Chinese tourists’ “revenge travel” will benefit high-end brands housed in the luxury capitals of the world.
Call it, perhaps, a wave of “destination spending” that will fill the coffers of firms that have already been top of mind on the mainland.
Chinese authorities have largely relaxed quarantines and travel restrictions and have been reissuing passports. And as for the travel “snapback,” the surge is already showing up in data from the likes of Trip.com, which said at the end of last year that outbound bookings were soaring by triple-digit percentage points. The company noted that on the morning of Dec. 27, it saw “a staggering 254% increase in mainland China’s outbound flight bookings compared to a day earlier.”
Drilling down a bit into the data, the demand to get out and about stretched across a range of corridors, extending into Asia and beyond. Trip.com said that Singapore was the fastest-growing of all the destinations, with flight bookings leaping six-fold, followed by an average 400% jump in airline ticket orders. Bookings for long-haul flights to the United Kingdom, the United States and Australia also increased.
Nowhere Near Pre-Pandemic Levels
We’re a long way from pre-pandemic levels, where the China Outbound Tourism Research Institute estimated that there were 170 million outbound trips from the mainland in 2019, and where widely cited figures from the United Nations World Tourism Organization pegged spending by tourists that year at $255 billion on 154.6 million trips abroad. The number plunged to as low as about 25.6 million in 2021, per Statista.
The triple-digit surges are hopeful signs for the brands that derive a significant percentage of top-line contribution from Chinese tourists’ spend. Pre-pandemic, Chinese consumers purchased about one-third of the world’s luxury goods, as Bain & Co. estimated. That number might grow to as much as 40% by the end of the decade, the consultancy estimated, in data reported by Jing Daily. For companies like Hermès, which has in recent quarters seen sales in Asia grow by double digits, and LVMH, where Asia-derived sales have been improving at single-digit rates, the natural extension would be that the spending would continue as Chinese tourists flock abroad.
There’s some evidence that the spending dry powder is there as travel resumes, and for Chinese consumers to open their wallets online and on site in London, Hong Kong and the U.S. Household savings were up 13% through the first nine months of last year, amid the lingering impact of COVID restrictions. Across the globe — and most immediately in the U.K., the U.S. and Asia’s own luxury capitals — the flagship retailers will await “revenge” tourism and spending with open arms.
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In its fourth-quarter results released Tuesday (Jan. 21), financial institution KeyCorp, noted growth in its deposits. Management stated on a conference call with analysts that growth opportunities lie within embedded banking offerings.
Earnings supplementals show that overall average deposits were $149.7 billion in the most recent quarter, up from $145.1 billion last year and 1.3% higher than the third-quarter’s levels. The company noted growth in both consumer and commercial deposits.
Drilling down a bit, the supplementals indicated that credit card charge-offs were 4.5%.
During the conference call with analysts, CEO Christopher Gorman said: “Non-performing assets are peaking, and assuming the macro environment remains constructive for the balance of the year, we expect non-performing loans to begin to decline by midyear.”
Within the consumer segment, said the CEO, the company grew its number of “relationship households in excess of 3% for the second consecutive year, including growth of 5-8% throughout our Western markets. In our Eastern markets, we continue to grow households.”
Gorman took note of commercial payments-related revenues, which grew in the mid-single digit percentage points.
“Over the last decade, payments has been an area of focus and an area of consistent investment,” he said. “We were one of the first banks to build embedded banking capabilities. We will continue to develop our differentiated platform with plans to invest in additional software advisors and relationship bankers, enhanced digital and analytics tools, while concurrently continuing to invest in embedded banking.”
CFO Clark Khayat said on the call that looking ahead, average loans will be down 2-5% with year end 2025 balances flat to where they ended 2024.
Investors sent the shares lower by 4% in intraday trading on Tuesday.
During the Q&A session with analysts, CEO Gorman stated: “We’ve worked really hard to get our balance sheet to a more resilient place here. We believe today we’re fairly neutral in rates, and we can effectively manage through a variety of rate environment.”
Asked about the lending environment, management noted that a survey of middle-market clients revealed that 80% of those enterprises are confident in their growth prospects as they eye making investments in property, plants and equipment.
Elsewhere, Gorman stated: “People think that the regulatory environment is going to improve … With the regulatory environment around M&A … it’s been very challenging to get deals approved, and I’m not speaking of the banking sector. I’m speaking of our M&A business. And I think there’ll be a pretty significant unlock there.”
Offering further insight into investment roadmaps, Gorman said that, with respect to the ongoing migration to the cloud, “every year, we’ve replaced 2 core systems to the point now where we only have a couple … We will continue to invest in the business. We’ll continue to hire groups of people. We’ll also continue to look at what I call bolt-on acquisitions.
“Consumer lending is an important element to the balance sheet,” he added. “We’re not at the moment leaning into that, but I would expect that we will do so over time,” including further moves into personal lending.