ChinaTravelNews, Ritesh Gupta - Ctrip has identified business segments that the online travel group believes are going to sustain its growth trajectory in the years to come. The online travel group, which has chosen to rebrand itself as Trip.com Group ahead of its 20th anniversary, is bullish about serving the high-end group of travelers, its outbound business and also the contribution from its international business.
Ctrip’s CEO Jane Sun, who in a recent interview with ChinaTravelNews.com during the 2019 TravelDaily Conference in Shanghai shared that the overall revenue generated from the group's international business is expected to touch 50% in 3-5 years span, indicated the same during the Q2 earnings call, too. She mentioned that the growth rate for international hotels and air tickets more than doubled that of China outbound traffic growth in the same period. “Our hotel and flight ticket sales for cross-border travel activities maintained fast growth during the quarter, more than doubling the growth of China's outbound trips,” mentioned Jane.
“...we are confident that outbound as well as foreign-to-foreign international tickets will be the future drivers of our business,” said Jane. She stated that in order to grow its international business, recruiting proficient local talent in each market is also going to be the key going forward. “…we need to recruit talent at local level. So we are putting concerted efforts to identify and recruit and train our team in each market so that we can build a strong team, understand our customers and build our product offerings that are suitable for the local customers and move methodically into each region,” she said. “Mainly, the people will make the business penetrate further into each region.”
Referring to a couple of highlights, underlining the growth of Trip.com and Skyscanner brands, Jane said, “For Trip.com, air ticket volume delivered triple digits year-over-year growth for the 11th consecutive quarter and hotel growth is accelerating.” She added, “Skyscanner continues healthy momentum with its direct booking business maintaining triple digits growth.” Importantly, two brands have also complemented each other, mainly via the direct booking initiative. Also, international train tickets volume grew more than seven times year-over-year.
Higher margin from international business
As indicated in the past, the outbound plus international travel accounts for 35% of the group’s revenue contribution. With sustained improvement in coverage, price/ product offering, in the future, that number can continuously improve to 50% in the next 5 to 10 years, according to the group. One advantage that is associated with this segment is the margin. This business contributes relatively higher-margin compared with the group’s average margin level.
The team continues to count on one of its strong group of customers – the high-end audience. It was in March this year when Ctrip officially launched a premium customized tour platform for this segment, with products covering more than 80 countries and regions across the globe. The platform enables not only broader supply chain capabilities but also more targeted customer segmentation to tailor offerings for high-net-income individuals. Ctrip’s data shows that the average expenditure per person on a high-end customized travel package was RMB 23,800 (USD 3,410). By 2018, there were 1.67 million high net-worth individuals in China. The plan is to lift the GMV of Ctrip Customized Travel Business up to RMB 10 billion in the coming two years.
Also, a key point that makes the outbound business pie luring is the fact that Chinese travelers already spend over $200 billion overseas annually. Till last year, it was being indicated that only 16-17% of the population had traveled abroad.
Operational efficiency
Ctrip is confident about its growth prospects in China as well. “…in terms of the margin, yes, we will achieve operational efficiencies across all business units (and in doing so improve the operating margin) - not only the outbound travel-related business but also the domestic business as well,” mentioned Xiaofan Wang, group’s CFO and Executive VP. The group has been asserting that international business is more profitable than the domestic business, mainly due to the outbound business.
As for how such efficiency is reflecting in operations, the team has been highlighting that return on investment from the overall marketing spend on all the channels showed that if on one hand, the marketing investment level has been going down sequentially, the group is able to sustain a steady monthly active user traffic growth and momentum of new transacting users -- new transacting user acquisitions.
“Of course, outbound is more towards the mid- to high-end of the market because the average selling price is much higher compared with domestic products. But even our domestic products, we see continuous operating efficiency gaining (across every line of business).” And with such concerted effort to operational efficiency, as Wang mentioned, the group intends to run “profitable operations” even during the macro slowdown or uncertainties.
Reflecting further on the domestic market, Wang acknowledged that in certain areas, given the group’s current market share, the team isn’t projecting “exponential growth”. But with a relentless focus on a superlative user experience, Ctrip expects to grow in this market, too.
