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Ctrip bullish over consolidated operating results with Qunar

06/20/2016| 10:15:11 AM| ChinaTravelNews

Ctrip started to consolidate Qunar’s financial statements from the accounting perspective. The companies are hopeful of posting non-GAAP operating profit soon.

ChinaTravelNews, Ritesh Gupta - As two of China’s top intermediaries Ctrip and Qunar released their quarterly results last week, updates emerged on a couple of key issues – consolidation of the financial results as well as how revenue recognition is shaping up with partnering for hotel inventory.


Referring to results for Q1 of 2016, Cindy Xiaofan Wang, Ctrip’s CFO mentioned that Ctrip and Qunar “together had a very significant non-GAAP operating loss over 300 million, and this first quarter by very successfully executing our strategy, our consolidated non-GAAP operating margin turned to be profitable”. Wang further added, “And we forecast for the coming second quarter, we will continue this momentum and we will have non-GAAP operating profit in the range of a breakeven level to RMB100 million”.
Wang asserted that Ctrip and Qunar remain independent companies. While Ctrip largely targets business travellers and mid-to high-end customers, Qunar’s offering is more for young and price sensitive customers.
Qunar salvages ties with airlines
An area of concern for Qunar has been suspension of their respective business cooperation with a couple of major airlines in China. Airlines referred to customer complaints in their respective announcements when they chose to discontinue ties with Qunar. However, last week both Air China and China Eastern chose to reopen their respective flagship store on Qunar. As highlighted by one of our reports last week, as China Eastern resumed business with Qunar, Qunar also added to the listing China Eastern’s code-share flights operated by China Southern Airlines. A standard 3% commission is applicable to carriers cross-selling other carriers’ products.
Reflecting upon how air ticketing segment shaped up in Q1, Xiaolu Zhu, Qunar’s CFO acknowledged that flight business “was impacted but (it was) still stable.
Zhu said Qunar is eyeing sustainable long term growth in the air segment, and the reopening of Air China and China Eastern flagship store was just the beginning of this process.
“And we are working very hard with airlines, trying to find a way to work with them long term,” said Zhu.
In addition to flagship stores, the company plans to assess whether there are other opportunities on the platform side with the agents, cross-selling opportunities, commission structures etc.
“And I think if you look at the airlines, they are also in the process of changing their distribution structures in recent years. So I think this will be a gradual process. But the reopening of the two flagship stores is obviously a very good start and we are looking forward for more for the second half,” said Zhu.
In fact, Zhu also added that going by the “numbers and business”, the cross-sell opportunities and the revenue generated from cross sales are already a large part of the company’s flight revenue.
“So we do believe that with our continued innovation and better utilization of our user data and our traffic, we will have more opportunities to cross-sell more products to our flight users and to generate more revenue from there. So for us, we do see that there are still room for us to increase our flight take rate, especially considering that our take rate is still low compared to our industry peers. But this will be a gradual process,” shared Zhu, who said the team is “happy with the take-rate trend”. Zhu also admitted that there would be “some spillover to other platforms operators, such as Ctrip, and also to the airline’' own direct channels”. But, overall, Qunar’s position in the flight market is still quite strong, said Zhu.
Hotel strategy
As for hotels, Ctrip is clear that tactics are quite different for high-end vis-à-vis low-end of the accommodation business.
“There isn’t very fierce pricing competition (when it comes) to the high-end hotel and that’s why you see Ctrip’s couponing on the hotel segment has lowered to high-single digit from mid-teens from Q4 of the last year,” said Ctrip’s Wang .
Wang also indicated that Qunar has also chosen to cut down their coupon ratios on the high-end.
Since the lower-end continues to be a competitive market, “we will keep pretty competitive pricing strategy to put the pressure on any potential competitors in the segment,” said Wang.
Zhu also spoke about the same during Qunar’s earnings call and mentioned that Qunar does apply certain level of coupons in the lower-end market and for third and fourth tier cities. But on the higher end the coupon density will be less and less, Zhu said.
For their part, Qunar also mentioned that partners including Ctrip were added at the beginning of last quarter.
“(The) mix is still in a shift, and we will probably have a better sense after we finish the process. Right now I would say that both direct hotel business and the platform part are growing very nicely,” said Zhu. “In terms of our revenue recognition, we share the hotel revenues with Ctrip and we book our part at our revenue.”
Qunar plans to continue to expand the reach of its hotel coverage, by foraying into new markets and new cities as the online penetration for hotels is still low in China.
“In terms of competition, I think the key competition in the lower-end market and in the new cities are still the traditional offline channels. For out-of-town travel services, we don't see any real threat from newcomers, at least for now,” said Zhu.
If one looks at the contribution of mobile, Qunar’s CEO Zhenyu Chen spoke highly about the same.
Mobile revenues for Q1 were RMB752.5 million, an increase of 88.8% y-o-y, representing 75.8% of total revenues, compared to 59.4% in the corresponding period of last year.
The company continues to aggressive on certain counts just to expand its mobile user base. For instance, for lower-end hotels, Qunar continues to apply a certain level of coupons and also offer incentives, such as offline programs, to not only further penetrate their hotel business into more cities but also to attract more mobile users. Also, sales and marketing expenses for the first quarter were RMB 621 million, an increase of 89% y-o-y, primarily due to stepped-up discretionary expenditures to acquire new mobile users through offline channels.
In case of Qunar, mobile contributed 71% of their total revenue, 51% of flights tickets sold and 83% of hotel room nights stayed.  
Ctrip has been going equally strong. Cumulative downloads for Ctrip’s mobile app grew from 592 million in 2014 to 1.7 billion as of last year.

TAGS: Ctrip | Qunar | OTA
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