Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Focusing on Asian logistics, transportation, and travel companies

Asian Equities Analyst, Logistics & Transport

What's Wrong With Ctrip.com? A Diagnosis & Prescription for a Return to Financial Health

TRACKING TRAFFIC/Chinese Tourism: March Traffic Firms | What's a 'Travel Designer?' | Aloha, 中国朋友们!

CTRIP 54 Short near Bear Objective - Time to Reverse

The (Pretty) Good, The Bad, & The Ugly: Q417 Results From China Lodging, Ctrip, & Tuniu

TRACKING TRAFFIC/Chinese Tourism: Record Outbound Travel in Jan+Feb | Q417 Results | GHG's Lame IPO

In Five Charts, China Lodging Group (HTHT:US) Shows Why Ctrip's Role Is Diminishing

GreenTree Hospitality Versus Peers in Ten Charts: Operations, Financials, & Valuation at IPO Range

Equity Bottom-Up

China's state-owned airlines have been building up their direct sales functions over the last few years, in part by expanding their passenger loyalty programs. In aggregate, <a href="https://www.smartkarma.com/entities/8239" target="_blank" data-smartkarma-citation="entities:8239:1">Air China Ltd (H) (753 HK)</a>, <a href="https://www.smartkarma.com/entities/1078" target="_blank" data-smartkarma-citation="entities:1078:1">China Southern Airlines Co Ltd (1055 HK)</a>, and <a href="https://www.smartkarma.com/entities/1079" target="_blank" data-smartkarma-citation="entities:1079:1">China Eastern Airlines Co (H) (670 HK)</a> had 118 mn members in their loyalty programs at the end of 2017, up 54% from less than 77 mn at the end of 2014.Boosting loyalty programs and promoting the use of the airlines' mobile apps and other direct channels are designed to increase the proportion of direct sales and strengthen relationships between the airlines and their  customers. Ultimately these moves, when successful, can lead to lower Sales &amp; Marketing expenses for the airlines and reduced reliance on travel intermediaries (travel agencies).For China's leading online travel agency <a href="https://www.smartkarma.com/entities/180" target="_blank" data-smartkarma-citation="entities:180:1">Ctrip.com International (ADR) (CTRP US)</a>, the airlines' efforts to lift direct sales have slowed growth in its key transportation ticketing segment and put downward pressure on margins, in our opinion. Slowing growth and ongoing margin pressure help explain Ctrip's weak share price performance over the past year (down 11%), in our view.The objective of this note is to show graphically how the three large state-owned airlines have successfully developed their own sales channels and, as a result, are paying less to intermediaries like Ctrip. This trend is positive for the airlines (whose operating expenses decline) and negative for Ctrip (whose revenue growth slows). We expect this trend to continue in the medium-term, and it's the main reason we prefer the airlines over Ctrip as a way to invest in China's growing demand for leisure travel.

China's state-owned airlines have been building up their direct sales functions over the last few years, in part by expanding their passenger loyalty programs. In aggregate, Air China Ltd (H) (753 HK), China Southern Airlines Co Ltd (1055 HK), and China Eastern Airlines Co (H) (670 HK) had 118 mn members in their loyalty programs at the end of 2017, up 54% from less than 77 mn at the end of 2014.Boosting loyalty programs and promoting the use of the airlines' mobile apps and other direct channels are designed to increase the proportion of direct sales and strengthen relationships between the airlines and their  customers. Ultimately these moves, when successful, can lead to lower Sales &amp; Marketing expenses for the airlines and reduced reliance on travel intermediaries (travel agencies).For China's leading online travel agency Ctrip.com International (ADR) (CTRP US), the airlines' efforts to lift direct sales have slowed growth in its key transportation ticketing segment and put downward pressure on margins, in our opinion. Slowing growth and ongoing margin pressure help explain Ctrip's weak share price performance over the past year (down 11%), in our view.The objective of this note is to show graphically how the three large state-owned airlines have successfully developed their own sales channels and, as a result, are paying less to intermediaries like Ctrip. This trend is positive for the airlines (whose operating expenses decline) and negative for Ctrip (whose revenue growth slows). We expect this trend to continue in the medium-term, and it's the main reason we prefer the airlines over Ctrip as a way to invest in China's growing demand for leisure travel.

China Travel International Investment Hong Kong (308 HK)

China Travel International Investment Hong Kong

Mandarin Oriental International (MAND SP)

Shanghai Jin Jiang Capital Company Limited (2006 HK)

Shanghai Jin Jiang Capital Company Limited

Ctrip.com Vs China's Leading Airlines: Demolition by Dis-Intermediation in Eight Charts

Trip.com

Ctrip.com Vs China's Leading Airlines: Demolition by Dis-Intermediation in Eight Charts