Consumer spending on outbound trips has taken a hit thanks to China’s trade war with the US. This is the sentiment from China’s largest online travel agent, Ctrip. According to the organisation’s CEO, Jane Sun the trade war contributed to a USD6 billion fall in the US-listed company’s valuation this year.
In an interview with the Financial Times, Ms Sun said: “The trade war caught many companies in China by surprise; nobody was really prepared. The trade war affects confidence in both countries.”
According to the Financial Times, Ctrip and 45%-owned affiliate Qunar together account for more than half of China’s online travel market, a fast-growing sector but one that has slowed this year as consumer sentiment in the world’s second largest economy has weakened. “When the stock market is tanking people don’t have the confidence to spend,” Ms Sun said.
The company’s listed Nasdaq shares, which have a stock market valuation of USD15.8 billion, fell 19% in Nov-2018 in their biggest one-day drop for five years after the company forecast an operating profit margin of less than 1% for this year, down from 11% last year, because of macroeconomic weakness and higher spending on marketing.
Ms Sun said the impact was felt most keenly on trips to western destinations. “[Consumers] might not travel to Europe but they will travel to Asia, or within China,” she said.
Despite this, Ms Sun said she expects revenue growth, which came in at 18% last quarter, to remain strong even though profits are growing more slowly. She said Ctrip would not change its strategy, which includes investing in initiatives such as chatbots enabled by artificial intelligence to handle customer queries, and added that the company would keep headcount stable next year to control costs.
Economists expect Beijing to introduce more stimulus measures in 2019, with additional fiscal spending on infrastructure intended to sustain growth above 6%. “If GDP is growing 5 to 6%, travel will be 8 or 9 [per cent] and we will be double that,” Ms Sun said. “In the long run there is a lot of room for China to grow.”