Chinese travel-booking company
says the slowdown in the country’s economy presents a strategic opportunity to spend some of its surplus cash on gaining market share.
Ctrip’s hefty cash pile gives it flexibility to target specific markets within China with advertising and attract customers with special deals and lower prices, Chief Financial Officer Cindy Xiaofan Wang said Thursday in an interview with CFO Journal. The travel company had 63.3 billion yuan ($9.1 billion) in cash and cash equivalents as of Sept. 30, 2018.
“The market is cooling down a lot,” Ms. Wang said. “Naturally, a lot of loss-making players will exit the market.”
The company plans to offer more packaged deals consisting of flights, train tickets and hotel nights both inside and outside of China, said Ms. Wang. When customers bundle all three services for domestic travel on Ctrip, they typically save around 10% compared with making separate reservations, she said.
Ctrip also plans to expand its reach in China’s so-called lower-tier cities through targeted advertising, Ms. Wang said. The company serves those markets through offline travel bureaus operated by franchise partners, but would like to see more of these customers book travel through its popular smartphone app, Ms. Wang said.
Despite the discounts and additional marketing spending, Ctrip is sticking to its long-term profit margin target of 20%, Ms. Wang said. The company’s profit margin was 16% in the third quarter.
Ctrip is likely to accept a lower profit margin of 13% in 2018 and 2019, said Kevin Kopelman, an analyst at
“Ctrip will be driving some of their expansion with discounts,” he said, adding that the long-term profit margin of 20% mentioned by the company currently isn’t in reach.
But while margins may be lower, the company’s revenue—at 9.4 billion yuan in the latest quarter—is set to climb 14% in 2018 and still has huge potential for expansion, he said.
The CFO’s comments come against the backdrop of escalating trade tensions between the U.S. and China and a lower outlook for global economic growth. The International Monetary Fund in early October reduced its growth forecast for China’s economy to 6.2% for 2019, down from 6.4% growth predicted in April. The country’s economy is set to expand by 6.6% in 2018.
Nasdaq-listed Ctrip commands around 62% of the Chinese travel market, according to estimates provided by the company. Its main competitors are
Alibaba Group Holding
which together hold around 20% of China’s travel market.
Ctrip in 2016 acquired U.K. flight-search company Skyscanner Ltd. and uses it to complement its Trip.com offering targeted at outbound Chinese travelers.
The company prioritizes organic growth over acquisitions, but constantly evaluates potential takeover targets, said Ms. Wang. “The first priority for us as management is to reap synergies,” she added.
Write to Nina Trentmann at [email protected]
Source link Google News