It made 1.4 billion, but Ctrip couldn't be happy too soon

Kaiboluocaijing original

Author | Su Qi

Edit | Jin Xuanfan

Since last December, Ctrip's performance has been as strong as the demand for retaliatory travel has been.

On March 7, Ctrip released its Q4 and full-year earnings report for U.S. stocks, conveying a touch of warmth. Ctrip achieved revenue of RMB5 billion in Q4, a year-on-year increase of 7%; The net profit was 2.1 billion yuan, a year-on-year increase of 346.64%, the highest in a single quarter in the past three years. Ctrip's full-year revenue in 2022 was unchanged from 2021, while achieving its first profit in nearly three years, with a net profit of RMB1.4 billion.

Travel industry has not yet recovered in the fourth quarter of last year, so Ctrip's earnings report is also seen by the industry as a pre-dawn dawn - it has not yet returned to pre-pandemic levels, but at least it has begun to show good signs.

You must know that in 2020 and 2021, which were affected by the epidemic, the tourism industry silently circulated a "death" list, on which there were nearly 35 small and medium-sized tourism-related enterprises.

After three long years of the epidemic, OTA platforms represented by Ctrip have finally ushered in spring. No one can deny Ctrip's efforts to find growth points through outbound travel, local short-distance travel and sinking markets, but the slowdown in the growth of its core business, the siege of competitors and the contradictions with upstream partners that emerged before the epidemic need to be further resolved.

It is also regrettable that Ctrip's turnaround did not make the capital market buy it, and after the earnings report, Ctrip's US stock price fell slightly by 2.80% to US$37.53 per share, down 38.1% from the highest price of US$60.65 per share in the past year.

Looking back at the winter of the past three years in the spring of 2022, I hope that OTA platforms can truly overcome the winter as soon as possible.

It was profitable for the first time in three years, but Ctrip began to "slow" down

The signs of recovery in the tourism industry are evident in Ctrip's 2022 annual report.

According to the financial report, for the whole year of 2022, the net profit attributable to shareholders of Ctrip Group was RMB1.4 billion, a year-on-year increase of 355.09%. Although it is down 80% from 2019, this is the first time Ctrip has turned a profit in three years since the epidemic. The growth rate of net profit was even higher than that of online travel giant Booking's 162.49% in the same period.

In contrast, Ctrip's full-year revenue in 2022 was RMB20 billion, stable year-on-year, and its performance was decent. According to data released by the National Bureau of Statistics, domestic tourism revenue in 2022 fell by 30% compared with the previous year, and Ctrip's performance was relatively stable compared to the broader market, but it was not as good as Booking's revenue of US$17.090 billion (equivalent to RMB 118.5 billion) and its growth rate of 55.96% in the same period.

In fact, Ctrip's revenue growth had begun to slow down long before the pandemic. From the 2016-2021 financial report, Ctrip's revenue growth rate fell sharply from 76.45% to -48.65%, rose to 9% in 2021, and remained flat in 2022.

Looking at the profit situation by quarter, from 2020 to 2022, Ctrip suffered losses in a total of 6 quarters, which occurred in Q1 and Q2 of 2020 and Q1 of 2021 to Q1 of 2022.

Among them, Q3 is the summer peak season for the tourism industry, which is the golden time for many OTA platforms to rush their performance. In Q3 2020, Ctrip turned a loss into a profit, with a net profit of 158,000 yuan, but by Q3 2021, Ctrip missed the summer vacation, with a negative profit and a negative profit for the whole year. By Q3 2022, Ctrip began to show signs of recovery, with profits increasing by 131.33% year-on-year.

On December 7, 2022, the relevant departments issued the "New Ten Rules", adjusted the epidemic prevention and control policies, accelerated cross-regional flow, and directly boosted the performance of Ctrip's wine tourism and ticketing segment. In Q4 2022, Ctrip's quarterly profit reached RMB2.057 billion, the highest quarterly profit in the past three years, a year-on-year increase of 346.64%. Ctrip's full-year profit in 2022 also turned a profit.

At the heart of Ctrip's various businesses are accommodation reservations and transportation ticketing, which have changed significantly in the past year. In 2022, the proportion of revenue from accommodation booking business fell to 37%, while this business once accounted for 45%, and the proportion of transportation ticketing revenue rose to 41%, and in 2021, this business accounted for only 34%.

Xiaodong, a practitioner in the tourism industry, said that the accommodation business has a high unit price, more types of services that can be extended, and the monetization ability is stronger than that of the transportation ticketing business, so Ctrip has always been "traffic drainage and accommodation monetization", but in 2022, due to the short decision-making cycle of air ticket booking, many people have hoarded air tickets and rebooked hotels before traveling, resulting in a situation where the proportion of transportation ticketing revenue has exceeded.

At the same time, since 2017, the growth rate of Ctrip's transportation ticketing and hotel booking business has also begun to slow down, and the growth rate in 2022 is even slower than before.

In 2015, Ctrip acquired Qunar.com, and after the merger, the transportation ticketing business became Ctrip's largest revenue source in 2016, with a revenue growth rate of 98.2% in 2016, but since then, the revenue growth rate of transportation ticketing has continued to decline, reaching 38.5%, 5.9%, 8.0% and -49% respectively from 2017 to 2020, and the growth rate will return to 20% in 2022. The revenue growth rate of hotel reservation business reached 58.32% year-on-year in 2016 and -9% year-on-year in 2022.

However, Xiaodong also pointed out that now that ticket prices are becoming more and more transparent, transportation ticketing is a low gross profit business, and the role of drainage is more, which can only play a temporary role in Ctrip's performance. How to maintain and restore the basic business of high-star wine tourism as soon as possible is the key.

Out of the haze, how can Ctrip save itself?

During the pandemic, Ctrip narrowed its losses in 2021 to turn a profit in 2022, and in addition to significantly reducing sales expenses and R&D investment to control costs, it is also inseparable from its own transformation.

The most important of these is to seize the dividends of the rebound of outbound tourism. As soon as the news of the opening of inbound and outbound travel came out, Ctrip ushered in a peak in outbound travel search and booking, which in turn led to the fourth quarter and full year profit. According to its financial report, in Q4 2022, outbound air ticket bookings on Ctrip's platform increased by more than 200% year-on-year, outbound hotel bookings increased by 140% year-on-year, and the overall air ticket booking volume on the company's global platform increased by 80% year-on-year.

Since 2016, Ctrip has expanded into the international market through the acquisition of MakeMyTrip, Skyscanner, Trip.com and other companies. Xiaodong analyzed that in the process of expanding overseas markets, contrary to Booking's use of outsourcing call centers, Ctrip's choice to set up self-operated call centers overseas is one of the important reasons why it can quickly recover from the epidemic and respond to policy changes.

"For the domestic OTA industry, overseas markets are the next nuggets to compete for. For Ctrip, overseas markets are one of the important growth points in the future. Zhuang Shuai, an expert in the retail e-commerce industry and founder of Bailian Consulting, said. According to Guosheng Securities, Ctrip's international business revenue will increase from RMB11.6 billion in 2019 to RMB26.6 billion in 2025.

However, the consensus in the industry is that the real recovery of outbound travel will not wait until at least the summer vacation, from visa processing, flight resumption, route planning to the reorganization of relevant personnel, many links need to be strengthened.

Sun Jie, CEO of Ctrip, also said in the earnings call that a major bottleneck in the outbound travel market is that the outbound flight capacity can only reach 15% to 20% of the pre-epidemic level.

While long-haul travel is more service-rich and profitable, the pandemic has seen a shift in consumer travel plans, with closer and shorter trips becoming the trend. In order to attract short-distance travel users, Ctrip has developed more peripheral travel products.

"Ctrip has leveraged its channel advantages to penetrate a lot of peripheral travel markets." Wang Ke, a senior analyst at Analysys, believes that Ctrip is better at the medium- and long-term and high-end travel markets, and after the epidemic is over, medium- and long-term tourism will surely recover, and tourists still have a high demand for long-distance travel.

According to the financial report, from January to August 2022, Ctrip's local orders increased by 44% compared with the same period in 2019. Sun Jie mentioned in the conference call that in the fourth quarter of 2022, Ctrip's hotel bookings in the same city were 40% higher than before the epidemic, and "short-distance travel almost doubled compared to before the epidemic."

However, Zhuang Shuai pointed out that short-distance travel and peripheral travel pay more attention to localized offline operation and service capabilities, and Meituan Travel, which has the advantage of local life, is Ctrip's main competitor, in addition to players such as Tongcheng Travel, Fliggy, and Donkey Mother. In addition, although local travel agencies are relatively scattered, they have their own resources and customer sources, which also creates competition for Ctrip in terms of user trust and frequency of repurchases, and Ctrip should consider how to increase the added value of the platform.

Three years after the epidemic, the sinking market (third- and fourth-tier cities and low-star hotels) is also regarded as the next incremental market in the industry, and Ctrip has also made relevant layouts in rural tourism.

In the lower-tier hotel market, Meituan has long been seen as Ctrip's main competitor. After 2018, Ctrip's annual report no longer publishes the number of room nights booked by hotels. In contrast, Meituan Dianping's annual hotel room night market share accounted for 48.7% in 2019, which has accounted for half of the country. For Ctrip, it may not be enough to just grasp the "mid-to-high-end" basic plate.

"Meituan's advantage is that its local life business has a huge amount of traffic, and when people are looking for food, ordering takeaway or searching for nearby attractions, they book hotels on the platform by the way, and Meituan's hotel prices are generally low." Wang Ke said.

The degree of platformization in the sinking market is particularly low, and local travel agencies and small travel websites are still operating in a relatively primitive manner. If Ctrip can make good use of its platform-based operation capabilities and brand image, it may be able to encroach on part of the market. However, Zhuang Shuai learned that Ctrip's business is still in the stage of exploration and exploration, and the investment and development scale are relatively limited.

Ctrip can't rejoice too soon

After more than 20 years of accumulation, Ctrip has great advantages in terms of user scale, product market share and supply chain resources, but in the face of the deficit of the past three years and the siege of opponents, Ctrip cannot relax its vigilance.

One of Ctrip's biggest challenges has always been the delicate relationship with partners such as hotels, airlines and travel agencies.

Ctrip's revenue mainly comes from agency commissions, and the commission rate directly affects its revenue. According to Ping An Securities, from 2015 to 2020, Ctrip's hotel commission rate dropped from 10.5% to 7.3%. From 2018 to 2020, Ctrip's commission rate for transportation ticketing remained at around 2%.

Wang Ke analyzed that the decline in the commission rate of Ctrip's transportation and hotels was mainly caused by competition. In terms of transportation, airlines have been proposing "direct sales and downgrading" in the past two years, that is, increasing the proportion of direct sales and reducing the proportion of agents. In terms of hotels, they are subject to competition from low-cost and high-frequency strategies in the wine and tourism business such as Meituan and Fliggy. As a result, Ctrip's revenue from these two businesses is also gradually declining.

In May 2022, Ctrip implemented the "retail-to-agency" policy, which will gradually close the entry, renewal, operation and maintenance and online sales of domestic retail models of route (group tours), which means that travel agency merchants can only choose the passive agency model. Some analysts said that this move is equivalent to further aggravating the contradiction between merchants and platforms.

It can be seen that during the epidemic, some travel agency merchants and hotel merchants began to "escape" OTA platforms such as Ctrip, trying to use APP, mini programs and social tools to operate members, or live broadcast + push streaming on Kuaijitao to further accumulate private domain traffic.

Ctrip's second challenge is that cross-border competitors are increasing. In addition to old rivals such as Tongcheng, Fliggy, Mafengwo and Meituan to seize the market, content platforms such as Xiaohongshu, Douyin and Kuaishou have also begun to use content advantages to attract grass and attract traffic, trying to carve up the travel market.

For direct competitors such as the former, Zhuang Shuai pointed out that Ctrip started with the To B business, and compared with Fliggy, Tongcheng and Meituan Wine Hotel, Ctrip lacks traffic owners, and there is still a lot of room for improvement in user activity, private domain conversion rate and repurchase rate.

Regarding the latter content platforms, Wang Ke pointed out that the share of the entire tourism economy is relatively low, and at the same time, Douyin and Xiaohongshu are dominated by individual KOLs or small travel companies, which are far behind OTA platforms such as Ctrip and Fliggy in the construction of travel supply chains.

Zhuang Shuai believes that "competition from Douyin, Kuaishou and Channels from Ctrip is inevitable." "Because the fit between live short videos and scenic tourism is high, and the profits of this business are considerable, and the profit model is relatively clear, from the perspective of Kuaishou and Douyin's local life strategy and investment, their growth will become faster and faster, but they will also encounter the same problems as Ctrip."

It can be seen that in order to cater to young user groups, Ctrip has repeatedly emphasized its own content marketing capabilities through BOSS Live and Planet Number. According to the financial report, the number of KOLs of Ctrip increased by 47% in Q4 2022, and the annual growth rate of user-generated content reached 33%. However, from the GMV data, after Ctrip's GMV peaked at 865 billion yuan in 2019, it fell to 395 billion yuan in 2020, and no relevant data was released in 2021-2022.

With the end of the epidemic and the recovery of tourism, many industry insiders are still optimistic about the development of Ctrip, because Ctrip's basic market is relatively stable. However, whether Ctrip and the entire OTA industry can truly return to the pre-epidemic level depends on whether each company can seize the two key nodes of May Day and summer vacation, and whether it can consolidate new growth points.

*The title picture is from Visual China, and the picture in the text is from Pexels. At the request of the interviewee, Xiaodong is a pseudonym in the article.