Making the China connectionSave
By Fran O'Sullivan
A virtual airport terminal, big data, autonomous vehicles, augmented reality and artificial intelligence - not the usual starting points for an interview with a tourism sector chief executive on a cold, damp, smoggy night in China.
But Christchurch International Airport CEO Malcolm Johns is on a roll as he outlines his plans to put innovation and disruption at the centre of the company's growth strategies.
Over a lengthy dinner at a Chinese restaurant adjoining a wetlands resort, Johns outlined the vision which brought him and hand-picked senior executive Justin Watson to Hangzhou to cement an agreement with e-commerce giant Alibaba.
"We very much want to bring a virtual and a real terminal together for visitors and in the area of big data, the agreement we are about to execute with Alibaba is the biggest step we have taken in that space," Johns enthused.
What Christchurch Airport and Alibaba later signed was a memorandum of understanding which, at its most basic level, will connect small and regional New Zealand businesses with Chinese visitors before, during and after their visits. This promises to open up the power of micro-exporting - particularly from the South Island.
The signing ceremony at Alibaba's massive Hangzhou campus was attended by Alibaba Australasian executives and the NZ Consul-General to Shanghai, Guergana Guermanoff.
The companies' strategic partnership plays into a vision which is being strongly promoted by Alibaba founder Jack Ma, to have 2 billion consumers in micro-trading relationships with tens of millions of businesses around the world by 2026.
It will also open the way for Chinese visitors to more easily book trips to New Zealand, pay for items while they are here and then re-order quality products they have sampled in NZ after they return home to China.
"Alibaba's e-commerce is the biggest in the world," says Johns. "It's integrated and very powerful but the raw power of it is not its mass but its individuality.
"It's not about the big numbers. It's about the one-to-one direct trading relationships that allow for surgical micro-exporting to develop."
Johns took the reins at Christchurch Airport three years ago. The airport had lost about half a million passengers a year in the wake of the devastating February 2011 earthquake and had lost significant market share relative to Auckland Airport. "We were very much looking at how we could bring leadership, ambition and confidence back into the city."
Johns had been chief executive of the InterCity Group and had served on the board of Tourism NZ. Watson, who is his chief aeronautical and commercial officer, was head-hunted for his strong background in fast-moving consumer goods and was more recently Tourism NZ's director of trade, PR and major events.
In 2014, the airport set strategic objectives to achieve 8.5 million passengers a year by 2025 (forecast to add $1 billion annually to South Island and NZ GDP ), generate 10,000 new jobs across the regions and provide competitive returns to shareholders. Early signs are that the strategy is working.
The South Island's gateway for international visitors set an all-time record of 6.3 million passengers for the 2016 financial year. Servicing the South Island tourism market also resulted in more than $180 million of new GDP in all regions of the South Island - as well as generating a record $31m in dividends for shareholders.
Details of Christchurch Airport's disruptive strategy are commercially sensitive. But already, autonomous vehicle trials are under way; a driverless, electric Smart Shuttle is expected to be operating by 2019, moving 15 passengers at a time. Other autonomous applications are being discussed and the company is in the early exploratory stages of using artificial intelligence.
"At a philosophical level, we were just trying to target value, capture value and create value in the visitor sector and our focus on big data converged on Alibaba," explains Johns.
Watson says small New Zealand businesses frequently experience difficulties trying to make an impact in China. By installing the online payment system Alipay in their retail outlets, Kiwi SMEs could make more from the Chinese visitor experience and move to micro-transactions with tourists who have been to New Zealand.
The strategy was underpinned by a Berl study which indicated that such consumers would be six times more likely to buy New Zealand products if they had been here.
Says Watson: "There is an opportunity to target and attract higher value visitors from China to stay on and spend more. There is also a skew towards young professional females who travel in groups which exactly overlays with Alibaba's audience as well."
"Through Fliggy [Alibaba's travel service, previously named Alitrips] there is the ability to target them before they get to the South Island. And through the data we can continue to build and create new value streams for New Zealand SMEs to have those micro-transactions."
Johns points out that Christchurch Airport can step in and build an online platform (or virtual terminal) on which SMEs can display their products - "they don't have the expertise to data mine and highly target visitors".
"For us it fits into the virtualisation of our terminal. We can only fit so many retail outlets inside a physical terminal, but if you create a virtual overlay on top of it, you can extend your passenger spend rates and your retail relationships in particular.
"What drives us is building a virtual terminal and what Alibaba gives us the opportunity to do, is to take what we are already doing in the tourism sector and extend it out to the productive sector, particularly for SMEs."
Johns hit on the concept at a seminar in China, where the general manager for Spanish company Mango Leisure talked about their lessons from operating in both the "High Street" and online in China. "What most businesses look at with digital in China is the big numbers but it is actually the little numbers that really count. That is where the power sits."
There is precedent. When China Southern starting flying to Christchurch, strong visitor demand saw stocks of Mt Cook Aoraki salmon virtually wiped out due to the highly seasonal nature of tourism.
"If you have got a group of consumers that are self-selecting an interest in Aoraki salmon and they have an excess of supply during the winter months, then your opportunity is to use that pre-qualified group to extend the trading relationship through micro-exporting," says Johns.
"When we looked at the Alibaba platforms, what we found was the cost for a SME to be on some of those platforms was prohibitive, so if we could do what we do in our terminal and aggregate the platform and also aggregate the virtual terminal for those SMEs in the regions to be able to trade off, then that fits into our virtual terminal strategy.
"That's what we approached Alibaba about last year and got a very warm reception from the Alitrips, Alipay and Tmall Global etc."
The airport board liked the concept and approved a $1m development budget. "That is what has led us to the point we are now, where we are ready to commit to take their platforms and use an integrated database and start the process of working here in China and rolling out for New Zealand and building a back end for the tourism sector and the productive sector," says Johns.
The airport is a major driver of the South Island regional economy, and the 6000 or so people working there make it the South Island's largest employment site. It is also one of the partners in the "South" initiative, which sees all 13 regional tourism organisations working together to promote the entire island.
The "South" initiative is already strongly supported by organisations such as Destination Marlborough, whose executives were taken to China by Christchurch Airport and China Southern to drum up business.
The airport executives say the virtual terminal concept has been discussed with the 13 regional tourism organisations, major businesses such as Ngai Tahu tourism and retail clients in their terminal - "they are very excited".
"Even the likes of Ngai Tahu, who are very active in this market themselves and also have a Chinese digital platform, see the benefit of having a co-ordinated approach at scale," says Watson.
Adds Johns: "We haven't had anyone we've tested this with who has said 'No, we are not interested in being part of it'.
"The real power in this is you are dealing with an integrated database across the three stages: pre-visit, during the visit and post-visit. The challenge is for someone like Ngai Tahu - which obviously has seafood and other interests - is that on their own they couldn't aggregate to the point of getting all three of those phases working in concert with each other and that's the value that we believe we can bring to the process.
"Because in partnership with Alibaba, we can get the pre-qualification for high value visitors including influencing the itineraries of their visits to New Zealand to match up with the type of product we know they will be interested in.
"Such as the artesian [water] product produced in the regions. Then we can lift those."
Mining the data
Alibaba's Maggie Zhou is optimistic that the partnership with Christchurch Airport will boost micro-exports from New Zealand.
Over lunch at one of Alibaba's Hangzhou campuses, Zhou - the company's Australasian managing director - explains how the e-commerce giant will be able to mine its customer database to help the airport's initiative to assist South Island SMEs break into the Chinese consumer market.
"Before the travellers go to New Zealand we will upload their data from our platforms," says Zhou. "We know where they will go and also we will promote a lot of things to them.
"We will know what kind of products they are interested in and their travel plans, and when they arrive in New Zealand we will let them know what kind of nearby places they can go to."
At a subsequent briefing, Alibaba executives explained how a geolocation-based "Discover" function and push notifications within the Alipay app help users find nearby merchants, receive promotional information and make purchase decisions.
Says Zhou: "If you are a consumer and you open our platform, your front page is different from mine - 1000 people see 1000 pages that are different.
"You need to have a big consumer base to do that. In China we already have 450 million users, so we can have the big data to customise the page for those consumers."
The initiative will also enable airlines to better utilise planes' bellies to transport parcels of products back to China. NZ Post will be the logistics partner for the project.
The next stage is for the airport to develop a "South" presence on Alitrips and support the rollout of Alipay across the South Island tourism industry. It will later develop a retail trading platform through Tmall Global and provide data mining resources to target the right products to the right customers. This stage will also involve rolling out the Alibaba platforms to the North Island.
The Christchurch Airport initiative fits within Alibaba's globalisation strategy.
Tmall Global plans to attract more young and affluent consumers by recruiting new and interesting products and brands, releasing them through the Tmall Global channel, and helping merchants grow in the China market. The platform already hosts more than 14,500 international brands from 63 countries and regions.
"On one hand, we will continue to introduce big brands," said Tmall Global general manager Alvin Liu at an event held at Alibaba's HQ this week attended by 800 retailers from around the world. "On the other hand, we want to see more brands with personality. We wish to build a dynamic ecosystem to cater to the niche and diverse needs of Chinese consumers."
The number of product categories on Tmall Global's site climbed nearly 50 per cent in 2016 to 3700. Categories getting sales traction include electronic beauty devices, fresh food and dairy, wine and pet food.
More than 80 per cent of their retailers made their China debut on Tmall Global. In the year ended March 31, 14 storefronts achieved gross merchandise value of at least RMB100 million ($20 million) including Australia's leading pharmacy Chemist Warehouse, American fashion retailer Macy's, Japanese drug store Matsukiyo and UK supermarket Sainsbury's.
Last month Alibaba and Fonterra announced they had teamed up with New Zealand Post. "We want to use the new technology blockchain to build up a reliable supply chain," says Zhou.
Launched in 2004, Alipay is a world leading third party digital payment system. Users can hail a taxi, book a hotel, buy movie tickets, pay utility bills, make appointments with doctors or purchase wealth management products directly from within the app.
Alipay is accepted in 70 countries and regions, with in-store payments covering more than 100,000 retail stores, and tax reimbursement via Alipay is also supported in 24 countries. Alipay supports transactions in 18 currencies.Fran O'Sullivan travelled to Hangzhou as a guest of Christchurch International Airport and Alibaba Group.