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High-end is fine, but Ctrip has now its eyes on low-end market, too

03/21/2015| 10:23:27 AM| ChinaTravelNews

Ctrip is optimistic that the team is all set to penetrate the low-end market, combating similar focus of its competitors.

ChinaTravelNews, Ritesh Gupta - Quite often Ctrip, being the one-to-beat competitor in the Chinese online travel category, asserts its supremacy.

As it emerged during the company’s Q4 2014 earnings call, James Liang, chairman of the Board and CEO of Ctrip, mentioned: “We’re very confident Ctrip will have much higher net margin than our competitors. Well, that’s not so hard to achieve when our competitors have negative 50% net margin!”

For 2014, total revenues were $1.3 billion, representing a 36% increase from 2013. And loss from operations was $24 million, compared to income from operations of $139 million in 2013.

The lift in revenue came at the cost of bottom line erosion, due to increment in expenditure incurred.

Sustaining investments 

For 2015, the company is clear that this year is about sustaining the investment level and attaining efficiency in operations. The business is being built on strong foundation, for instance, scalable web service architecture is in place to support the rapid business expansion.

“Ctrip have a very dominant position in the high-end part of the business, international air tickets and five-star, four-star hotels, and Ctrip continue to see still healthy growth in this very profitable business,” Liang added.

So even as Ctrip acknowledges that it’s domestic high-end hotel and international hotel segments (doubled its international hotel coverage to more than 520,000 hotels in one year) have managed “accelerated market share gains”, the company is equally focused on the lower-end of the market. Ctrip has tripled its domestic hotel coverage to more than 220,000 hotels. Also, Ctrip has consolidated big data and cloud-based technology in three segments: software, information stream and data intelligence products. The new entity, Beijing Joint Wisdom Information Technology Co, is going to meet the different requirements of a hotel’ s branding, operation and RM.

Overall, the product mix is as diversified as ever. The company now boasts of an extensive assortment of offerings, for instance, bus and train tickets, already expanding at a quick pace.

Some of the highlights:

Mobile, expectedly, remained a major area of growth. Be it for garnering more than 600 million downloads of Ctrip mobile app by the end of last year, or mobile channels accounted for approximately 70% of online hotel transactions and 55% of online air ticket transactions in Q4, the company continued to improve its mobile portfolio.

The company has also developed its first app for Apple Watch. Also, over 60% of Ctrip’s corporate travel bookings are made through the online channel, including 25% mobile application reservation.

Most profitable sales channel: Ctrip highlighted the efficacy of its call centre operations , underlining that it is the most profitable sales channel. The set of customers are “high-quality customers, less price sensitive, looking for high level of the services. So it is the crown jewel of the customers that we serve, work very hard to serve them well,” shared Jane Sun, COO, Ctrip.

It was also mentioned that technology is strong enough to not only cater to increase in volume, for instance, in air ticketing business, although the volume increased about 50%, the staff cost also went down Y-o-Y, headcount decreased as well.  

Technology and margin: Liang asserted that Ctrip’s focus on technology over the past two quarters has enabled the team to garner “cheaper prices through open platform”.

He referred to the example of service efficiency in air ticketing. “…we were able to still make money or have positive margin of these low-end businesses, with the increased efficiency in our service capability,” he said.  In Q4, service costs per air ticket decreased by 27% Y-o-Y.

Negotiation power: Last year OTAs focused on stepping up their pre-purchases of hotel inventory. OTAs aim to have flexibility to assess the final selling price of this inventory. But this also means that there is an element of risk, incurring financial losses due to a mistake in forecasting or any other factor.

But Sun, referring to the rationale between combining the prepaid versus postpaid teams, said, “When we combine the two teams, our negotiation power is enhanced.” She said the benefit is two-fold: revenue-driven and also efficiency-driven.

Revenue generation: Ctrip is aggressively eyeing new avenues of revenue generation. The team has launched multiple travel-related financing products through mobile apps and online platform, including Ctrip gift cards and associated value-added financing services

TAGS: Ctrip | Online Travel
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