Ctrip’s two new partnerships, one with TUI Group’s Musement and the other with Rezdy,  announced Monday, underscore the Chinese online travel giant’s strategy to strengthen its fast growing international business.

This business includes Chinese overseas travel and its global brands outside China, Skyscanner and Trip.com. It accounts for a third of the group’s net revenue of $1.1 billion in the fourth quarter of 2018.

Despite China’s economic slowdown and the Sino-US trade tensions, the group’s net revenue in the fourth quarter rose 22 per cent over the same period in 2017. Ctrip ended the full year 2018 on a high, with net revenue rising 16 percent to $4.5 billion over 2017.

Ctrip Chief Financial Officer Cindy Wang said on an earnings call Tuesday the international business “definitely gives us a very strong trajectory for future growth,” and Ctrip intends to invest further in it. This does, however, not mean it will give short shrift to the domestic business, where opportunity remains huge.

But first, a look at the international business, which Wang said “brings us a pretty or higher-than-average operating margin” as the product is mid- to high-end.

International Growth Exciting for Ctrip

Both international air and hotel bookings (excluding Skyscanner) grew by three times the industry’s growth rate in the fourth quarter, Ctrip said. Skyscanner’s direct bookings delivered over 200 percent revenue growth year-on-year in the fourth quarter. The site has over 80 million monthly active users internationally, which helps Ctrip a lot in global user acquisition, Ctrip’s Wang said.

But the largest component of international business, i.e. outbound travel from China, remains the key driver. Ctrip CEO Jane Sun describes what is a virtuous cycle: more Chinese are traveling overseas, and farther afield from Southeast Asia, as result of growing income and easing of visa rules for Chinese by various countries. This huge base in turn enables Ctrip to get “the best deals” for clients. Add to that its “very powerful international air ticket platform” and other infrastructure, such as 24/7 call centers around the world to help Chinese customers travel abroad.

To further massage growth, Ctrip is working with partners “to make sure our Chinese customers feel comfortable when they travel to these countries, such as [having signages in Chinese], Chinese language capabilities, et cetera,” said Sun.

Partnerships with Rezdy and Musement are also another example. Rezdy gives Ctrip’s Chinese customers, and Trip.com’s international ones, access to around 80,000 new travel products and services across the world, while Musement, 150,000 products. TUI, which acquired the Milan-based tours and activities platform last September, said there are also plans to develop exclusive excursions and one-day tours in Chinese for many destinations.

Rezdy’s CEO, Chris Atkin, said, “Developing the overseas travel market is an important step for Ctrip’s internationalization strategy and this new acquisition channel and form of customer engagement offers [will] benefit all stakeholders in the travel industry.”

The deals should also benefit Ctrip, whose customer demographics are changing. Clients under 30 years old make up half of its user base now, up significantly from one-third in 2013. These younger travelers no doubt want access to more options to personalize their trips, and the ability to book excursions and attractions instantly.

Open Platform 3.0 Strategy

Ctrip’s executive chairman James Liang said the group embarked on an “open platform 3.0 strategy” in December last year.

“This helps to connect us with hard-to-reach suppliers, particularly small and medium [size] tour operators, individual planners and tour guides, which account for 80 percent of the in-destination travel supply,” he said.

On its own, Ctrip last year connected its customers to over 9,000 local tour guides across the globe who registered on its platform.

The company is expanding its supply network to include vendors across all product categories, be they large global and regional players, smaller enterprises or even individual professionals, added Sun. Locally, it has a new mobile app that enable small vendors to sign up easily and automatically.

Domestic Market Expansion

But domestic travel will still be the backbone of Ctrip’s business as the company continues expanding into lower-tier cities with local products and service offerings as well as targeted marketing.

For example, it now has more than 7,000 franchised offline stores in over 200 cities in China, the majority of which are located in lower-tier cities, said Sun.

Ctrip Executive Chairman James Liang pointed to rapid urbanization growth in China from 50 percent currently to 70 to 80 percent within 10 to 20 years as reason why there is “still a lot of room for growth” for the company.

“This translates to 10 million to 20 million predominantly young people moving to cities to live and work each year, and indicates that there is a huge consumption capacity still to be unlocked,” he said.

“But on top of that, the Chinese economy is continuing to move from necessity goods to experience goods, from manufacturing to service, and from investment to consumption, particularly high-end consumption. So that trend bodes very well for the overall industry growth and for Ctrip.

“Ctrip, being the leading company in the travel industry, particularly the high-end travel industry including outbound and the high-end domestic travel, is very well-positioned to take advantage of that. And Ctrip will grow at least twice the industry’s growth, which is close to double digits. So Ctrip will continue to be one of the fastest-growing Internet companies in China.”

He added international air tickets will continue to grow well, along with rail tickets as China builds more high-speed railways.

“And all this will drive accommodation growth…we’re very optimistic over the growth prospects of all our product lines,” he said.

Ctrip gets most (42 percent) of its revenue from transportation (air, rail, bus tickets), which roped in $1.9 billion last year, an increase of 6 percent over 2017. This is followed by accommodation (37 percent of revenue), which totaled $1.7 billion, an increase of 21 percent.

Packaged tours and corporate travel also did well last year. Packaged rose 27 percent to $549 million, while corporate travel grew 30 percent to $143 million.

Who, Meituan?

To a question from an analyst about competition with Meituan and whether Ctrip needed to lower rates in the fourth quarter, Sun said Ctrip hardly initiates a price war and warned if there is one, based on its earnings ability, it will “relentlessly make sure we leave no room for other players.”

“Ctrip competes on service and technology. So every year, we put a tremendous effort hiring engineers to strengthen our service capabilities,” she said, pointing out, for instance, that about 90 percent of phone calls to its call centers globally are addressed within 20 seconds and about 90 percent of requests are handled on the first contact.

“In terms of our competition, I think every year, we have seen some newcomers…Our focus has always been on our product offering, technology and services. If we listen to our customers, understanding their trends, I think Ctrip will be in a very good position.”

Photo Credit: Chinese tourists traveling farther afield. Clem Onojeghuo / Clem Onojeghuo, Unsplash