Ctrip unfazed by macro uncertainty, rather primed for further growth
Asserting that Ctrip historically has outpaced China's GDP growth by a factor of four, the senior management believes the future remains bright, bolstered by robust position in the domestic market and ability to capitalize on opportunities presented by globalization.
ChinaTravelNews, Ritesh Gupta – Brushing aside concerns arising due to the “softer growth” of the market in the third quarter, Ctrip has asserted that the company is priming itself for the “huge long-term opportunity presented by both China’s and the global travel industry”.
Speaking during the company’s third-quarter earnings call, James Liang, Executive Chairman, Ctrip underlined positive forces in the macro environment, especially economic and infrastructure-related developments in China, to accentuate on the fact that the travel industry will benefit in the long run. One of the main reasons behind this bullish sentiment can be attributed to the fact that with a population of 1.4 billion, China is expected to benefit from a surge in the outbound tourism pie as only 16-17% of the population has travelled abroad. In comparison, the U. S. with a population of 330 million, had 138 million travellers at the end of 2016. Also, China had 4.44 billion domestic travellers last year, whereas the U. S. had 2.25 billion.
“We believe China will continue to be one of the fastest-growing economies in the world going into the next decade,” mentioned Liang.
The significance of infrastructure for travel can’t be overlooked, and Liang has been in favour of national policies that support railway travel and airport construction. “China has the largest network of high-speed rail expanding over 25,000 kilometers, twice that of the European system. By 2020, the high-speed rail will connect more than 80% of Chinese cities with a population over one million,” said Liang. In fact, the demand for rail travel can also be ascertained from the fact that Ctrip’s recent decision to introduce the first high-speed rail tour channel on its app resulted in an impressive level of transactions. “Within the first month, daily orders reached as high as 100,000,” said Liang.
The outbound travel pie remains attractive. “China’s outbound travel base is already the world’s largest, spending over USD 200 billion overseas last year, but currently accounts for less than 10% of total Chinese population,” said Liang. “(Over the past few years), China’s new passport issuance maintained annual growth of approximately 20%. Moreover, the Chinese passport can now allow Chinese to travel to 74 countries and territories around the world with no visa or visa on arrival requirements.”
Even foreign companies acknowledge the opportunity. Speaking during Booking Holdings’ third-quarter earnings call, CEO Glenn Fogel mentioned that China is facilitating foreign travel with favourable policies. “In 2015, there were 46 countries that were visa-free. Now there are 74 countries, makes it a lot easier to go,” he said. “When the economy is doing well, as people get more money, they want to travel more. And in China, when the person is able to afford to travel outside China, they want to go.”
As for inbound travel, Liang believes that there is still scope for relaxing inbound visa. He also spoke about the same during his speech delivered at ITB China, held in May this year. He shared that the number of inbound travellers was just short of the 30-million mark (excluding visitors from Hong Kong, Taiwan, and Macau) last year. “According to the Ministry of Culture and Tourism, there is a vast potential to increase volume when compared to the US which has over 75 million inbound visitors every year,” he said. In this context, China can look at expanding the number of airports (218 in 2016) and also other attractions such as museums (China had 4900 or so in 2016 whereas the U. S. had over 35100).
Sustaining growth momentum
Ctrip reported net revenue of RMB9.4 billion (USD1.4 billion) for the July-September period, representing a 15% increase from the same period last year.
As a global company, Ctrip is also looking at supporting its non-Chinese business. Ctrip has been strengthening its supply chain capability via Skyscanner and Ctrip.com, with two brands serving 90 million monthly active global users. This is in addition to 110 million monthly active users in China.
“We are selling more travel products across our customers' travel itinerary and we have become increasingly diversified, with revenue coming from our international businesses,” said Jane Sun, Chief Executive Officer, Ctrip.
Sun has been emphasizing on the fact that the plan is to optimize the user experience on the Skyscanner platform and converting the traffic by offering Ctrip's product offering to the traffic. “In the third quarter, Skyscanner’s global MAU increased by 26% year-over-year. Direct booking grew approximately 250% year-over-year, contributing around 10% of Skyscanner's total worldwide bookings,” shared Sun.
She also added that Ctrip and Qunar currently serve 130 million annual transacting customers in China that spend more than RMB 5,000 per year on the company’s platform. But Ctrip, which is about to enter its 19th year of operations, believes this is still long way to go. The base is expected to grow, the country’s middle-class population will grow from 430 million in 2017 to 780 million in the next 5-10 years, mentioned Sun.
Sun also mentioned that despite the ongoing macro uncertainty, Ctrip is set to leverage advantages of scale and a refined product strategy.
“We are selling more travel products across our customer’s travel itinerary,” said Sun.
She pointed out that Ctrip is benefiting from not only its comprehensive list of travel products, but also from being reliable. And this is paving for a loyal customer base. “…we have been able to also increase their (loyal customers) average travel spending each year by multiple folds, resulting in our repeating customer, accounted for around 80% of total transactions.”
Also, the time spent on Ctrip app is increasing, as users are engaging throughout their travel research, reservation process and in-destination funnel. The Ctrip app features over 60 travel-related products and services. “We have around 6 million points of interest that include travel destination information, attraction tickets, restaurants,” said Sun.