The sector travel that will survive China slowdown says Ctrip CEO
China's economic slowdown has taken a toll on various businesses, but Ctrip.com CEO James Liang believes the tavel industry will emerge unscathed.
China's economic slowdown has taken a toll on various businesses, but the man behind Nasdaq-listed Ctrip.com believes the travel industry will emerge unscathed.
"Our sector is growing much faster than the rest of the economy, so we are very optimistic, from both the macro and demand side," said James Liang, the chief executive officer of China's biggest travel website.
The world's second-largest economy expanded 7.4 percent in 2014, missing government targets for the first time since 1998 and marking its slowest pace of growth in 24 years. Last month, Beijing lowered its growth forecast for 2015 to "around 7 percent" and unexpectedly cut interest rates for the second time in three months, as the domestic economy continues to grapple with a host of issues including a cooling property sector and deflationary environment.
However, the tourism industry, which remains in its infancy, outperformed on the back of rising disposable income and increasing enthusiasm towards foreign culture.
"Actually, the slowing down of real estate and manufacturing investments could be a good thing [because] people are shifting their money to leisure types of consumption, particularly travel," Liang told CNBC's "Managing Asia."
To be sure, the co-founder of Ctrip.com notes the industry will inevitably be bruised if China's growth slips below 7 percent.
"[To have an impact on the travel business,] growth will have to be below 7 percent and about 6 percent, but the industry is growing at least double that of China's gross domestic product (GDP). Also, the part we are focusing on, which is high-end vacation, is growing even faster than that," said Liang.
Travel within the Middle Kingdom, which currently accounts for most of Chinese travel spending, is expected to grow by 16 percent annually and hit $629 billion by 2020, according to the World Tourism and Trade Council. Meanwhile, the country's outbound travel market will likely expand to triple the size of Japan's by the same year.
Founded in 1999, Shanghai-based Ctrip.com International is now one of China's leading online travel agencies, covering more than 650,000 hotels, 100,000 destinations and 3 million restaurants.
However, a ramp-up in investments and stiff price competition with local rivals such as Baidu'sQunar and Expedia-backed Elong, have weighed on the company's income in recent years. For 2014, Ctrip.com saw a 2 percent slip in operating margin, compared to a rise of 16 percent in the previous year.
"This is an attractive market so there will be a lot of competition. Over the years we've built up a dominant market share, especially in high-end. We are getting to the lower-end but that takes some time to become profitable… so our profitability hurt quite a bit last year," Liang said.
Moving forward, the company believes its foundation in the high-end travel market will help it to survive the cut-throat competition.
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"On the lower-end market, it is very competitive… We have to give big discounts so the business is only marginally profitable. But we can be more efficient than our competitors because we have the infrastructure and transaction platform from our high-end business," the 46-year-old Liang said. "So while competitors are losing money, we can still maintain a slight profit."
Liang also expects returns from the company's investments in the mobile space to spearhead improvements in revenue growth.
"Actually, our growth rate has been accelerating. Last quarter we were growing close to 40-50 percent in the volume side and we predict first-quarter to be even faster. We have the acceleration because the scale effect from [our investments in mobile] will kick in soon," he added.
In the first-quarter of 2015, Ctrip expects revenue growth to increase 40-50 percent on-year, according to its guidance released last month. Overnight, the company's stock jumped 20 percent in New York.
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