U.S. (f) Factors which impede travel to the U.S. (g) Relative comparison of the U.S. to other areas as a travel destination. (3) Sources of Information of U.S. (applies to intercontinental, inter- national, and domestic travelers) (a) Where the information was obtained (b) The types of information needed (c) Who planned the trip and when it was planned (4) Demographic Characteristics (applies to all four groups) (a (b (c (d (e (f (g (h Age Sex Education Family income Occupation of household head Family size Region, city size, and specific city of residence Socio-economic level X. NOTES ON ABBREVIATIONS, STATISTICAL UNITS AND CURRENCY CONVERSION VALUES A. Abbreviations In order to hold the legends on certain charts and tables to a minimum, the following international airline code abbreviations for various airports and airlines relevant to this study are used where appropriate, as follows: Airp orts ANC Anchorage, Alaska MSP BKK Bangkok, Thailand NYC FAI Fairbanks, Alaska ORD GUM Guam OSA HKG Hong Kong PAR HNL Honolulu, Hawaii RIO IAD Washington,D.C. (Dulles) SEA LAX Los Angeles, California SEL LIM Lima, Peru TPE LON London, England TYO MEX Mexico City, Mexico SFO YVR Airl ines CI China Airlines (Taiwan) JL Japan Air Lines (JAL) KE Korea Airlines (KAL) NW Northwest Orient Airlines PA Pan American World Airways RG Varig Airlines (Brazil) CP CP Air (Canadian Pacific), Canada Statistical Units Minneapolis -St. Paul, Minn. New York, New York Chicago, Illinois (O'Hare) Osaka, Japan Paris, France Rio de Janeiro, Brazil Seattle, Wash. (Seattle-Tacoma) Seoul, Korea Taipei, Taiwan Tokyo, Japan San Francisco, California Vancouver, B.C., Canada Japanese official statistics are generally in metric units; thus the "billion" magnitude denotes thousa nds of millions, or milliards. C • Currency _C_ on ver s i on _Va lue s All fare and tour costs are shown in yen (¥) , the currency in which they are officially quoted. Dollar equivalents shown have been generally converted at the present central rate of ¥308 to U.S. $1.00. Special attention is, however, drawn to additional explanations on air fare structure in the section on The Effects of Revaluation, for air fare dollar equivalents are now computed on a different basis. PENN STATE UNIVERSITY LIBRARIES AOODOTIT^AO?