A Deep Dive Into Trip.com Group 2020

by Seth Borko + Skift Team - Oct 2020

Skift Research Take

China is like no other place on Earth and Trip.com is like no other online travel agency. It offers lessons on how to build an industry-leading business and how to respond to our deepest crisis ever.

Report Overview

China’s Trip.com, or as you more likely know it, Ctrip, is the world’s largest online booking site with more than $129 billion of travel sold in 2019. That’s fitting for the premier travel agency in the world’s largest outbound travel market.

This is a business everyone in travel needs to understand. If you haven’t bumped up against Trip.com yet, you almost certainly will at some point. it has big ambitions to expand internationally and that’s still the case even after the devastating impact of Covid-19.

Trip.com is unlike any U.S. or European booking site you may be familiar with, having built a complex web of strategic investments and partnerships throughout China and across the globe. It is mobile-first and offers a connected trip across a diverse range of products.

Deciphering Trip.com also offers insights into what the post-Covid world of travel will look like as China recovers faster than the rest of us. Here’s a hint: it features outside-the-box marketing campaigns and more business travel than you might expect.

Trip.com offers us a lesson in optimism and new growth, even after the industry’s worst even crisis.

What You'll Learn From This Report

  • Trip.com’s business structure, including key segments and growth rates.
  • How Trip.com stacks up to its global peers, Expedia Group and Booking Holdings.
  • A detailed look into Trip.com’s complicated network of strategic investments, partnerships, and subsidiaries.
  • Trip.com’s international and domestic growth strategies.
  • The ways Trip.com has been impacted by COVID-19 and how it is responding to gain market share and return to growth.

Executive Summary

Trip.com is the world’s largest online booking site with more than $129 billion of travel sold in 2019. That’s fitting for the premier travel agency in the world’s largest outbound travel market.

Trip.com offers its customers a diverse range of products, with a huge offering of flights, hotels, tours, and dynamic packaging. Its mobile offerings integrate search, booking, customer support, and local ground transportation, which leads to 80%+ of bookings being done on a smartphone in 2019. This is when leading U.S and European travel websites – Booking.com and Tripadvisor for example – are only taking their first steps towards offering a more holistic travel experience.

Trip.com has built a complex web of strategic investments and partnerships throughout China and across the globe. Its investments in hotels, airlines, tour operators, car rental companies, and travel agencies generate almost as much revenue as its actual operating business does.

The company has big ambitions to expand internationally, even willing to go so far as giving itself a more global name after 20 years as Ctrip. And that’s still the case even after the devastating impact of COVID-19.

Trip.com is now seeing a strong domestic recovery. It is gaining market share, taking advantage of the crisis to improve its processes and launch innovative livestream marketing campaigns.

China was the first to experience the devastating impact of COVID-19. Perhaps it will also be the first to show us the way for travel. Trip.com offers us a lesson in optimism and new growth, even after the industry’s worst even crisis.

Business Overview

Trip.com Group, formerly known as Ctrip, is one of the most important travel companies on the planet. As the owner of the largest online travel agency in China, which itself is one of the largest travel markets in the world, the influence it wields is immense.

Trip.com group operates four notable travel brands. Its flagship brand is Ctrip, China’s largest online travel agency. Ctrip operates on a full-service model, similar to Expedia.com, offering flights, hotels, car rentals, cruises, tours and more. The group also holds a large stake in Qunar, another China focused booking site. It also sells travel through its network of over 8,000 offline retail stores throughout China. Outside of China, the company uses the more English-friendly Trip.com branding. Although these four major operations appear to be different on the front end, we believe that many supply and operations are shared on the back end.

Trip.com has rapidly grown its global supply reach by partnering with or acquiring other online travel agencies. For instance, the company has partnerships with Booking Holdings that allow the two businesses to sell each other’s inventory. And by acquiring Qunar, Trip.com Group has made inroads in adding domestic hotel inventory in second and third tier cities in China.

Finally, Trip.com Group also acquired the prominent UK-based metasearch site Skyscanner. This gives the group a notable presence in metasearch advertising space, similar to the approach taken by Booking Holdings (via Kayak) and Expedia Group (via Trivago)

Trip.com is a powerhouse in travel, and in fact, when measured by gross bookings, it is the largest travel agency in the world with $129 billion of travel sold on its platform in 2019. Its bookings were growing rapidly before COVID-19, up 19% in 2019, and posting a ~30% growth rate in both 2017 and 2018.

Financial Performance

Trip.com may be the largest online booking site in the world by gross bookings, but the commissions it earns are quite small. The company has an effective take-rate of ~4%, leading to just $5.3 billion of revenue in 2019, not a travel industry record.

But still, that net commission revenue has been growing at a nice clip – a world-class 35% compound annual growth rate over the last four years. And what’s more is that Trip.com has a fairly consistent record of generating operating income and its margin was trending higher prior to COVID-19. 2019 was Trip.com’s best year for profitability since 2015, posting a 14% operating margin.

Marketing Spend

We believe the most important expense to track at an online travel agency is its marketing spend. At most booking sites this is the largest single expense and leveraging it properly is the key to growing sustainable profits.

Trip.com reported ~$1.4 billion of sales and marketing expenses in 2019, down slightly from 2018. This includes $820 million of advertising spend.

In the West, most booking sites use a combination of brand advertising, metasearch, and online performance advertising campaigns to build a pipeline of shoppers at the top of the funnel. And while they have a reputation for cheap prices, these days, the largest booking sites are likely to honor rate parity clauses put in place by travel suppliers.

However, we find that Trip.com, in addition to these marketing tactics and channels, also employs extensive promotional discounting and coupon campaigns to convert lookers to bookers. This is very similar to the approach used by MakeMyTrip, which we discussed in our previous report on that company.

Coupons which reduce the purchase price are accounted for differently – as a reduction of revenue, rather than an expense. In a May 2017 earnings call, the company disclosed that its gross take rate on hotels was trending at 10–15% but after adjusting for coupons, the net take rate comes out closer to 8–10%. This is a major impact to revenue, especially when you consider that hotels are the most profitable product that Ctrip sells.

Based on these ranges, Skift Research estimates that Trip.com may have offered ~$900 million in coupons in 2019 on top of its previously discussed marketing spend. That is up from $769 million of coupons in 2018.

Before taking these promotions into account, marketing spends appeared to have declined in 2019. But we believe that there was much more of an internal shift, away from acquiring traffic and towards incentivizing purchase behavior. On an all-in basis, we believe that sales and marketing spending grew marginally in 2019 from $2.2 to $2.3 billion.

Still, the sales and marketing line item saw a favorable de-leveraging as revenue grew much faster overall. Adjusted sales and marketing as a share of revenue fell by an impressive four percentage points to 37% from 41%. Marketing has been trending at ~40% of revenue since 2015, so it was a positive development to see such a strong improvement last year.


Trip.com operates across five business segments. These are based on the travel products sold, consolidated across multiple businesses, rather than reporting on a brand-by-brand basis. The segments are:

  • Transportation Ticketing: Trip.com’s largest segment representing 39% of 2019 revenue, or just over two billion dollars. This segment represents revenue from selling airline tickets, railway, and bus tickets. A very high volume, but low margin business, Ctrip believes that it is the largest airline ticket distributor in China and the company even maintains its own central reservation system which can offer tickets to nearly all domestic regions of China, especially outside of tier 1 cities.
  • Accommodation Reservation: This segment represented 38% of Trip.com’s revenue in 2019, or just over two billion dollars. Ctrip works with over 1.4 million hotels around the world. It is the largest distributor of hotels in China and sells the vast majority of its tickets on an agency model, earning a commission from the hotelier.
  • Packaged-Tours: This business generated $678 billion, 13% of the group’s total. Primarily focused on the leisure market, Trip.com offers group and semi-group tours. This segment also offers a cross-selling opportunity by way of packaged tours that can include hotels, flights, cruises, and buses all in one.
  • Corporate Travel: The smallest segment, at 4% of group revenues, $188 million dollars. This unit caters specifically to business travelers and in addition to offering booking capabilities provides corporates with reporting tools, industry benchmarking, cost analysis, and other travel management solutions.
  • Other: The final catch-all segment that includes online advertising and financial services. 7% of revenue, representing $368 million. Typically, the “other” bucket would be the smallest reporting unit at a corporation, but at Trip.com it is much larger than the aforementioned ‘Corporate Travel’ line of business. It is also the fastest growing of Trip.com’s businesses. We believe that the vast majority of revenue in this segment is advertising from leading metasearch site Skyscanner which Trip.com acquired in late 2016.
An Overview of Trip.com’s Segments, Revenue Share, and Growth Rates

Comparison to Western Peers

How does Trip.com’s business stack up against its two largest peers in the U.S. and Europe? Comparing Trip.com to Booking Holdings and Expedia Group reveals some striking differences in how the businesses are run.

Let us start with what is by far the most notable: Trip.com’s abysmal take rate. China’s largest booking site earns just a 4% commission on average. By comparison, Booking Holding’s boasts a 16% effective take rate and Expedia Group can claim an 11% effective take rate.

There are two primary explanations for this divergence. The first is that Trip.com has a greater focus on selling flights. Trip.com generated 39% of its revenue from transportation ticketing in 2019. By contrast, Expedia earns just 7% of its revenue from air tickets. Booking doesn’t break this segment out explicitly, but we estimate it sells a third of the amount of flights as Expedia, effectively a negligible share of its total revenue.

It is not a coincidence that these two charts are direct inverses of each other as air tickets are notoriously unprofitable products to sell. Most major Chinese airlines have replaced their variable rate commissions with a fixed administration fee per ticket which we believe may be as little as $1–2 per ticket. Adjusting for lower ticket selling prices and carriers that still provide selling incentives, we believe that air ticket effective commissions may be as little as 1–2%.

The second issue is that it seems that hotel commissions are less profitable in China than in the U.S. and Europe. In these regions, major OTAs charge between a 15–25% commission depending on negotiations. Large brands can negotiate more favorable deals, but we believe that it is common for independent hotels to be paying 20%+ take rates.

In contrast, the Chinese market sees hotel commissions of 10–15%. And this is despite China being a fragmented hotel market with many independent operators who don’t have the same power as large brands to push back on rates.

In the long-term, this second issue might prove to be more within Trip.com’s power to solve by taking pricing power. Especially as it will become an even more important demand channel in the face of a COVID-19 slowdown.

These differences in economic leverage are crucial. Trip.com, as mentioned earlier, is the largest travel site in the world by booking volume, selling 34% more on its platform than Booking Holdings did. But because of its heavy skew towards air tickets and low commission, these record sales translated to middling revenue. Trip.com generated just about a third of the revenue that Booking Holdings produced.

What about profits though? Booking Holdings still stands out as a superstar with an impressive 35% operating margin coming off its already higher revenue base. But here, Trip.com acquits itself much better. Its 14% operating margin is nothing to scoff at and outperforms Expedia which comes in at the bottom of the pack with a mere 8% margin.

A key differentiator here is marketing spend. Normalized as a share of revenue, we can see that Trip.com is promoting itself at about the same rate as Booking Holdings. And it helps us understand why Expedia, which spends 10 percentage points more on a relative revenue basis than the other two, is struggling with its profit margin.

Another way to look at marketing spend is to measure how effective it is in driving bookings. The metric we use here is gross bookings per marketing dollar spend. Trip.com group stands out as being almost three times more effective in its marketing campaigns than Booking or Expedia. For every $1 it invested in sales or marketing, it saw $57 in travel booking on its platform.

This may reflect the pure math of selling more flights, an expensive component of any trip, but we should not discount that it also reflects sophisticated marketing techniques designed to attract a highly online audience.

Key Business Strategies

Below we will take a look into some of the unique expansion and growth pursued by Trip.com. This includes a look into its acquisition and investment strategy, its use of mobile, and its plans to grow in new markets.

Investments and Subsidiaries

Trip.com makes extensive use of strategic investments and partnerships as a part of its growth and expansion strategy. It can almost feel as if there is hardly a major Chinese travel group that Trip.com does not have some connection to, either via a direct investment, strategic partnership, or board membership.

Yes, mergers and acquisitions are a standard tool of many travel companies. And plenty of online booking sites necessarily need to sign partnership agreements with their customers and suppliers. But we cannot think of a single online travel company with a more complex or expansive network of tie-ups. Trip.com pushes beyond the standard partnership approach of simple content sharing agreements, instead often opts to make strategic investments in prospective expansion markets.

Trip.com pursues a unique approach that feels more akin to a venture capital fund. This stands in contrast to many companies which view M&A is an all-or-nothing proposition with the target company being wholly acquired or passed on. Instead, Trip.com has built out a portfolio of small investments across a wide range of travel companies. The company will start with a small initial investment that usually leads to a board seat and then builds its equity investment from there over the course of many years. Over the last five years, Trip.com has invested more than $5.5 billion dollars in acquisitions and strategic investments.

Trip.com has used this strategy to strengthen its moat in China by deepening relationships with crucial travel suppliers. The company currently holds investments in leading Chinese suppliers of airlines, hotels, short-term rentals, tour operators, and car rentals. This includes minority, yet still substantial, stakes in China Eastern Airlines, Huazhu, BTG Hotels, Tujia, Tuniu, and more.

Trip.com has taken a similar investment-oriented approach to geographic expansion. Its primary foray into Europe has been by way of its Skyscanner takeover and its primary English-language site is operated through the Trip.com brand which was purchased in 2017. Trip.com also added significant exposure to the Indian travel market by acquiring a 49% stake MakeMyTrip. Management framed this holding as a long-term hedge against the China travel market maturing since India has similar demographics to what China had decades ago.

It’s not a one-way street either. Trip.com expanded its European hotel inventory via a partnership agreement with Booking Holdings that led to the Dutch travel site owning 5% of Trip.com and placing an observer on the Chinese company’s board (since COVID-19 hit BKNG has sold about half of this stake).

Trip.com has also been unafraid to invest in direct rivals, as a way to blunt competition. Most notably, Trip.com owns 43%+ of Qunar which is fully consolidated into the group’s accounts and operates as a de-facto subsidiary. Trip.com also holds a 27% stake in Tongcheng-Elong and has a cross-over with the Meituan’s board of directors.

The businesses that Trip.com has made major strategic investments in collectively generated more than $4.2 billion of revenue in 2019. Compare that to Trip.com itself which generated $5.3 billion. The company’s investments are responsible for almost as much revenue as its core business generates.

Trip.com’s Most Important Investments


  • Skyscanner: Trip.com bought out UK-based Skyscanner for $1.7B in December 2016. This gave Trip.com its first major inroads into English-speaking metasearch. Skyscanner is primarily centered around flights, which account for ~80%+ of its annual revenue. According to UK filings from 2018, Skyscanner had 1.78 bn visits, generated £261M of revenue (+22% y/y), and earned £50M in EBITDA (19% margin).
  • Trip.com: Trip.com, formerly Gogobot, was acquired by Ctrip in November 2017. At the time it was a small travel startup of 30 employees. The acquisition for all intents and purposes was an expensive rebranding as part of a global expansion push. As best we can tell little remains of the original startup. Instead, in September 2019 Ctrip renamed itself to Trip.com Group, removing the C (which stood for China) to emphasize its international ambitions. Now Ctrip puts its content behind the Trip.com domain and branding when operating abroad.
  • Qunar: Trip.com has had a long-standing investment in Qunar and it is fully consolidated into Trip.com’s financials since 2016, effectively making it a subsidiary, though it still operates semi-independently. Trip.com owns at least 43% of the Qunar, but we believe that its beneficial ownership stake is actually higher after taking into account Trip.com’s funding of Qunar employee compensation plans and LP investments in other Qunar investors.

Strategic Investments

  • MakeMyTrip: MakeMyTrip is the largest online travel agency serving the growing Indian tourism market. Trip.com long held a 10% equity stake. In August 2019, it completed a deal with then-majority owner Naspers to up its stake in MakeMyTrip to 49%. In exchange Naspers received a ~5% ownership stake in Trip.com group. Trip.com now controls five out of ten MakeMyTrip board seats.
  • Tujia: The “Airbnb of China,” Tujia is one of China’s largest short-term rental platforms, believed to have more than 1.4M global listings. Trip.com has been an investor since the company’s Series A and it was even a subsidiary until 2015. As this unicorn startup has grown and raised more equity, Trip.com’s stake in the business has been diluted, ultimately leading to Trip.com losing control of the business. It now owns less than half of outstanding shares and can no longer appoint board members. As a result, Tujia was consolidated from financial statements and is primarily an equity investment for the group.
  • Tongcheng-Elong: Tongcheng-Elong is the third largest online travel site in China by gross bookings, selling $25B of travel on its platform in 2019. It consolidates several major sites including Elong (formerly owned by Expedia) and Ly.com. Trip.com has a minority investment alongside Tencent which also owns ~23% of Tongchen. Tencent owns mobile messaging service WeChat.
  • BTG Hotels / Homeinns: Homeinns is one of the largest hotel budget chains in China. The founding group of Homeinns included two co-founders of Trip.com: Trip.com Executive Chairman of the Board James Jianzhang Liang and Director Neil Nanpeng Shen. Homeinns was acquired by BTG in 2016 and Trip.com wound up with a 22% stake in the new company. BTG is one of the three largest hotel brands in China. It is also a large tour operator. BTG earned more than $1.2B of revenue in 2019.
  • Huazhu Group: Formerly known as China Lodging Group, Huazhu hotels is one of the largest hotel groups in China with more than 463,000 rooms. It is mainly focused on the economy chain scale. Qi Ji, a co-founder and current board member of Trip.com is also a co-founder and the current CEO of Huazhu Hotel Group. Cindy Xiaofan Wang, Trip.com’s CFO, also sits on the Huazhu board. Trip.com had been a pre-IPO investor in Huazhu. In 2019, Hauzhu paid Trip.com $10M in commissions.
  • China Eastern Airlines: China Eastern is the second largest carrier in China. In 2016, Trip.com signed a strategic partnership and invested $463M in the business.
  • Tuniu: Tuniu is a leading Chinese online travel platform that offers a large selection of packaged tours, with both organized and self-guided itineraries. It generated $328M of revenue in 2019. In 2014, Trip.com bought shares in the company through its investment arm and signed a strategic cooperation agreement. Tao Yang, Executive Vice President of Trip.com’s Travel Business Unit serves as a member of Tuniu’s board.
  • eHi: eHi is a fast growing car-rental company targeting the Chinese travel market. Trip.com had previously owned a stake of ~14% of eHi. In 2018 it offered to sponsor a private take-out of the company but was outbid and in 2019, eHi was taken private by Teamsport. Trip.com retained its ownership stake in the newly merged company but at a diluted level that we cannot confirm. It has been reported that in April 2020 that Trip.com was in discussion to buy Car Inc, a rival Chinese car rental firm and merge it with eHi.
  • Tripadvisor: In November 2019 Trip.com announced it would sign a strategic partnership with Tripadvisor. Trip.com would invest in Tripadvisor to the tune of a ~5% ownership stake. Jane Jie Sun, CEO of Trip.com was appointed to Tripadvisor’s board. Trip.com will gain access to Tripadvisor’s content and reviews for use on its websites. The two will also form a joint venture, Tripadvisor China, led by Trip.com, to build out what appears to be a Chinese-langauge version of Tripadvisor.

Other Partnerships

  • Baidu: Baidu owns ~11% of Trip.com. Additionally, Robin Yanhong Li, Baidu’s co-Founder, chairman, and CEO is on Trip.com’s Board of Directors. Dou Shen, executive vice president of Baidu is also on Trip.com’s board of directors.
  • Booking Holdings: Booking Holdings used to be a major shareholder of Trip.com with >5% ownership and an observer seat on Trip.com’s board. But with the coronavirus BKNG has been selling shares and reducing its holdings of TCOM. The two companies still have a partnership in place to distribute each other’s inventory.
  • Meituan Dianping: Meituan is a large cross-industry shopping platform best known for food delivery. But it has branched out into a travel offering. In 2019 it sold more than 392 million domestic hotel room nights in China. Trip.com does not report room nights but it is possible that Meituan sold more room nights in China than Trip.com did, or at least the two are very close to each other in their domestic hospitality offerings. Trip.com does not have investments or formal partnerships with Meituan, but Trip.com co-founder and executive chairman Neil Nanpeng Sehn serves on Meituan’s board.


One of Trip.com group’s most important selling tactics is the use of mobile with billions of cumulative downloads of its app.

For those of us outside of China it is hard to overstate just how crucial this channel is. In the U.S. and Europe, mobile use for research and planning is more common but financial transactions are less frequent. That is not the case for Chinese travelers who both look and book via their mobile devices.

Data from our Millennial and Gen Z Traveler Survey speaks to the power of mobile transactions. 84% of young people in China use mostly or only their smart phone when booking flights or hotels. That’s more than twice the rate of individuals from the U.S., UK, or Australia.

These results are particularly relevant for Trip.com as its fastest growing consumer base is in this generational cohort. 50% of the site’s shoppers were under the age of 30 in 2019, up from just a third in 2013.

Trip.com makes extensive use of chat and micro-blogging platforms like Weibo and WeChat. For instance Trip.com offers a service called virtual tour manager that brings together travelers in the same destination in a WeChat group message managed by a Trip.com representative. These chat groups can be used to answer customer service questions and travel concerns in the local language. It also allows representatives to upsell or cross-sell products in-destination. In a dramatic case, Trip.com used the virtual tour manager service to communicate with its travelers that were in Las Vegas during the 2017 shooting to offer news updates and repatriation flights.

Trip.com also markets itself through WeChat and similar platforms. It can buy targeting ads against users on the services. It also has a marketing arm that partners with destination marketing organizations to help them get up to speed on using the app to attract travelers. For more details on these tactics, see Skift Research’s previously published WeChat Marketing Strategies for Global Travel Brands.

As a result of all the above, in 2019, more than 80% of Trip.com group’s transaction came from its mobile channel. That is a staggering, industry-leading figure. Booking Holdings generates perhaps half of its room nights via mobile and Expedia Group.com only about a third.

New Markets

Prior to COVID-19 Trip.com Group had two major paths for strategic, long-term growth. They were international expansion and further penetration out of the largest Chinese cities and into lower tier locations. We touch on each in turn.

International Expansion

Trip.com’s international ambitions have been no secret. After all, the company rebranded after 20 years to remove the Chinese ‘C’ from its name. But its international goals are actually running on two parallel tracks – one to promote outbound travel by Chinese nationals and the other to be able to sell into foreign markets.

Outbound Chinese travel is one of the most valuable tourism markets in the world. Chinese travelers took 166 million trips abroad in 2019, more than any other country in the world. We had previously forecast that China might approach 286 million trips abroad by 2029, though that number will now be set back by COVID-19.

In 2019 we estimate that Chinese outbound tourism expenditure totaled $277 billion. To put the magnitude of this spending into perspective, the U.S. came in second place with $157 billion of outbound tourism expenditure, followed by Germany at $104 billion.

Yes, there are many cross-borders trips to destinations like Hong Kong and Macau. But many millions of Chinese travelers are taking true international trips both close to home within Asia and long-haul trips to Europe and the U.S. Illustrative of this diverse mix was the top 10 shopping destinations for international Chinese travelers: Japan, UAE, UK, France, Singapore, U.S., Spain, South Korea, Italy, and Australia.

Catering to this market, Trip.com reported that in Q4 2019, just before COVID-19, its revenue growth from hotels excluding Greater China (which refers to Mainland China plus Hong Kong, Macau, and Taiwan) was 51% over Q4 2018. To put that in context, overall accommodation revenue, inclusive of domestic travel, only grew 12% in the same time period.

Another data point: in Q4 2019, international air tickets volumes grew by triple digits and had been doing so for every quarter over the last three years.

Overall, Trip.com generated 35% of its pre-COVID revenue from international travel, that includes both cross-border trips within the Greater China area and users in foreign countries. The company has a medium-term goal of pushing that ratio to 50%.

Just under 13% of total company revenue in 2019 came from users in foreign countries. And by extension that means that in 2019, 22% of total company revenue came from outbound Chinese travelers. The foreign business has been steadily growing in size at Trip.com, up from 2017, when 9% of sales came from outside of Greater China.

Additionally, we know that the majority of the Group’s ‘Other’ segment, accounting for 7% of group revenue in 2019, is Skyscanner’s advertising business. We can use that as a benchmark to roughly estimate that the actual international brand Trip.com therefore generated ~6% of group revenues in 2019, or $320 million.

That is respectable, but small compared to the big two western OTAs Booking Holdings and Expedia Group. Management of Trip.com Group acknowledges the international Trip.com brand is still in the early investment stage.

Finally, Trip.com Group has been investing and partnering internationally. Above we already discussed the significant investments that Trip.com has made in MakeMyTrip and TripAdvisor. It has also launched an overseas ride-hailing service which integrates with local ride-hailing services and is currently available in over 785 cities across 47 countries in Southeast Asia, the United States and Europe.

But all of this was before COVID-19. Obviously, the epidemic has put a halt to those ambitions. Trip.com’s international businesses have flipped from being growth drivers to significant drags on profitability. But we expect the setback to be temporary and for Trip.com to revive its international expansion plans when it is safe to do so.

Low Tier Cities

The other piece of Trip.com’s expansion strategy has been to meaningfully increase its presence in Tier two, three, and even Tier four Chinese cities.

This is a significant opportunity in these markets. The McKinsey Global Institute estimates that a third of Chinese middle class households live in Tier three or four cities. China has over 100 cities with more than one million people living in them. And Trip.com has significant headroom to grow here. It believes it has reached just 25–30% of the traveler population in first-tier cities and that its market penetration in lower-tier cities is “much less” than 10%.

A key part of this push has been adding offline travel agencies in these lower tier cities. Mostly operated on a franchise model, Trip.com added 1,300 stores in 2019 to bring its total count to 8,000 physical locations.

Management believes that in some smaller cities, this is the first time consumers are engaging with the Ctrip brand in a meaningful way. By combining offline and online channels, Ctrip reports 30% user growth on average in cities where it opened stores.

It is also crucial that Trip.com tailor its product offerings to its audience. For instance, most travel between lower-tier cities is by train, not by plane. And so, the company has had to expand its rail ticketing capabilities to complement existing air ticket offerings.

The results are beginning to pay off. In the fourth quarter of 2019, prior to COVID, Ctrip branded low-star hotel volume grew by 50% year-on-year, though those room nights were admittedly sold at lower daily rates.

This strategy works as a nice complement to the business’ international ambitions. It has been a relatively stronger performing segment since the outbreak of COVID-19, somewhat offsetting the huge disruption to international travel.

COVID-19 Impact and Response

We of course, need to talk about COVID-19. Trip.com has interesting lessons to teach the broader travel industry as China was both the first to experience the epidemic but is now also on the leading edge of health and safety measures to control the spread.

Our Skift Recovery Index is a real-time measure of where the travel industry at-large stands in recovering from the Covid-19 pandemic. It measures industry performance, relative to the same week last year. China’s current reading of 49, indicates that the Chinese tourism industry is still 51% below where it was at the same time last year. But this is a significant improvement from the troughs, more than double the output reading of 23.4 recorded in early April.

Domestic travel has been the key driver in China’s recovery. The government promoted domestic tourism during the recent Golden Week, taking place during the first week of October and data shows that 637 million people traveled during the 8-day holiday, spending nearly $70 billion in one week. Though impressive, that travel volume was still only 79% of those registered last year during the same holiday period.

With the virus contained within China and a population eager to return to travel, the country’s domestic tourism industry seems to be quickly approaching a full recovery.

Stunningly, Hotel data from Shiji shows that hotel bookings and room nights have been above 2019 levels since July, with very strong performance in September. Occupancy rates also climbed above 2019 levels for the first time in September since March 2020.

Domestic air travel is also clawing its way back to normalcy. IATA shows encouraging data with internal flight capacities and load factors sharply rebounding, and down “just” ~20% year-on-year.

However, the IATA data highlights just how devastated international travel has been. This is the flip-side to the domestic recovery: international travel is still virtually nonexistent out of China.

This explains why despite these strong domestic showings, the overall China Recovery index still shows the national down 51% year-on-year. China had such high outbound volumes and values in 2019, the country’s score in our index will inevitably be suppressed as long as international travel remains low. Because domestic travel is performing strongly, the country tracks considerably above the global average, but until some form of international travel returns, it is unlikely that China will score much higher than it currently does.

Trip.com specific data tells the same broad strokes. At the parent level revenue growth slowed in the fourth quarter of 2019, and then collapsed to -42% in the first quarter as the epidemic spread throughout China.

Trip.com’s chairman James Liang says that its activity in China bottomed in February but the decline in revenue deepened into the second quarter as the virus went global, shutting down international traffic. Trip.com’s overseas market hit the bottom in April.

Trip.com management expects that the company has already put the worst behind it and forecasts a sequential improvement in revenue for the third quarter. Though management still expects to see a 50% decrease next quarter compared to the same period last year, this implies a 68% acceleration in revenue from the second quarter into the third.

We can also get a quite nuanced view into the state of the Chinese travel recovery by examining how revenue has progressed at Trip.com’s different segments throughout the crisis. Accommodation revenue saw the greatest decline of any segment in the first quarter of 2020 when COVID-19 was primarily an issue affecting internal Chinese travel. But in the second quarter as lockdowns went global we can see how Trip.com’s segments levered to international travel took the brunt of the hit. This naturally includes the transportation segment, down -66% in Q2, but most notably packaged tour sales, down -88%.

The loss of Chinese packaged tour travelers in particular ties directly into the loss of tourism revenue across Southeast Asia. For example foreign arrivals in Thailand were down -71% in January – July this year, not coincidentally a very similar figure to the decline in packaged tours experienced by Trip.com. Trip.com expects that this business will remain the hardest hit and while it expects a broader snapback across other segments, packaged tours will likely remain down 80 – 85% in the third quarter.

It is also interesting to note sources of relative strength at Trip.com. Corporate travel, down ‘only’ -47%, stands out as Trip.com’s best performing segment in the second quarter, far outperforming Trip.com’s leisure-oriented segments. This challenges the prevailing narrative that corporate travel will be permanently impaired by the switch to remote during COVID-19.

CEO Jane Sun specifically called out that corporate travel “saw strong recovery momentum as business trips resumed” and expects it will continue to be her best performing segment into the end of the year. Management expects that corporate travel will be down 20 – 25% in the third quarter of 2020 compared to 2019, impling a 65% sequential acceleration from 2Q to 3Q.

Trip.com has also taken advantage of the crisis to rethink how it is doing business and launch new strategies to make it better, not just safer.

For instance, downtime has allowed Trip.com to improve its chatbot’s efficiencies by 3x. And Trip.com’s marketing campaigns have been entirely reset to focus on higher ROI. This includes discounts and coupons where effective and partnerships with local provincial destinations which underwrite incentives for the customer.

Perhaps Trip.com’s most interesting innovation has been doing massive live-streaming marketing campaigns. Since March, Trip.com co-founder and executive chairman James Liang has done more than 25 weekly live streams. His streams have sold more than $294 million in travel packages and hotels.

The quarantine version of a travel show, a given stream may be targeted to a specific destination, highlighting the region’s top attractions and Trip.com’s deals. These are particularly effective in the mid- to high-end domestic segment. The average product sold during these campaigns is priced at RMB 1,200 (~$180) and the experience has been so positive that Trip.com sees a 60% repeat customer purchase rate via live streaming.

Clear proof of the success of these initiatives is that Trip.com’s domestic air ticketing reservation volume tipped into positive growth territory in August. This is despite the fact that the overall Chinese dometic air market is still down 15–20% year-on-year. Thus Trip.com’s positive volume growth represents a significant growth in relative market share.

In addition to flights, the company saw a “full recovery” in domestic hotel volume in August and saw “double-digit” year-on-year growth in reservations at high-end hotels in early-September; though ADRs still remain depressed.

Management is even beginning to see some green shoots in international travel citing early efforts to establish travel corridors with Singapore and Korea.

China was the first to experience the devastating impact of COVID-19. Perhaps it will also be the first to show us the way for travel to recover. “We are increasingly optimistic,” says Executive Chairman James Liang, “that there will be more resumption of travel activity in major markets worldwide.”