Trip.com Gets Boost From Reopening Global Borders

China’s top online travel agent returned to profitability in the second quarter as a growing number of countries where it does business outside its home market lifted travel restrictions

Key Takeaways:

  • Strongly recovering business in the U.S. and Europe helped Trip.com return to the black with a 69 million yuan profit in the second quarter
  • The company said outbound bookings from Hong Kong jumped nearly four times last week from the previous week as the city prepared to end its quarantine requirement

By Ken Lo

After two years in deep freeze, travel in Asia is suddenly returning at its fastest pace since the start of the Covid-19 pandemic, helped by the easing of border restrictions in popular tourist destinations like Japan, South Korea, Taiwan, and Hong Kong. The trend has delivered a shot in the arm to the stock of Trip.com Group Ltd. (TCOM.US; 9961.HK), which surged 8.8% last week after the company reported a return to profitability in its latest quarterly results.

Trip.com and its global peers are quickly emerging from a long winter, feasting on pent-up travel demand accumulated over more than two years when global travel ground to a virtual halt due to pandemic controls. Now people are dying to get around as part of the classic post-pandemic “revenge spending,” which is expected to bring explosive growth to online travel platforms.

South Korea began to relax restrictions as early as late August, and Japan announced on Monday that it would fully open to individual tourists starting on Oct. 11. Hong Kong also lifted its quarantine requirements for visitors starting this week.

Trip.com said outbound bookings from Hong Kong on its platform rose nearly four-fold last week compared with the previous one. Among the top five overseas destinations for Hong Kong flights for the week, the Japanese city Osaka ranked first with bookings up 73-times from a week earlier. Separately, South Korean flagship carrier Korean Air confirmed that its bookings to Japan for October tripled from the previous month. Those figures all point to positive effects that regional re-openings are having on the online tourism industry.

One notable exception to the trend is China, whose borders remain nearly shut as it retains a “zero Covid” policy that has halted international tourism into the country and also prevented most Chinese – formerly one of the fastest growing global tourist groups – from traveling internationally. That reality has kept Trip.com from recovering more strongly so far, since China is the company’s largest and most important market. 

Things were looking bleak globally as recently as the start of the year, when the highly infectious Covid Omicron variant rapidly spread around the world. But the U.S. and Europe have moved to a strategy of “coexisting with the virus” in their attempts to bring the pandemic to an unofficial end. That decision helped globally-focused online travel agents like Trip.com, Booking Holdings (BKNG.US) and Expedia Group (EXPE.US) report strong business rebounds in the second quarter, putting major first-quarter losses squarely in their rear-view mirrors.

International bookings doubled

Trip.com’s operations consist of hotel reservations and transport ticketing, which are its two largest revenue sources, as well as packaged-tours and corporate travel services. According to its latest financials released last Thursday, its revenue in the first half of the year declined by 18.7% to 8.13 billion yuan year-on-year due to the prolonged lockdowns in China, which is still its largest market. Its gross profit fell by 21.5% to 6.08 billion yuan and its net loss reached 920 million yuan.

But things improved notably in the second quarter from the first, thanks to the strong recovery of its business in the U.S. and Europe. As things improved in those markets, Trip.com’s hotel and airplane ticket bookings on its international platforms more than doubled in the second quarter. That allowed the company to post a 69 million yuan profit for the quarter, returning to the black after posting a 990 million yuan net loss in the first quarter.

Chairman James Liang said that following robust recoveries in the U.S. and Europe, tourism in Asia is also coming back with the removal of travel restrictions. But the situation remains far more muted in China due to frequent lockdowns and other restrictions that have put a major damper on domestic travel in addition to halting nearly all international travel into and out of the country.

The company’s platforms now mainly consist of its domestically-focused CTrip.comand Qunar.com, its Trip.com international platform, and its hotel and airline booking price-comparison website Skyscanner. The financial report does not offer any geographical breakdown of revenue, but the operating data for Skyscanner and Trip.com broadly reflect performance for its U.S. and European operations.

Strong summer growth

Trip.com CFO Cindy Wang said on the company’s earnings call that Skyscanner and Trip.com more than doubled their revenue year-on-year in the second quarter, contributing 20% to 30% of the group’s total. That suggests its international business brought in around 800 million yuan to 1.2 billion yuan of the total 4.02 billion yuan it generated during the quarter.

Initially focused on its home China market, the company has expanded its business in the last five years using M&A. It has also long been the leader in China market, with market research firm FastData reporting it had more than 70 million domestic monthly active users at the end of last year. In addition to owning Qunar, Trip.com is also a major stakeholder in China’s second largest online travel agent, Tongcheng (0780.HK), giving it substantial control over its home market.

Trip.com managers recently said that hotel bookings in China in July grew by more than 20% from their level in 2019, and maintained positive growth in August on the same basis. The company is convinced that with product innovation, better services and a rebound in demand, its business in the Asia Pacific region will continue to improve in the third quarter.

Despite its China exposure, Trip.com still stacks up favorably compared to its global peers. Booking Holdings and Expedia Group have current price-to-earnings (P/E) ratios of 14.1 times and 10.5 times, respectively, both lower than Trip.com’s 24.5 times. That may reflect investor expectation that countries in Asia will continue to reopen rapidly, which could benefit Trip.com as one of the region’s largest players.

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