Ctrip’s Q4 2016 Earnings Preview: Acquisitions, Chinese Outbound Travelers, And Low Budget Hotel Segment In Focus

CTRP: Ctrip logo
CTRP
Ctrip

Ctrip is slated to release its fourth quarter and full year 2016 results on February 22nd. The company has been a strong performer in the online travel domain in 2016 and we expect its financial results to reflect the same. The company’s consolidation in China with the buying of stakes from Qunar and Baidu has currently made it the second largest OTA in the world in terms of market value (~$20 billion). However, Ctrip still has a limited presence confined to China given its regional focus so far, but this might change in the future with the company looking for global online travel market domination by expanding its presence among growing travel markets. Ctrip is currently concentrating on increasing its market share in the lower budget hotel segments in rural China along with a greater share of the Chinese outbound travel market. The year 2016 has been eventful for the company due to its numerous strategic acquisitions towards meeting those goals.

Ctrip’s Current Focus Areas

Currently, Ctrip is focusing on growing its presence in rural China and in building an international presence with a focus on meeting the demands of the Chinese outbound travelers. The United Nations World Tourism Organization reported that since 2012, China’s outbound tourism market has been the largest in the world contributing on an average over 13% of the global tourism annual income. The Chinese outbound traffic and spending continued ranking as #1 through the last measurement done in 2015.

Ctrip is trying to fulfill these goals by keeping hotel prices competitive, sometimes, even at the cost of foregoing profits, and by acquiring entities that gives it access to international markets. For example, after striking partnership deals with both the OTA leaders Priceline and Expedia, Ctrip acquired Skyscanner for a whopping $1.74 billion in 2016. That wasn’t all, however, Ctrip also invested in Mobike, a smartphone enabled bicycle renting service, and it acquired ground transportation company, TangReng World. It entered into a strategic alliance with Travelling Bestone, a travel agency based in China with over 5,000 outlets, in order to increase its presence in the lower tiered cities. In October 2016, Ctrip had made strategic investments in three tour operators based in the US, namely, Universal Vision, a bus tour operator and travel agency based out of New York, Ctour, a Los Angeles-based wholesaler and China group-tour operator, and Tours for Fun, a Los Angeles-headquartered online travel agency that concentrates on destination travel in the overseas regions. The four companies will work together in receiving customers, in supply and distribution of inventories, and in helping each other with their expertise.

Ctrip’s growth path looks so promising that at a recent conference, the company’s newly elected CEO, Ms. Jane Sun, mentioned that the company will reach its 1 trillion yuan gross merchandise value target by 2018 itself, two years before the earlier predicted timeline of 2020.

Ctrip’s Share Of Online Air Ticket Booking Might Increase Due To Skyscanner 

According to our estimates, over 50% of global air tickets are sold online, and the number is expected to increase to over 60% by the end of our review period. Ctrip currently has around 10% market share in the online air ticket market. This makes it the leader among other OTAs because Expedia has a 6% market share while that of Priceline is less than 1%. In 2016, around half the world’s total population, that is, 3.7 billion people traveled by air, reflecting a 6% y-o-y growth. This growth is expected to continue with the rise of the low cost carriers (LCC)  that carried over 1 billion passengers in 2016, accounting for 28% of total air traffic passengers. Ctrip’s recent acquisition, Skyscanner, is the world’s largest metasearch engine for air travel. Skyscanner, along with Travelfusion–the travel distribution system where Ctrip has a majority stake–will be working together to strengthen their capabilities in air search and along with its own air ticket booking capabilities, Ctrip can create a comprehensive metasearch plus booking platform for air ticket booking. This, in turn, might increase Ctrip’s market share in air ticketing even further in the future.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ctrip
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