First Free Story (1 of 3)Join Skift Pro
European tour operator Thomas Cook is targeting revenue of $133.6 million (£100 million) from its nascent Chinese business in the next few years as it looks to make the country a “sizable part” of its overall business.
Thomas Cook China has taken 20,000 Chinese consumers on vacation since its launch last year, a tiny group compared to its European source markets, but the company believes there is plenty of room to grow; the company aims to serve 200,000 Chinese consumers in the upcoming year.
The business is a joint venture with Chinese conglomerate Fosun, which is a minority shareholder of Thomas Cook. The tour operator uses Fliggy, the travel website owned by Alibaba, and Spring Travel to sell travel products in the market.
“So we said we want the business to be sizable… we need to get to £100 million ($133.6 million) of revenue at least within the next couple of years,” said Thomas Cook’s chief financial officer and deputy chairman of its China business Michael Healy on an earnings call after the release of the company’s full-year results.
“So that’s the level of the state of growth that we’re targeting. Ambitious, I agree. But that’s really the scale of the business that we have developed there. So we’re capable of it.”
Replicating the European Model
Tour operators and cruise companies in the U.S. and Europe have been looking longingly at the China over the last couple of years with some making concrete plans to service the market. Research firm Euromonitor predicts that China will be the world’s largest source of outbound tourism demand by 2022 with total 128 million trips.
The tour operator model, where travelers are sold a package of airline ticket and hotel accommodation, is largely confined to Europe due to a combination of affluent consumers and cold climate. Both make sun and sea vacations around the Mediterranean and elsewhere particularly attractive.
There’s no reason though why it couldn’t be copied in China, according to Thomas Cook.
“Package travel has remained a largely Northern European concept to date, however China makes sense as a growth market: its major cities do not have reliably hot weather, there are plenty of affluent people willing to travel, the Chinese get plenty of holiday, and there are enough sunny beach destinations within striking distance,” wrote brokerage firm Bernstein in a report on the Chinese travel market. “Furthermore the Chinese have a heritage of organized travel; previously done in groups they are migrating to individually booked travel.”
Thomas Cook and its European rival TUI Group are still small time players in the Chinese market (Bernstein estimated that Thomas Cook had a 0.0007 percent share of the market in 2016).
This puts them at a distinct disadvantage, especially when compared with behemoth that is Ctrip.
The Shanghai-based company has cemented its position at the top of the food chain through a series of acquisitions, including a stake in one of its big rivals Qunar.
“In terms of outbound travel, Ctrip and Qunar are the leaders in terms of your ticketing and then Ctrip as well as Booking.com and also Agoda in terms of hotel booking,” said Tony Jiang, co-founder and partner of private equity firm Ocean Link in an interview with Skift Research. “Ctrip is actually doing a very good job in terms of global expansion as well.”
Package tours represent around 12 percent of Ctrip’s overall business and it has made growing outbound tourism a key part of its overall strategy. There are also other competitors as well such as LY.com, which Ctrip is an investor in, and Meituan-Dianping.
With the strength of the local market it seems difficult to work out how Thomas Cook can succeed. Any opportunity is likely to lie in its extensive network of owned brand and partner hotels.
“We have a business that has [a] scalable operating system, go into our website, go through thomascook.com, you can get to thomascook.com.cn. And you will see that we have a very well-functioning business, offering great product, great offers as well,” said Healy. “A lot of it focused on Southeast Asia, but also plugging in increasingly into the Thomas Cook network in Europe, which is important.”
Thomas Cook might have bold plans for China but the market is likely to remain a small part of its business at least in the short to medium term. The company made $12 billion (£9 billion) in revenue of which its biggest geographical segment, Continental Europe, contributed $5.5 billion (£4.1 billion). The company’s European revenue makes the $133.6 million goal for China a drop in the bucket.