The Japanese Market

Insights market assessment

• In the last 18 months, Japanese outbound travel demand has been very negatively affected by the weak national economy, the depreciating yen and concerns over safety and security following the terrorist attacks of 11 September 2001.
• The UK has been one of the worst-hit destinations since it also suffered last year from the FMD crisis and negative publicity about the perceived high cost of a holiday in the UK. In 2001, Japanese trips to the UK were down 34%, nights down 42% and spend 40%.
• Leisure travel – including holidays, honeymoons and VFR – accounts for some 74% of all Japanese outbound trips. The corresponding share for Europe is close to 80% but, for the UK, it is much lower (62% in 2001), perhaps highlighting the growth potential of this sector.
• As Japanese travellers become more adventurous, demand for fully-inclusive package tours to the UK has declined rapidly over the past few years; now they account for less than half of Japanese holiday trips in the UK.
• Despite declines in trip volume, the Japanese remain among the highest spenders of all visitors to the UK, averaging £82.50 per day in 2001.
• Over half of all Japanese visitors to the UK are under 35 years old; single women aged 15-29 are the predominant market segment.
• School/study trips are already important for the UK and both English language and general education trips offer much potential if appropriate products can be created.
• The rapid ageing of Japan's population is likely to have a major impact on travel demand over the foreseeable future and this, in turn, has serious implications for destinations looking to tap the Japanese travel market.
• Japan is currently the second largest Internet market in the world and travel is one of the main growth sectors in online e-commerce. UK travel suppliers need to ensure they are exploiting this form of dissemination of both travel and lifestyle information.

Scope of report and data sources

The data contained in this report comes from several different sources, among the most important of which is the JTB Report 2002, the latest annual publication on the Japanese outbound travel market from Japan Travel Bureau. The report compiles statistics from two annual surveys conducted by the Japan Tourism Marketing Company (JTM) – Factual Survey of the Overseas Travel Situation and Opinion Survey of Overseas Travel Preferences. Prior to 2000, such data was collected through surveys carried out by the JTB Foundation.

Caution must, nonetheless, be used in interpreting this data since the sample size for both surveys is small – 2,259 and 1,437 respondents/travellers respectively.

Further useful sources of data have been the Japan Association of Travel Agents and Travel Journal International – an English-language newsletter from the publishers of Travel Journal, the leading Japanese-language travel trade magazine. Data on Japanese travel to the UK was obtained from the International Passenger Survey (IPS), and from British Tourist Authority (BTA) research. Other sources are quoted where relevant.

In addition, face-to-face and telephone interviews have been carried out with the travel trade, retail outlets and airlines in both Japan and the UK.

Latest trends

A decade of sharp fluctuations

The progress of Japan's outbound travel market has, for many years, mirrored the performance of the wider economy and the strength of the Japanese yen. In the 1980s, Japanese consumers believed they could rely on rising asset prices and jobs for life, and this confidence fuelled outbound travel. Even after Japan's bubble burst in the late 1980s, international travel as a whole did not decline, although business travel suffered. There was a brief downturn in outbound travel in 1991 – the year of the Gulf War – but between 1992 and 1997 the number of Japanese travelling abroad increased every year.

Growth was, nonetheless, very modest in 1997 and, in 1998, outbound trip volume declined by one million trips, or 6%, due to the Asian economic and financial crisis, finally shattering the myth of the invincible Japanese market. The market picked up again in early 1999, showing renewed growth during that year and the next, resulting in an all-time record of 17.8 million trips in 2000. But the prolonged economic recession, the weakening yen, and the events of 11 September combined to dampen demand yet again, resulting in a 9% decline in outbound trips last year.

It is interesting to note that this was only the fourth year of decline since outbound travel restrictions were lifted by the Japanese government in 1964. Nevertheless, in the five years to 2001, outbound trip volume actually declined by 3% and, over the ten years from 1991 to 2001, the average annual increase was just over 4%.

The current short-term outlook is uncertain

The situation did not improve in the first half of 2002, either, with overall trip volume falling a further 13%. The FIFA World Cup in June (held in Japan) dampened further demand for outbound travel that month but it reportedly picked up in July. In fact, the results of a survey conducted by the Japan Association of Travel Agents (JATA) in July showed that forward reservations for some destinations – notably China, Oceania and Europe – were almost up to last year's level for the months of July and August, and looked likely to exceed last year's level for September.

The middle-aged and senior female markets, which were the most adversely affected by 11 September, are also reportedly showing signs of revival. Unfortunately, there are few hard facts as yet, but anecdotal evidence from British and other European suppliers and ground handlers seem to confirm the market's turnaround.

Economic indicators are not particularly favourable but not all of them are negative. Prices have fallen faster than wages thanks to deflation. Unemployment is running at over 5%, which is very high for Japan, yet more and more young people are opting out of full-time employment in favour of part-time, or short-term, jobs so they can spend time travelling. There is evidence of this in the UK, where a growing number of young Japanese (mostly girls) are taking short language courses, but staying on to work parttime and experience the British lifestyle.

Key market trends

The world's fourth-largest outbound market

Measured in US dollars (which, of course, causes some distortion in real trends), Japan is the world's fourth-largest outbound travel market in terms of spending abroad on travel, accounting for a 6% share of total world expenditure on international travel. It was ousted out of third position by the UK in 1998. The estimated spend by Japanese abroad in 2001 was US$28 billion, down from US$32 billion in 2000.

Some 12.7% of the Japanese population took a foreign trip in 2001 – up from 8.6% in 1991, but down from 13.6% in 1996. Over the ten-year period, the level of triptaking of Japanese males increased from 10.7% to 14.3%, and male travellers accounted for a 55% share of total Japanese international trip volume last year – down from 61% in 1991. The level of trip-taking among the Japanese female population is still lower, at 11.3%, but it has risen much more sharply over the past decade – from just 6.6% in 1991. It peaked at 12% in 1996.

The most populous region of Japan, the Greater Tokyo Metropolitan, accounts for the largest share of outbound travellers (39%), but all nine regions of the country have shown similar trends in outbound travel growth over the past decade.

Female travel much harder hit by the events of 11 September

Although there were already signs of a slowdown in Japanese outbound travel in the first half of 2001, in line with the weakening yen and sluggish economy, the terrorist attacks of 11 September had a major impact on demand. A JATA survey conducted in late-2001 showed that 36% of Japanese cancelled their trips after 11 September, 8% switched to other foreign destinations and 11% decided to take their trips in Japan.

Female travel fell by 11.5% overall, as against a decline of less than 7% for travel by Japanese men. The worst affected sectors were young people aged 10-29 and middleaged female travellers aged 40-59. This latter group is the sector that has shown the greatest resilience in recent years.

The decline in demand from young people was largely attributed to the fact that virtually all educational travel abroad – school excursions, study trips, etc – was put on hold after 11 September.

Despite its sharper-than-average decline, the 20-29-year-old female age group is the largest sector of the Japanese outbound market, followed by men in their 30s.

Demographics will have an increasing impact on travel demand

The rapid ageing of Japan's population is likely to have a major impact on travel demand over the foreseeable future and, in turn, has serious implications for destinations looking to tap the Japanese travel market. The following table, compiled for the US Census International Database from statistics provided by the Japanese Ministry of Health & Welfare, reveals some fairly startling truths.

By 2020, the three youngest segments of the population – ie people up to the age of 34 years – will decrease dramatically in size. Over the same period, Japanese aged 65- years-old and over – largely the product of the post-World War II baby boom – will increase in number by 56%. This sector has already more than doubled in size over the past three decades.

Single women still constitute a strong travel market

The 'single women' category – formerly referred to as 'office ladies' – continues to be one of the strongest outbound travel segments, although it has registered some of the worst declines in recent years. Because most of these women live with their parents, they do not have housing costs and so most of their income is disposable. They have a reputation as avid travellers who like reasonably upmarket accommodation and love to go shopping for branded products. They are very conscious of trendy fashions and lifestyles, but also love cuddly or cute characters – including Peter Rabbit and Winnie the Pooh – which helps to explain why the Beatrix Potter Centre in the Lake District has become such an important attraction for Japanese visitors to the UK.

Although the recent economic situation has reduced their buying power somewhat and they are increasingly choosing holiday destinations closer to home, this demographic segment cannot be ruled out as an important future long-haul market.

The 65-plus age group: a powerful consumer market

The Japanese working population enjoys far fewer paid holidays than, say, Europeans – 18 days a year plus 13 public holidays – and, according to data from the Ministry of Tourism, they only consume about 50% of these. It is little wonder, therefore, that the propensity for foreign travel is still relatively low.

This also helps to explain why the 'silver generation' – the 65-plus age group – is viewed as such a powerful consumer market, worth an estimated US$700-800 billion a year. Thanks to generous pensions and low-cost health care, as well as a high level of personal savings, they enjoy one of the highest levels of purchasing power in the world.

Just as interestingly, as far as the travel industry is concerned, they are young at heart, physically fit – they enjoy healthy lifestyles – and are accustomed to travel abroad. And they want to spend a significant share of their leisure time travelling and participating in an increasingly wide range of activities, such as mountain climbing, cruising, skiing, or simply working out.

A high percentage of mature travellers from Japan – the silver generation – travel to Europe: 67% of men and 70% of women in 2000, for example. And they spend much more on travel than the average Japanese does – around ¥377,000 as against the average ¥309,000.

Destinations

Long-haul destinations losing share

Long-haul destinations account for just over 50% of total outbound trips from Japan, but they have been losing share since the end of the 1990s and are likely to lose further share in the next few years. This is in line with the trend towards more frequent, shorthaul trips at the expense of longer holidays that has also characterised European travel in recent years. The trend has also intensified since 11 September 2001, since people have adopted a wait-and-see attitude to booking leisure travel, increasingly making last-minute decisions and preferring to opt for destinations closer to home.

China and South Korea top the list of the most popular destinations visited by Japanese, and China has continued to gain market share, while most other destinations in Asia suffered declines in 2001. The most important long-haul destination is the USA, which attracted just under 4.5 million Japanese in 2001 – to the US mainland, Hawaii, Guam and Saipan. Not surprisingly, the US was one of the most negatively affected countries last year, with the exception of the UK.

Italy has now overtaken the US mainland in popularity, despite a 7% decline in 2001. Europe overall attracts around 13% of all Japanese outbound trips and, after Italy, the favourite countries – for all types of travel combined, and in order of importance – are France, Germany, the UK and Spain.

Hong Kong is the destination that has lost most ground since the mid-1990s. The former British colony – which has been visited by roughly 25% of all Japanese outbound travellers – suffered a 43% drop in 1997, the year in which it was handed back to China, and the market has been soft ever since.

Where would the Japanese really like to travel?

Hawaii, which has been visited at least once by more than 66% of all Japanese travellers, still ranks as favourite destination in the Japanese wish list, and has actually increased in popularity since 2001. This is despite a sharp drop in actual trip volume to the destination following 11 September. It is a favourite with families and honeymooners and, according to JTB, has maintained its popularity as a result of continued, timely advertising and promotional campaigns.

Despite losing share, Australia has also retained its second slot in the 'most desired destination' ranking, ahead of Italy and Switzerland. The UK ranks well behind Italy and Switzerland, and even comes behind France and Spain, in 13th position. In the ranking of 'preferred destinations', however – which allows for multiple responses – the UK ranks a much more respectable seventh.

Who goes where in Europe?

The UK is most popular among single Japanese women and married men aged 40 and over. Italy and Spain, both of which have shown a sharp rise in popularity over the last few years, appear high up the wish list of all age groups, although, according to actual travel trends, are especially popular with middle-aged Japanese women aged 45-59 years.

The following table highlights the differences in attraction of selected European countries for the Japanese. In 2001, the UK's share of the educational and study tour market was higher than average, but this sector has shown a sharp fall since 11 September. Nevertheless, the sector can be expected to pick up quite strongly once/if fears associated with a possible war with Iraq and terrorist activities in general subside. Also very important for the UK – again partly for study trips – are single women aged 15-29 years. And the UK is more popular, relatively speaking, than either France or Germany among women aged 45-59 years.

Purpose of travel

Holidays generated 67% of all trips abroad by the Japanese in 2001, up from 64% in 1996. Leisure travel overall – including visits to friends and/or relations (VFR) and honeymoon trips – accounts for more than a 74% share. The respective share for Europe/Russia is close to 80%.

There are no details of shares for individual destinations in Europe, but data from the International Passenger Survey (IPS) seems to suggest that leisure travel overall is much less important for the UK. True, the UK attracts a higher than average share of study/school trips but this would tend to suggest that there is plenty of room for growth in this sector of the market.

Travel companions

Family or relatives were cited as travel companions by more than 24% of all Japanese outbound travellers in 2001, and married couples travelling together accounted for just under 16%, taking the total for travel with extended family members to over 40%. Although the share remains significant – and is even higher for travel to Europe/Russia – it has been gradually declining since the late 1990s.

The percentage of those travelling with friends or acquaintances increased over 2000's level, but remains down on the level reached in the mid-1990s. Meanwhile, the number of Japanese travelling alone is slowly increasing.

Average length of trips

Most Japanese travel (over 70%) to short-haul destinations such as Guam and Saipan, but also other parts of East Asia, is for four days or less.

The majority of trips to Hawaii, the South Pacific islands, Oceania and Southeast Asia last from five to seven days, and over 80% of travel to Europe/Russia, the Middle East and Africa is for eight days or longer. Obviously, a long-haul trip tends to include more than one destination – and usually a minimum of two to three in the case of Europe.

Destinations attracting the highest repeat visits are Hawaii (66% of Japanese visitors have been there at least once before), the US mainland (58%) and China (54%). More than 40% of visitors to all three destinations have made three or more trips.

Main activities

Since many Japanese lead busy lives in congested cities, it might be expected that they would like to relax when they travel on holiday. But this is not the case – the typical Japanese traveller is usually keen to do something more active than just basking by the pool. Indeed, some destinations which other nationalities select for relaxation might be too dull and quiet for Japanese travellers.

Visiting natural and scenic attractions was popular with 61% of Japanese outbound travellers in 2001 – up from 58% in 1996 – and with an even higher 75% of those visiting Europe/Russia. But, in the case of Europe, the favourite activity is visiting historic and cultural attractions. Shopping comes third in the ranking and is especially popular among young females.

For young people especially, the USA has particular appeal. Theme parks such as Disney World – even though there is a Disney park in Tokyo – and destinations such as Las Vegas, where something is always happening, hold the most attraction. The Japanese do not visit Las Vegas for gambling as much as for the spectacle of the big shows, entertainment at the hotels and the high quality of accommodation and cuisine. Many of these attractions are relatively inexpensive because they are, in effect, subsidised by gambling.

Perhaps surprisingly, Japanese visitors feel secure and happy in the gambling capital's huge and glittering modern hotels. Yet nightlife and even theme parks rank much lower for travellers to Europe.

How much do they spend?

The World Tourism Organization says that Japanese expenditure for international tourism (excluding fare receipts) totalled US$26.5 billion in 2001 (quoted in US dollars), a decline of 17% on the previous year.

Although the respective data is not strictly comparable, JTB and the Japan Tourism Marketing Company (JTM) put the average per capita expenditure per trip at ¥296,000 last year, or around US$2,368. This figure has been declining since 1990, when expressed in yen. When expressed in US dollars, there has been less movement, although the general trend is still downwards.

There are two main reasons for the decline, which are difficult to corroborate. First, outbound travel has become cheaper but, more importantly, a rise in shorter trips has reduced average length of stay and, therefore, spend.

Travel costs are obviously linked to the destination's distance from Japan, but also there is a higher share spent on shopping in East Asia. Europe and Russia are the most costly destinations.

Elderly and middle-aged women and housewives spend more on shopping than any other segment, while average total travel spending by single women is about ¥260,000, of which shopping accounts for around one-third.

Average travel expenditure also varies according to purpose of trip. The lowest spend is for VFR trips and the highest spending – surprisingly, perhaps – seems to be for study/educational trips and honeymoons. However, the renowned honeymoon business appears to be fading, with the daily spend having fallen almost 40% in the past decade.

How is the market sold?

Data provided by the JTM survey, the Factual Survey of the Overseas Travel Situation, shows that 51% of trips are package tours, booked individually, and 7% are group tours. Interestingly, Europe/Russia's share of group business is slightly lower than average. More experienced travellers – 34% of the total market – said they organised their own trips independently last year.

Among those taking package tours or participating in group travel, 53% were on fully inclusive packages, in which all meals and sightseeing were included and which were accompanied by tour guides. Some 43% of package tour travellers, on the other hand, opted for partially-packaged tours allowing for free time. As an example, more than 70% of honeymooners prefer free-time packages.

The key players in Japan's travel trade

A separate survey, conducted by JATA, suggests that up to 90% of all Japanese use the services of the travel trade to book their holidays – whether through traditional outlets, by mail order, or via the Internet. Few really make all their travel arrangements completely independently. This demonstrates the importance of the travel trade – referred to as travel firms in Japan, as all are involved in both wholesaling and retailing.

Japan's five leading travel firms all suffered double-digit declines in sales in 2001, with the exception of Hideo International Services (HIT), whose performance was nonetheless well down in the last four months of the year. The top 50 between them recorded a drop in sales of 11%.

Worse, in the first half of this year the overall decline was even greater, at -17% – a much poorer performance than for the outbound market overall. This confirms – if confirmation were needed – that the decline since 11 September has been primarily in leisure travel. The only relatively good news, according to Asia specialist Travel Business Analyst, is that Japanese travel firms have survived bad years before. In both 1998 and 1999 most of the leaders reported declines.

Growing importance of the Internet

To highlight the huge potential of the Internet as a distributor of travel in Japan, it is interesting to note that Internet usage increased by 73% overall in 2000, to reach 47 million people online – 37% of the population. Nearly 50% of all Japanese households own personal computers and, of these, 78% subscribe to Internet providers. Over 50% of Internet users access the Internet via their mobile phones.

In 1998, consumer e-commerce represented a mere 0.2% of total household expenditures in Japan. This has been rising rapidly, fuelled by the travel industry – and, more specifically, an increase in the online purchase of airline tickets.

Lastminute.com launched a Japanese version of its website in September 2002. The joint venture is with investors which include Mitsubishi Corporation/MC Capital Fund as well as Kinki Nippon Tourist Company and Nippon Travel Agency. These last two will package exclusive travel products and provide access to international late availability travel supply.

JTB says that its online sales jumped 92% in 2001, year on year. This was mainly attributable to domestic travel sales, but the group predicts that e-commerce sales will grow by another 66% in 2002 and will reach ¥100 billion by 2005. Among the notable trends in travel e-commerce, Japanese women account for 55% of package tour purchases online, and Japanese between the ages of 30-40 account for 26%.

A recent poll conducted by the Japan Association of Travel Agents (JATA) reflects the growing importance of the Internet. It indicates that more than 50% of Japanese consumers finalised their travel decisions last year after finding information online. Men in their 20s and women in their 30s are most likely to browse the Internet for travel information (70% and 62% respectively). About 43% of respondents rely on travel agencies' websites. However, with a share of 34%, brochures remain the most popular method of obtaining overseas travel information for the Japanese travel market, followed by the Internet with 24%.

The Japanese market for the UK

Japan and the UK's tourism sector

Japan is a major contributor to UK tourism revenue, ranking sixth in total visitor spending by individual countries in 2000, and tenth in 2001 after a 40% decline in overall Japanese spend that year. The Japanese are among the highest spenders of all nationalities visiting the UK, with an average daily spend of £82.50 in 2001. In terms of numbers of visits, Japan ranked 13th in 2000 and 15th in 2001, following a 34% drop in trips to the UK.

Japan has long been the largest Asian market for the UK and, in 2000, generated 85% of all visitors from East Asia. Even in the exceptionally poor year of 2001, Japanese visitors made up 65% of East Asian visitors, with Hong Kong a distant second (26%). Yet, compared with the UK's major international market, the USA, Japan's contribution to UK tourism is relatively small – 369,000 visitors in 2001 as against the USA's 3.6 million; and £272 million in spending compared with the USA's £2.3 billion. While the USA contributed 19% of all international visits to the UK last year, Japan's share was 1.7%. Similarly, the USA's share of spend was 21% last year, while Japan's was 2.5%.

Trends in arrivals and spending

Japan was the UK's worst-performing major market in 2001, with trips down 34% on 2000, nights down 42% and spend down 37%. These declines look particularly poor in the context of the UK's international arrivals as a whole, which declined by 7%, while spending was down 14%.

The Japanese market has been lacklustre for the much of the past decade, with just four years of growth in arrivals since 1990 – in 1992 (after the Gulf War), 1994, 1995 and 2000. Expenditure peaked in 1995 and stagnated in the second half of the 1990s. In 2000, however, all three measures – trips, nights and spending – picked up, with particularly promising growth from the leisure sector. But any optimism generated by that year's performance was dashed in 2001 when the FMD outbreak, coupled with continuing fear over BSE and renewed economic gloom in Japan, took their toll. The impact of 11 September and the fear of further terrorist attacks, particularly given the UK's perceived political alignment with the USA, put the final nail in the coffin.

Better performance in 2002

UK ground handlers, hoteliers, retailers and attraction managers have noted an improvement in the Japanese market since summer 2002 – particularly in July and August after the World Cup – but none believes it will recover as fast as West European markets. The trade is anxiously watching the final quarter of 2002 to see if the impetus extends through into the traditionally quieter fourth quarter.

The BTA in Tokyo reports receiving more enquiries than in 2001 and JTB says that, by June 2002, package tour bookings to the UK were up by over 300% on 2001. Demand was boosted by the centenary of the publication of Beatrix Potter's Tale of Peter Rabbit, by the popularity of the first Harry Potter film, and by enthusiasm for David Beckham, who has struck a chord not just with football fans but with Japanese girls and indeed whole families.

Retail outlets popular with the Japanese, such as Harrods, Fortnum and Mason, and the Wedgwood factory in Staffordshire, all confirm that business picked up in mid-2002 after a disastrous 2001. However, coach tour operator Evan Evans (15-20% of its business is Japanese) says that late autumn sales of its products for Japanese have been disappointing.

Length of stay and daily spend

Japanese average length of stay has declined over the past few years, from 11.6 days in 1999 to 10.9 days in 2000 and 9.6 days in 2001. However, average spend per day has increased over the past five years, reaching £82.50 a day in 2001. Japanese business travellers tend to stay longer than holidaymakers – averaging 6.1 days in 2001 (compared with 5.9 days for holidaymakers). In 2001, business travellers spent an average of £158.50 a day, compared with £98.90 for holidaymakers. VFR visitors stayed 12 days on average, spending £52.80 a day, while Japanese who are studying in the UK stayed 48.3 days, spending £43.50 a day.

Seasonality

The Japanese market has a better seasonal spread than many other major sources for the UK, and operators view the Japanese as one of their best year-round markets. Results for 2000 illustrate a more typical pattern than 2001, when there were exceptional declines in response to the FMD outbreak in the spring and to the events of 11 September in the fourth quarter. The first quarter of 2000 attracted 21% of visits, the second quarter 23%, the third 35% (July, August and September are peak months for Japanese outbound travel) and the fourth quarter 20%.

Transport

Unsurprisingly, the bulk of Japanese visitors arrive by air – 89% in 2001 and 83% in 2000. Eurostar has proved popular with Japanese groups and individual travellers, with Paris often combined with the UK in a single trip to Europe. The percentage share of those using the Channel Tunnel increased over the past five years to 14% in 2000, but dipped in 2001 to 12.5%, reflecting the decline in leisure visits.

Age and origin

Japanese visitors to the UK are relatively young, with over half under 35 years old. The largest age group is the 25-34-year-olds, followed by 16-24-year-olds, according to IPS data. Other data from JTM (see Table 6) refines this further, showing that single women (aged 15-29 years old) are a particularly strong market segment for the UK.

The 45-54-year-olds group ranked third in 1997 and 2001, but 35-44-year-olds took third place in 1998-2000. Again, JTM identifies middle-aged women (45-59 years old) as being an especially strong segment within the middle-age groups. Broadly, the shares of each age group identified by the IPS have remained much the same over the past five years, with the exception of the 16-24-year-olds group which has declined, while 25-34s have increased.

Over half the UK's Japanese visitors come from the Kanto region – 59% in 1998, which was the last time that this survey was conducted. This is the region which incorporates the cities of Tokyo, Yokohama and Narita, the Bo-So Peninsula and surrounding densely populated plain. The Kinki region, which includes Kyoto, Osaka and Kobe and surrounding areas, is the second-largest region for UK travel, producing 17% of visitors in 1998. The Tokai region, the eastern seaboard between the Kanto and Kinki regions, produced around 9% in 1998, while the rest of the country, including the vast sparsely populated regions of the north, only produced 15%.

Purpose of visit

Holidays are the main reason for Japanese visits to the UK – constituting 59% of all Japanese UK trips in 2000 and 51% in 2001. But holiday trips contribute a lower proportion of total Japanese spend – 37% in 2000 and just 20% in 2001. Business travel ranks second in terms of trip volume – 20% in 2000 and 25% of the total in 2001 – and, as would be expected, contributes a comparatively high share of spend, ie 26% in 2000 and 31% share in 2001. VFR trips made up around 10% of trips in 2000 and 11% in 2001.

The 'study' component is higher than for most major markets, taking an 8% share of all trips in both 2000 and 2001, even though volume fell substantially in the exceptional year of 2001. This is also an important sector in terms of spend, contributing almost one-third of all Japanese expenditure in the UK in 1998, although in the exceptional year of 2001, educational travel's share was a lower 19%.

Favourite destinations in the UK

London is by far the most popular destination in the UK for Japanese visitors. In 2001, 78% of Japanese visitors (285,000) stayed at least one night in the capital, while 28% (104,000) visited somewhere else in England. Only 5% stayed in Scotland (with Edinburgh the main leisure and business destination) and 2% in Wales. In terms of nights, however, London's share is much less dominant – 53% of Japanese nights were spent in London, 41% in the rest of England, 4% in Scotland and 2% in Wales.

Around 14% visited the South of England for at least one night (the numbers would be boosted by those attending the language schools on the south coast, as well as trips to Bath, Stonehenge and so on), while 10% went to Central England (the area which includes Oxford, Stratford-upon-Avon and the Cotswolds, all favourites with Japanese holidaymakers), and 8% went to the North of England (where cities such as York, Chester and Liverpool, as well as the Lake District, are popular leisure stops).

Trends in leisure travel

More FITs

The UK travel trade identifies one key trend in the Japanese holiday market over the past few years – the growth of the independent (FIT) leisure market and of customised, or 'free-time', tours at the expense of all-inclusive packages. Major operator JTB, for instance, says that three or four years ago 80% of its business was fully-inclusive packages; now inclusive packages constitute just half its sales.

Other major ground handlers of UK Japanese visitors, Miki and Gullivers, note a growing number of clients who request simply accommodation for a London-based stay, with a half-day tour of the capital, and perhaps one set of theatre tickets. Requests for a fully-escorted tour with a Japanese speaker are diminishing, says Miki, and there is a tendency for clients who come a second time to make all their own arrangements. Japanese are Internetsavvy, and a growing number book their own accommodation in London online, say the agents. (One operator said 5% of its clients booked hotels through its accommodation-only website.)

The bulk of FITs tend to stay in London, although agents note that more – particularly younger travellers – venture off to Oxford, Cambridge, Liverpool (for the Beatles connection), Edinburgh, Glasgow, Bath and Bristol on their own. But agents comment that language difficulties are still a major barrier to independent touring; very few destinations outside London can offer any Japanese-speaking tour guides. Although most well-established major attractions provide Japanese information, this is an obvious area for improvement.

Edinburgh, which recently conducted a survey on venues providing Japanese language information, found audio or written information in popular retailing outlets for Japanese tours such as the Whisky Heritage Centre and the Crystal Centre, as well as key sights like the Castle, Holyrood House, the Royal Yacht Britannia, and National Trust properties. However, more could be done to help the more adventurous, independent Japanese tourist experience other aspects of the city.

More curiosity about, and participation in, English life

Another trend noted by agents such as JTB, Gullivers and Miki is a growing demand to stay longer in UK and explore single destinations more thoroughly; demand for tours which cover seven European cities in a fortnight have dwindled. The agents/operators also detect growing demand to experience and participate in English life – instead of just eating a typical English tea, for instance, clients actually want to know how to make the scones. Their clients are keen to experience local or regional cuisine wherever they go, and this is a product area which operators/agents feel the UK has barely begun to exploit.

There is scope to develop more regional specialities on the lines of Scotland's salmon or whisky, say the operators, and tap into the UK's varying ethnic cuisines – especially Chinese, which is particularly popular with Japanese visitors. The Japanese are increasingly celebrity-conscious and want experiences that bring them closer to their heroes. One operator, for instance, reports requests for groups to meet television chef Jamie Oliver, following the success of his programmes in Japan and high-profile magazine interviews with him.

Growing importance of football

Since the World Cup, agents have been inundated with requests for football tours – ideally to see David Beckham play or, more realistically, to attend a League match, or perhaps visit Manchester United's home ground. UK tour operators say that fans (women as well as men) tend to take a week off work, giving them five nights in London when they would attend two football matches.

Japanese star player Junichi Inamoto, who plays for Premiership club Fulham, is another focus of football trips. Fulham FC's website currently takes around a third of its hits from Japan, and there is a special link for Japanese supporters to buy tickets. Inamoto's more fanatical fans come to England in the hope of buying his shirt on match day.

Travel industry views are mixed on whether Japanese football mania is a passing fad, or will produce a new, more permanent source of business. Certainly, Premiership League matches are shown on Japanese TV and there appear to be supporters who are dedicated enough to come to the UK to see their team play.

Limited itineraries for group series

Despite some adventurous products for individual travellers, the major operators/agents largely offer much the same itineraries within the UK in their group series programmes. Aside from London, the most popular destinations for the Japanese are the Cotswolds – which epitomise the Japanese view of pretty English villages and picturesque countryside – the Lake District, where Beatrix Potter and the dramatic mountain scenery are the main draws, and the heritage cities of York, Chester, Edinburgh, Oxford, Cambridge and Bath, as well as Stratford for the Shakespeare connection. Among the 'must-see' attractions outside London are Windsor, Stonehenge, Warwick Castle, the Beatrix Potter Centre at Bowness-on-Windemere and the Wedgwood Story at Stokeon- Trent.

Continuing interest in English gardens

Visits to English gardens are increasingly popular with Japanese tour groups, with Cotswolds gardens such at Hidcote Manor and Barnsley House (home of author and horticulturist Rosemary Verey) regularly included in tour programmes. National Trust property, Sissinghurst Castle Garden in Kent, is an important day-trip attraction for London-based Japanese. 'English'-style gardens are fashionable in Japan, and garden accessories (handmade terracotta pots for instance) are popular purchases for shipping home.

Other gardens are now looking to exploit the Japanese interest. Tatton Park, for instance, in Cheshire, which incorporates an important Japanese garden and is home of a successful Royal Horticultural Society flower show, is a key element in a new strategy devised by the county of Cheshire. The aim is to persuade the Japanese who come for a quick visit to Chester to stay longer in the county and use it as a base for exploring other attractions in the region – as well as Snowdonia or the Lake District.

Tour operator price-consciousness

In the increasingly price-competitive market, package wholesalers are paring down tour contents and offering as much as possible as options. Attending at least one London musical show, for instance, used to be seen as an essential part of a trip, but operators now find the tickets too expensive at £45-£55, and shows tend to be a last-minute option. UK ground handlers say hotel and meal budgets for Japanese tours are substantially lower than a few years back, and attractions that charge entry fees are being axed in favour of those with free entry. The Tower of London and Windsor Castle are among the few attractions that Japanese tour operators will pay for.

Shopping is still important

Nonetheless, Japanese still regard shopping as an important part of their holiday. They may try and cut air travel and hotel costs, but the tradition remains of taking back souvenirs for relatives, friends, neighbours and colleagues in the office. Traditional favourites are tea, shortbread and other types of biscuits, a piece of English porcelain, and accessories such as a scarf or handbag – probably a well-known international brand which, with VAT refunded, would be cheaper than in Japan, although not as low as prices in France or Italy.

Souvenirs at UK attractions are important – the World of Beatrix Potter, for instance, relies on sales of small souvenirs (notepaper, paperweights etc, rather than the actual books) as a vital part of its income. Similarly, Japan represents 10% of business for the Wedgwood Story shop, and is its second most important market after the USA. But strong brand loyalty does not come easily – Wedgwood, for instance, has spent considerable time and money in Japan since the 1970s, building up its brand following. Newcomers find it hard to break into the Japanese retail market.

In London, a typical tour still allows for a souvenir-shopping trip, often in either Mitsukoshi or Isetan, depending on commission arrangements. These are the only two Japanese department stores in the capital to have survived economic crisis, and they stock English and international brands, but selected with the Japanese market in mind. Harrods and Fortnum & Mason – both with long-established strong brand images in Japan – remain popular; both offer incentive deals to Japanese groups and also employ Japanese-speaking staff to help with shopping, shipping and reclaiming tax.

For both, Japan is still their second most important market after the USA. This year, for the first time, Harrods has struck a deal with JTB that gives a packet of Harrods tea if a JTB card is produced. If a JTB customer spends £500, he or she receives a Harrods voucher. Harrods says the decline in Japanese spending at the store began in mid-2000, and continued through 2001. Sales started to pick up in 2002, but were not up to pre- 2001 levels. Louis Vuitton is the major international brand for Japanese customers in Harrods, but they also love Harrods-branded gift items, with tea and teddies top favourites.

Trends in business travel

Business travel has changed significantly over the past five years, directly reflecting the difficulties in Japan's banking sector and financial institutions which first emerged in 1997. Over 50 representative offices of major Japanese institutions closed down in the City of London and those that remained cut staff, and cut costs. In the new climate of austerity, Japanese business visitors to the UK reduced expenditure on hotels and entertaining. Many of London's restaurants and clubs catering to Japanese businessmen have closed, and golf clubs favoured by the Japanese also note a decline in Japanese business entertaining.

Although the Japanese expatriate community is still estimated to be around 50,000, the make-up is now different. The number of highspending, middle-to-senior management has decreased, while there is a growing number of young Japanese (especially women) who have come to experience life in the UK, typically taking a short language course but also working part-time (immigration laws allow Japanese students to work 20 hours a week). There is no likelihood of a return to the buoyant pre-1997 days of Japanese business, with associated high-income travel.

Unsurprisingly, London benefits most from Japanese business visitors, according to IPS data. In 2000, for instance, the capital received 80,000 business trips from Japan – 70% of all business visitors to the UK. Around 12,600 (16%) of business trips to London were to attend a conference and 1,500 (2%) trade fairs.

Trends in the study travel sector

Despite the collapse of the educational market in 2001, the travel trade say it is picking up quickly and note strong demand for the UK, both as a general educational destination and as a language destination (English is now compulsory in secondary schools). While the most important destinations for school trips are South Korea and China, demand for educational trips to Europe is outstripping that to Australia and New Zealand. JTB in London handles around 10,000 students on secondary school trips, but there are numerous other agents in Japan who deal directly with the receiving academic establishments in the UK (thus avoiding VAT).

JTB identifies two basic education segments. There are small groups of 10-14 who come to do a language course lasting between 1-4 weeks at a language school, typically in Oxford, Cambridge, Brighton or Bournemouth and usually in spring or summer. These constitute around 30% of JTB's education business. The larger segment is large school groups (up to 300 students), who come on a one-week trip as part of a compulsory school activity to improve general education.

Typically, these groups are based in London for sightseeing and take a day-trip to Oxford or Cambridge. Paris might also be included in the same trip. Although some schools would also like to include Italy, it is more difficult to find accommodation for large groups in Italy, and there are time constraints.

Language school students want 'homestays', but demand is far greater than supply, and some of those that are placed are disappointed with the reality of English homes, say agents. London is the most sought-after destination for all Japanese students, and those on language courses are mostly not keen to study further than two hours away from the capital. However, there are signs that Edinburgh could be a new hotspot, partly because of direct air access from Japan.

In general, the demand from Japanese schools for participation in British school life and activities far outweighs current possibilities. Requests to spend a week in a UK school are very difficult to organise, say UK handlers (unlike in Australia, where the government encourages such schemes and helps organise them). Similarly, a growing demand for football or rugby tours with matches against English schools, and also for short programmes of voluntary work with UK charities, cannot always be met because of logistic difficulties encountered by the organisers in the UK.

The UK education system is simply not geared up for receiving international groups like this, say agents, and is losing a good opportunity as a result. There is also growing demand for longer educational stays in the UK – a result of changes in the Japanese education system which now recognises a year spent in a UK school as a valid part of the secondary education.

Market outlook

Rise in outbound travel

Current forecasts from JTB project a 2% rise in Japanese outbound travel by the end of the year, to 16.6 million trips. Although first-half trends suggest this is overly optimistic, it is true that the 'dead cat bounce' syndrome will come into play in the last four months of 2002. This means, given the sharp fall in outbound trip volume from September through to December 2001, there should be solid double-digit growth over these months this year.

Demand should also pick up much more strongly in 2003 in line with a forecast improvement in the economy and a strengthening of the yen. This, however, assumes the looming war with Iraq will not become a reality and that there will be no more terrorist incidents such as the recent Bali bombing.

There is every reason to assume that the UK will benefit from the expected revival in Japanese outbound travel, although it does face formidable competition from other European destinations and, perhaps even more importantly, the growing trend towards shorter-haul, shorter trips. Like other maturing markets, the Japanese are increasingly opting to make several shorter trips a year – sometimes at the expense of long holidays that require lots of advance planning. Nonetheless, the Japanese have already shown they are less averse to a one-week long-haul trip than many other long-haul markets.

More summer holidays

There are also growing signs that the Japanese will move closer towards the Western tradition of taking summer holidays. According to a survey conducted by the Ministry of Health, Labour and Welfare, 79% of Japanese companies now plan to close an average of 6.8 consecutive days for summer holidays. Nearly all (91%) manufacturers plan on taking a summer break and 67% of firms say they will close for some time. This would presumably encourage more summer travel, especially by families with schoolage children.

Fondness for the UK

For the UK it is not realistic to expect a return to the halcyon days of the early 1990s – nor even a rapid return to 2000 levels of trips and spend. The BTA believes that the Japanese market could recover to 1999 levels in 2003, but it will be several years before it regains 2000 levels.

Although Italy and France already receive more Japanese visitors than the UK – and Switzerland and Spain are higher up their destination wish list – the Japanese do feel a warmth towards the UK. They appreciate Britain's history, tradition and culture, the countryside and the retail opportunities, and younger visitors, in particular like aspects of UK lifestyle and fashion. Japan's growing interest in the English language is another very obvious advantage for the UK.

However, the Japanese find the UK expensive compared with its European competitors, and tend not to be impressed with the food or service levels in hotels, restaurants and public transport, nor with the weather.

The UK fits well with the main preoccupations of Japanese travellers in Europe, outlined in Table 10. Its natural and scenic attractions are strong and it is rich in historic and new cultural venues, with galleries and museums to match those in competing European destinations, and arguably a better range of performing arts on offer than anywhere else in Europe. It has numerous niche products for the more adventurous traveller, and these could be tailored relatively easily to Japanese requirements, and it has the potential to build up many more study or educational opportunities.

Luring Japanese trade

One problem is persuading the Japanese travel trade that the UK is able to cater to a wider range of demands. While UK-based Japanese operators and ground handlers are generally open to new ideas and products, the wholesalers in Japan – who tend to be the decision-makers on final brochure content – are often very cautious, and prefer to stick with tried and tested itineraries. Hence, whole rafts of the UK are barely touched by the Japanese travel trade.

The UK travel trade is mixed in its views on how best to approach the Japanese market. Some highlight the difficulty in introducing new products – established attractions and brands say they have worked on promotion and developing relationships with their Japanese partners for many years. Regular visits to Japan are necessary, they say, and it may be several years before a contact translates into actual business.

At the same time, however, there appears to be a need for the UK's travel industry to be ready to identify and respond rapidly to new fashions in the highly susceptible Japanese marketplace. The surge in demand for football-related travel products is a case in point, or the growing interest in antiques or Western cuisine. In this context, theme-based tours and special-activity products have considerable potential.

Some change is likely in the BTA's approach to Japan, once the results of new consumer research, currently underway, are known. Particularly interesting, says the BTA, will be the better understanding of the young and the middle-aged women's market segments, both of which are important to the UK. Also important for the Japanese market is the BTA's new drive to better exploit the potential of new media – this was announced in November 2002 as part of a major overhaul of the BTA.

Japan was not included among the key seven markets that were targeted in the BTA's post-11 September marketing campaign. The BTA's marketing programme in Japan was cut right back to press and PR activities. Whether or not this made economic sense at the time, it was a move that has allowed some other destinations to be quicker off the mark in attracting back the Japanese, once they started travelling long haul again.

About the authors

Jill Trew and Nancy Cockerell are, respectively, Senior Editor and Editorial/Research Director of The Travel Business Partnership (TBP), which provides customised research and consultancy for the travel and tourism and related industries. TBP publishes two monthly newsletters: Travel Markets and City Profiles. For further information, please contact research@t-bp.com