The potential for a slowdown in the outbound tourism market is forcing Ctrip.com International to shift strategic priorities, something that all major online travel agencies catering to the China market will have to consider.
Ctrip Chief Financial Officer Cindy Xiaofan Wang told The Wall Street Journal‘s CFO Journal this week that the company has substantial cash that the company will use to offer discounts to customers and engage in targeted marketing efforts to help ride out the potential downturn from trade tensions and other economic conditions. “The market is cooling down a lot…. Naturally, a lot of loss-making players will exit the market,” Wang said. The company had $9.1 billion (RMB 63.3 billion) in liquidity as of September 30, 2018.
Ctrip is planning to dip into cash reserves to ride out a slowdown in the Chinese tourism market
For Ctrip, this means attempting to bundle more bookings at a discount to drive revenue and user numbers. The company is also targeting travelers in lower-tier cities, which is especially significant considering how much faster tourism growth is outside of China’s more developed metropolitan areas.
This strategy could prove expensive for the company, forcing them to absorb losses on sales for an indefinite period of time. However, it’s also an opportunity for Ctrip and other major online travel agencies like Alibaba’s Fliggy or Meituan-Dianping to increase their market shares in the long term by absorbing losses now while smaller up-and-coming competitors are forced to scale back or exit the market completely.
Ctrip holds around a 60 percent share of the Chinese market, but competitors may drop out as travel becomes less profitable
Despite this market’s rapid growth over the past ten years, Chinese outbound tourism is currently dominated by only a few major online travel agencies at this point, and Ctrip is the largest with an estimated 62 percent share of the market. As such, there may not be much more market share for Ctrip to take. Metiuan-Dianping and Fliggy, on the other hand, have a lot more potential for growth, with a combined 20 percent share of the market.
Nonetheless, all three companies are contending with a tough market right now, and strong e-commerce fundamentals may help buoy their shares in the near term. Meituan-Dianping’s shares are down around 30 percent since its IPO on the Hong Kong stock exchange in September. Similarly, since the beginning of the year, shares of Ctrip and Alibaba have fallen 34 percent on the NASDAQ and 7 percent on the New York Stock Exchange, respectively.