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China’s largest online travel player, Ctrip, wants to get more global so it can serve travelers outside of China while domestically it is taking profits from high-end hotel-room sales and investing them into subsidizing the rates at lower- and mid-priced hotels to ward off competitors.
Ctrip officials provided details about these strategy shifts during the company’s second quarter earnings call Thursday morning in Shanghai.
Ctrip posted a net loss of $78 million in the second quarter of 2016 compared with net income of $23 million a year earlier. Revenue grew 75 percent to $664 million. Both figures reflected Ctrip’s substantial investment into rival Qunar and the consolidation of the latter’s results as of the end of last year.
Priceline Group, Expedia and Ctrip Second Quarter Results
|Gross Bookings||% Change||Revenue||% Change||Net Income||% Change|
Notes: * Qunar, which Ctrip invested in last year, contributed $155 million in revenue to Ctrip in Q2 2016.
** Ctrip would have posted net income during Q2 2016 were it not for $105 million in net losses attributable to Qunar.
Source: Public documents
Commenting on international strategy and macro events, CFO Cindy Wang said during the earnings call that the company’s volumes were down in Europe during the second quarter because of the incidents in Nice, France; Istanbul, Turkey and elsewhere on the continent but this weakness was offset by increased volume in sending travelers to North America.
“So, some of the volume was offset by our increase in North America,” Wang said. “So for Ctrip, I think it’s important for us to provide a very comprehensive product which covers the whole globe. So in case there is unexpected events taking place in one region, the other region will be able to compensate for this impacted region. So that’s our strategy. And our comprehensive product offering definitely helps us to achieve that.”
CEO James Liang reinforced that point, saying the company seeks to increase its focus on travelers outside of China by getting more comprehensive in its international product offerings. Internationally, he said, Ctrip currently offers airline tickets, hotels, car rentals, attractions and shopping.
“We have begun to serve customers outside of the mainland China, starting from greater China area,” Liang said. “Many of these markets have a large and fast-growing mobile population. To better serve our customers international and travel needs, we need to focus our efforts on creating a more comprehensive international travel product offering.”
Currently, sales of hotel rooms outside China amount to 10-15 percent of Ctrip’s hotel volumes and 15-20 percent of hotel revenue, according to Wang.
New Hotel Strategy In China
CFO Wang said hotel discounting in the form of Ctrip-provided hotel coupons is decreasing because of industry consolidation and the company believes it can further diminish its couponing in the mid- to long-term.
Wu said Ctrip’s strategy is to invest profits from selling rooms at high-end hotels into low- to mid-tier hotels to undercut potential competitors.
“We believe, especially in the mid to long-run, there is still room that we can further reduce our coupon levels,” Wang said. “But for Ctrip, because there’s still some competitors, potential competitors in the especially mid to lower-end of the hotel market, our strategy is to use the profit that’s generated from the high-end, mid- to high-end hotel to subsidize some of the mid- to lower-end of the hotel range. So that we can have the most competitive prices, especially in the mid- to lower-end of the hotel market, to prevent any potential competitors trying to enter into this space.”
This strategy to subsidize hotel rooms at the lower end of the market, said CEO Liang, won’t add a lot of margin or profits for Ctrip but can potentially add lots of incremental volume.
“I think this will be an interesting growth story in the long run,” Liang said, adding that the company is “excited” about the strategy’s potential.
The Changing Chinese Traveler
Today’s Chinese travelers are more willing to abandon organized groups and are looking for more personalized experiences — like some travelers in many parts of the world.
Along those lines, Jane Sun, Ctrip’s co-president and chief operating officer, said the company is seeing increased traction with a new service that lets travelers select their own tour guides.
Chinese travelers are getting more sophisticated, Sun said, and they seek personalized services.
Shanghai Disneyland opened a couple of months ago and it’s turning out to be a very positive development for Ctrip, which is now the largest third-party seller of tickets to the attraction, officials said.
On some days, Ctrip is selling 10,000 tickets to Shanghai Disneyland daily.