Strategy Note /
China Group: First OTA to watch post-Delta

  • Due to its dominance in China, Group was among the relative winners of the global lockdowns in 2020

  • But, although the current outbreak is likely to be handled very soon, China is not immune from further Covid-19 shocks

  • The company is expected to post its Q2 2021 financials in late September; there will be 3 indicators to pay attention to

Ivan Platonov
Ivan Platonov

Research Manager

16 August 2021
Published byEqualOcean

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We see a glint of long-term growth potential in the company's recent moves.  Scores Cooperation With Emirates Airlines

A multitrillion-dollar industry, global travel and tourism was arguably the largest victim of the COVID-19 outbreak and the subsequent lockdowns. As per the World Travel and Tourism Council's latest report, the sector almost halved in 2020 to USD 4.67 trillion, from USD 9.17 trillion a year earlier. Its contribution to the world's GDP dwindled as well – from 10.4% to 5.5%. Meanwhile, the labor market struggled big time: the Council estimates that 62 million travel-related jobs were lost throughout the pandemic's first year. 

Cross-border travel has been suffering due to tourists' fears, governments' restrictions and corporates' discovery that teleconferencing tools can be a decent low-cost alternative to business-class tickets and five-star hotel bookings. UNCTAD, for instance, has projected that the number of international tourist arrivals dropped by 74%, or around 1 billion trips, in 2020. To stay afloat, many incumbents, like airlines and hotel chains, relied on state support or pivoted their businesses. There is however a group of new-economy enterprises that couldn't do either.

Online travel agencies (OTAs), digital platforms for a broad spectrum of travel-associated services, had thrived pre-COVID. This Internet-powered sub-industry flourished in the 2010s, owing mostly to the increasing population mobility and consumer technology penetration. In 2019, approximately 40% of global ticket orders and two-thirds of hotel bookings were made via OTAs' products.

Then came the pandemic. Their dependence on real market demand – perhaps the biggest of any platform business' pain points – soon manifested itself through shrinking sales and slumping profit margins. In 2020, a quintet of the planet's immense OTAs saw their combined revenues decline by over USD 19 billion year-on-year; the whole market contracted by at least 20%, which by all means is a conservative figure.


But while all the OTAs seem equal in their financial failures amid the global healthcare crisis, some, as often happens, have proven to be 'more equal than others.'

China, which managed to control the initial outbreak in a matter of a few weeks, then enjoyed a V-shaped recovery. The country's domestic tourism hit the pre-epidemic levels in early 2021, an achievement most states can only dream of these days. And Group (TCOM:NASDAQ, 09961:HK), the local OTA pioneer, has won big from this speedy rebound.

85TCOM2.jpg.jpg Group's global ambitions – shelved 

Founded in 1999, International went public on Nasdaq in 2003. Nearly two decades later, the company offered its shares again, this time in Hong Kong.

With around 60% of the Chinese OTA market, the Shanghai-headquartered firm has set a course for international expansion buttressed by results of two massive deals: it acquired flight-search unicorn Skyscanner in 2016 and travel booking site in 2017. That allowed Ctrip to change its name later on to Group, a moniker that "can be easily remembered by global users," as James Liang, the company's co-founder, executive chairman and ex-CEO, put it.

On the firm's 20th anniversary, Mr. Liang set a goal (link in Chinese) of becoming the world's largest OTA in 5 years.

After buying out over 40 travel industry players – the latest of which, to date, was Dutch platform Travix – Group currently operates a number of short-term rental, ticketing and OTA brands worldwide. Fueled by demand from multitudinous Chinese tourists, it had been rapidly growing in the foreign markets before the coronavirus started spreading across the map. In 2019, Group made CNY 4.46 billion outside of China, with this segment reaching a double-digit share (12.5%) in the company's total annual revenue for the first time.

This figure fell to merely 7.1% in 2020 though, as movement restrictions hampered the business.


For obvious reasons, China's inbound and outbound travel will see no quick recovery. For Group this means that their globetrotting plans are effectively postponed...

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