Skift Take

China's largest online travel company says that it has changed its practices for upselling customers to comply with a consumer watchdog's request. The hiccup shouldn't knock Ctrip off its growth stride.

Last year, when China’s largest online travel company Ctrip acquired Skyscanner, executives said that the UK-based travel price-comparison company didn’t do as well as Ctrip at extracting revenue from each transaction.

But it turns out Ctrip has gotten in trouble with a Chinese watchdog for being a bit too good at extracting money from customers.

Earlier this year, the China Consumer Agency investigated Ctrip and insisted that the company change its policy of automatically opting in customers to purchases of add-on products such as flight accident injury insurance.

The company says it no longer requires consumers to uncheck a box to avoid the add-on costs.

Executives commented on the news during Ctrip’s first quarter earnings call Thursday morning Beijing time.

That development didn’t dent the company’s results. Ctrip chalked up first-quarter revenue rise of about $883 million (6.1 billion renminbi), a 46 percent jump from the same period a year earlier.

Profit for the first quarter of 2017 was $12 million (82 million renminbi), up from a net loss a year earlier.

Executives said they were also successfully navigating the complications caused by another Chinese regulatory body which, in 2015, ruled that the nation’s three state-owned airlines must boost their direct ticket revenue to half of their total sales by 2019.

Cross-selling customers on hotels, rental cars, and tours has become more important for Ctrip as a result of such pressures. In the first quarter, officials said its conversion rate for air ticketing has continued to improve even after adjustments were made to its practice of upselling customers to comply with government regulations.

Skyscanner gains

Ctrip executives were enthusiastic about Skyscanner’s plans to move to instant booking and away from the metasearch model, where customers are instead referred to suppliers or online travel agencies to complete bookings.

The results of early trials of so-called “direct booking” with airlines (while remaining within the Skyscanner interface) have been encouraging, the company says, with positive feedback from the carriers.

Ctrip says it has been working closely with Skyscanner’s team to speed up development of the direct booking interface and that progress has been happening faster than it expected.

(For more on this project, see Video: Skyscanner CEO Thinks Travel Sites Could Learn From Chinese E-Commerce, an outtake from Skift Forum Europe 2017.)

Future growth plans

Ctrip believes it must make overseas investments and acquisitions to enhance its technology.

Executives were keen to counter investor criticisms that the company has been a slow mover in innovation.

They were eager to tout how their employee count of 30,000 will not rise further and has not increased for some time, even though the company has absorbed new businesses and increased the number of transactions it processes.

Executives credit their ability to cap the headcount as the result of the company’s increased embrace of automation, especially for customer service.

The company also touted how it had enhanced the efficiency of Qunar, a smaller rival Ctrip has been absorbing since 2015, by converting that platform’s search-engine model into a direct-booking platform.

Eyeing India

MakeMyTrip, India’s largest online travel company, is issuing 916,666 ordinary shares to Ctrip as a way to raise $33 million in funding to help with its expansion. That builds on Ctrip’s $180 million stake in MakeMyTrip, made in early 2016.

Ctrip chief executive Jane Sun said on the call with analysts that her company looks at the India market as being where China’s online travel market was 10 or 20 years ago.

Sun says it is very hard for Ctrip to do the business in India under its brand and that it’s more effective for it to work with MakeMyTrip, which understands the unique contours of the market.

Sun says the investment Ctrip made in MakeMyTrip has been helpful in knowledge-sharing about how the two geographic markets have overlaps. “We work very closely with their team,” she said.

Sun has worked in Silicon Valley and has tended to have an international outlook. (See Skift’s March 2017 interview with Ctrip’s Sun for more.)

Ctrip has $5 billion in cash on its balance sheet, and the company borrowed about $500 million, or 4 billion renminbi, in late 2016, without explanation.

James Liang, executive chairman, wouldn’t say what the company planned to do with the money besides investing in its expansion and in being “open to investing in and partnering with travel leaders in every region.”

More broadly Liang said Ctrip would spend its reserves on its goal of becoming one of the most successful travel companies in the world.

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Tags: ctrip, makemytrip, skyscanner

Photo credit: Ctrip founders James Liang, Min Fan, Ji Qi and Neil Shen at Mercedes-Benz Arena in Shanghai for a company event. The first quarter earnings showed a strong start in 2017 for the Chinese online travel agent. Ctrip

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