Domestic tourism "cooling down", Ctrip seeks growth in overseas business

The surging travel demand among Chinese people continues to boost the performance of the OTA platform Ctrip (TCOM.NASDAQ).

On May 21st, Ctrip released its financial report, showing that it achieved a revenue of 11.92 billion yuan in the first quarter of 2024, a year-on-year increase of 29%; excluding the impact of equity incentives and investment changes, the adjusted net profit reached 4.06 billion yuan, a year-on-year increase of 95.24%.

On the same day, Ctrip closed up 0.39% at $57.05 per share. As of May 21st, its year-to-date increase has reached 55.04%.

In terms of business segments, Ctrip's top two businesses, transportation and accommodation, maintained strong growth momentum. The transportation business, mainly driven by ticket commissions, contributed revenue of 5 billion yuan, a 20% year-on-year increase, accounting for 42% of total revenue; the accommodation business saw a 29% year-on-year revenue growth to 4.5 billion yuan, accounting for 38% of total revenue.

The travel and vacation business, which earns revenue through commissions from "group tours," contributed 0.88 billion yuan in revenue, a significant increase of 129% year-on-year; the corporate travel service business serving B2B clients saw a 15% year-on-year revenue growth to 0.51 billion yuan.

However, domestic tourism consumption has been declining this year.

In the first quarter of 2024, including the Chinese New Year holiday, Jinjiang Hotels (600754.SH) and other chain hotels experienced a year-on-year decline in customer traffic.

Sun Mengqi, an analyst at CICC International, believes that data after the May Day holiday shows that hotel prices on the mainland have fallen more than expected, with an expected 10% decline in hotel prices in the second quarter, which may continue into the third quarter before seeing marginal improvement in the fourth quarter. She maintains the expectation of single-digit growth for Ctrip's mainland business for the full year.

During the earnings conference call after the financial report was released, Ctrip's CFO Wang Xiaofan also noted the decline in ADR (average daily rate) of domestic hotels in recent months. He analyzed that the price decline is largely due to the shift in travel preferences towards outbound destinations and lower-tier cities. In addition, the increase in hotel and airline supply has also put pressure on short-term prices, especially compared to the high base of last year.

Ctrip's CEO Sun Jie also stated during the earnings call, "We expect outbound business to rebound strongly by the end of the year. The industry will recover to 80% of pre-pandemic levels, and our company can outperform the industry by 20%-30%."

TradeWind01 learned from sources close to Ctrip that due to factors such as the decline in airfare and hotel prices, as well as the high base in the second quarter of last year, Ctrip expects a revenue growth rate of around 13% in the second quarter.

This is a significant slowdown compared to the nearly 30% growth rate in the first quarter of this year.

With domestic travel gradually returning to the level of 2019, international business is the established direction for Ctrip to seek business growth.

Ctrip insiders told TradeWind01 that the "G2 Strategy" is Ctrip's established strategy, focusing on high-quality development and internationalization. Starting from 2024, in the next 3 to 5 years, each business line will achieve comprehensive leadership, making Ctrip Group the most advanced online travel platform in Asia and the most advanced online transportation ticketing platform globally In the first quarter of this year, Trip.com, the overseas OTA platform of Ctrip, contributed to a revenue growth of 80% year-on-year, accounting for 10% of the total revenue. Based on an estimated total revenue of 11.92 billion RMB, Trip.com's revenue contribution is less than 1.2 billion RMB, with around 70% coming from the Asian market.

Since the end of last year, with China introducing multiple visa optimization measures for countries such as France, Germany, and Switzerland, it has driven the growth of Ctrip's inbound business.

During the performance briefing, Ctrip's management viewed the inbound business as "a new opportunity for China's tourism industry." In the first quarter, the inbound business contributed to over 20% of Trip.com's revenue, compared to around 10% last year.

TradeWind01 learned from sources close to Ctrip that in the second half of this year, Ctrip will increase its investment in overseas markets, with a focus on the Asian market, which accounts for over 70% of the revenue. To increase the proportion of inbound tourism business for Trip.com, Ctrip will collaborate with airlines and hotels to drive the growth of inbound tourism business