China’s Largest Online Travel Agency Is Going Global - Barron's

China’s Largest Online Travel Agency Is Going Global - Barron's

Photograph by Hector Retamal/AFP/Getty Images

Chinese travelers have fueled a global tourism boom—and it’s just getting started.

Jane Sun, chief executive officer of China’s largest online travel agency Ctrip.com International (ticker: CTRP)—renamed Trip.com this week—sits in the middle of the trend. But it also finds itself dealing with the impact from rising tensions between the U.S. and China and protests in Hong Kong, which has tipped the important tourism hub into recession.

As incomes rise, more Chinese consumers are traveling, spending roughly $115 billion in outbound travel and $720 billion in domestic tourism, according to a HSBC report this year. Ctrip has evolved into a one-stop shop for tourists and has about 60% market share.

Ctrip, one of the first U.S.-listed Chinese companies, has set its sights on becoming a global travel company—one reason for its name change. About 35% of revenue comes from operations outside of mainland China, and the company has a target of 40% to 50% of revenue from abroad in three to five years. The company is well positioned versus its Chinese peers for that push, according to a note earlier this year from HSBC analysts who cited an established user base and an array of services and products—from flights and hotel rooms to train tickets and package tours.

Yet there are near-term pressures. Shares have fallen 28% since its April high and the company lowered its third-quarter outlook in September, citing geopolitical tensions including pro-democracy protests in Hong Kong. In a note to clients, Citigroup analyst Alicia Yap said there is little risk the company misses the lowered guidance but she sees social unrest in Hong Kong continuing to pressure international air and hotel revenue. Yap’s 12-month stock price target of $41 implies about 24% upside from current levels of $32.72.

Barron’s sat down with Sun last week on her visit to New York to discuss travel trends, the U.S.-China conflict, Hong Kong protests, and Sun’s push to create one of the most gender-diverse Chinese internet companies.

Barron’s: As the travel market has blossomed and becomes more competitive, what are the next catalysts for growth?

Sun: Last year, [Chinese] made about 150 million outbound trips. Right now China has 7% of people with passports versus 50% in the U.S. The travel industry will outpace GDP growth by 1% to 3% and Ctrip will outpace that. The most expensive tour we sold cost $200,000 per person for an around-the-world tour. Do you know how long it took to sell? 17 seconds. It tells you the buying power for our target customer is very strong.

[Growth will come from] penetrating into second-tier and third-tier cities [for customers], and expansion into more in-depth products. For example, we have customers asking for medical treatment [trip arrangements], marathons, and education tours. Third is technology advancement to understand the customer and provide tailoring for better products.

Cities in China are often divided up in tiers by population and affluence. What does demand look like beyond the wealthiest and biggest cities like Beijing and Shanghai into large but still developing cities, including those that may not be capitals of provinces?

A: First and second tier represents the future of other cities. Typically, Chinese start traveling domestically and to Hong Kong, Taiwan and Macau and then nearby countries like Japan, Korea, Southeast Asia. As income levels increases, Australia and New Zealand become very popular and then the U.S. and Europe. [Travelers from lower-tier cities right now] will go to Beijing, Guangzhou, Shenzhen and then move to nearby countries—Korea, Japan, Thailand.

China’s economy is slowing. How does that impact demand?

Maybe if the economy is doing well they make five trips a year. Even during a slow period, they still travel. Maybe they won’t go to Europe but they will go to Australia and New Zealand. If not, they go to Asia and if they trade down they may just travel domestically.

Have you seen this shift yet?

Not yet. We have seen travel to Hong Kong and Taiwan decline, which impacted 5% of revenue last quarter.

Do you see this demand coming back?

It is a very popular travel destination and any [itinerary] switching through Hong Kong will be impacted. Everyone wants to have a good solution at the end of the day, but we also need to develop alternatives. Maybe we make it stronger for Shanghai or Shenzhen to be an alternative so customers are taken care of.

Ctrip has been focusing on improving margins. Is there more room for improvement?

We will focus on channels that generate higher ROI [return on investments] that will consistently improve our margins. We focus a lot on the app. Once [customers] download our app, it is very easy for them to use and makes them loyal customers. About 80% to 90% of our transactions now are on the app.

How are travel preferences changing?

The older people were the first generation after Deng Xiaoping opened the door to come abroad. They don’t speak very good English and don’t feel safe traveling alone—most of them travel in big groups on a big bus with a flag. The younger generation speaks good English and maybe their parents took them to travel as teenagers so they feel very comfortable traveling on their own. They want smaller family tours and more customized and theme tours are very popular—ski trips and diving trips.

Ctrip has been investing abroad. What is your international strategy?

From a product perspective, our international flights are very strong so we made an investment in Skyscanner, an online price-comparison company, and gave them a direct booking capability to improve the user experience. It enables us to increase our conversion rate. We also made an investment in India in MakeMyTrip. India is a fast-growing market. Right now it is still small because GDP/capital is small but we expect it to grow.

What level of GDP/capita is needed to spark travel?

When customers make $5,000 per capita income.

What does the evolving relationship between the U.S. and China mean for business, especially given your plans for international growth?

China went through the process from being very isolated to the period where Deng Xiaoping opened the door. When you adopt open policies, you attract the best companies, best talents and countries will be prosperous.

In China, our teaching has been that when you collaborate, you win. When you fight, you lose. For Ctrip, we are open-minded. Any industry player who wants to list their product on our platform and have access to our 300 million users, we are open to them. For example, a local tour operator in New York has a VIP tour at the Metropolitan Museum of Art. We will list and sell it on their behalf, promote it and share revenue. For these operators, they used to not have access to our customers but now they do.

That’s a micro level, but on the macro level there is fighting and fears of decoupling.

Look at why we globalize: Because the money from the richest country can find the most efficient company—and that is a golden combination. For this money, they will get the highest ROI, and because of the capital these companies can grow. Who supplies Walmart, Costco, Target—cheapest products? Who benefits? It is the U.S. customers. Instead of picking on each other’s differences, we should focus on our shared interest.

When you talk to other business leaders in China is there a fear of it going in the wrong direction?

Of course, people have concerns. But different leaders are taking the relationship with China from very different angles. If one country shuts down, another will benefit. Just like when the U.S. raised the bar for visa, other countries with friendly visa applications or no visa requirement benefited.

There are proposals in the U.S. to restrict government pensions from investing in China and possibly delisting some Chinese companies. Has that rattled your investors?

Not really. I’m hoping the leaders of different countries will have the wisdom to make it work. Look at who benefits from these investments. If they owned C-Trip, we grew from zero to $20 billion. Who benefits? Our shareholders. Who are these shareholders? Pensions. You can’t see it as one-sided. There are enough stock markets—China has three, Singapore, Hong Kong, London, Frankfurt. If you try to shut down, there are always alternatives. And who loses?

What is the biggest risk to the business?

God and government. In travel, it is very much impacted by natural disasters—Japan had a tsunami, Thailand had a typhoon and Las Vegas had a shooting so that is a risky area for us. Also you have no control on foreign policy. Some country can shut down visas.

More than half your employees are female. What are some of the lessons you would offer to others trying to tackle gender issues?

More than 40% of middle management are female and more than a third of the executive team—much better than Silicon Valley. I’m one of the very few female CEOs so I feel tremendous responsibility. A couple of things we do: When a female worker is pregnant, we offer a taxi for them. When the baby is born we give them 800 yuan ($114) as a gift and 3,000 yuan for education fees, and when they come back to work we offer flexible working hours.

Does the pipeline coming through the ranks suggest a bigger change?

I’m hopeful but executive teams still need to do a lot. Once every quarter we have an off-site meeting. I noticed one of my staff was breast-feeding. I told her you can bring the baby with you and during meeting breaks run to the room to feed the baby. If I didn’t offer, she wouldn’t come to a CEO to ask if she can bring a baby to an off-site. By doing so, you help her, help the baby, help the family and you get very committed employees.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

Let's block ads! (Why?)

2019-11-01 11:02:55Z
https://www.barrons.com/articles/chinas-largest-online-travel-agency-is-going-global-51572606000
CBMiYGh0dHBzOi8vd3d3LmJhcnJvbnMuY29tL2FydGljbGVzL2NoaW5hcy1sYXJnZXN0LW9ubGluZS10cmF2ZWwtYWdlbmN5LWlzLWdvaW5nLWdsb2JhbC01MTU3MjYwNjAwMNIBZGh0dHBzOi8vd3d3LmJhcnJvbnMuY29tL2FtcC9hcnRpY2xlcy9jaGluYXMtbGFyZ2VzdC1vbmxpbmUtdHJhdmVsLWFnZW5jeS1pcy1nb2luZy1nbG9iYWwtNTE1NzI2MDYwMDA

Bagikan Berita Ini