Despite Its Consolidation In China, Why Will Ctrip Continue Providing Discounts On Hotels?
After Ctrip’s ownership of roughly a 40% stake in each of its major rivals, Qunar and eLong, it was expected that the price wars and discounting trends prevalent in China’s online travel space would significantly reduce. Chinese online travel players’ margin growth had been heavily dampened by this pricing related competition. However, in its Q2 2016 earnings call, Ctrip’s management admitted that pricing related competition will carry on for now with Ctrip providing deep discounts, especially for the lower priced hotel bookings.
Though Ctrip’s hotel revenue had been experiencing an over 50% growth Y-o-Y so far in 2016, most of this growth came from volume growth. In fact, in Q1 2016 Ctrip’s coupon rates have decreased to high single digits from its previous 20% level. It has slightly declined further in Q2 2016, however the company plans on decreasing the coupon levels even further albeit in the mid to long-term time frame. The presence of competition in the mid to low-end hotel segments, prevents the Chinese OTA giant from reducing coupon rates significantly in the short term.
The company is rather using the profit generated from the high end to mid end hotels in order to subsidize its lower end hotel prices. Ctrip is aggressive about letting competitors enter the market space, and hence this is its way of creating high barriers for entry for potential competitors in the mid-to-lower end hotel market. The local lodging market provides rooms at extremely competitive prices providing very little room for a profit margin, Ctrip is following the local market’s trend to increase the volume of its room bookings for mid-to-lower priced hotels.
Have more questions about Ctrip? See the links below.
- What Is Ctrip’s Revenue And EBITDA Breakdown?
- How Has Ctrip’s Revenue And EBITDA Composition Changed Over 2012-2016E?
- Ctrip Q4 2015 Pre-Earnings Report
- What Drove Ctrip’s Revenue Growth And Led To Its EBITDA Decline Over The Last Five Years?
- Ctrip: Year 2015 In Review
- Ctrip Q1 2016 Earnings Preview
- Where Can Ctrip’s Growth Come From In The Next 5 Years?
- Which Two Segments Are The Biggest Contributors To Ctrip’s Growth?
- How Fast Is Ctrip’s Hotel Revenue Growing?
- How Can Ctrip’s Expansion In Geographies Like The U.S. Impact Its Share Price?
- How Did The Brexit Decision Impact Ctrip So Far?
- Ctrip Q2 2016 Earnings Preview
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