ChinaTravelNews, Ritesh Gupta – Tongcheng Travel registered growth in user-related key performance indicators in the second quarter (Q2) despite the fact that the April-June phase was gravely interrupted by the large-scale outbreak of Omicron variant.
The Hong Kong-listed online travel company, as has been the case for the entire travel sector in China, suffered due the prolonged spell of the pandemic and it negatively impacted financial performance. But despite this, the company believes that there are immense opportunities that can be capitalized on at this juncture.
Speaking during the company’s Q2 earnings call, Ma Heping, Tongcheng Travel’s Chief Executive Officer sounded optimistic and said “we passed the stress test”. He said “despite wide fluctuations or uncertainty, the team chose to turn to cost reduction and efficiency enhancement, while proactively seeking actual opportunities during the (second) quarter”.
The team indicated that despite facing the “worst ever situation” since the outbreak of the Covid-19 virus, it has benefitted from its “prompt control on sales and marketing spending and a sharp reduction of operation costs”. It has managed to achieve RMB 112 million adjusted net profit and 8.5% net margin in Q2. Overall, there has been a remarkable rebound since mid-June, according to the company.
From the product strategy standpoint, Heping said that the company is seeking “new growth engines for the transportation business”.
More users from lower-tier cities
Expanding the user base has been one of the priorities and in this context, the potential of lower-tier cities in China offers a great potential for future change. The company believes these areas are still “under-penetrated”. Another highlight has been its association with Weixin. Only a few days ago Tongcheng stated that the accumulated number of unique visitors in its Weixin mini program exceeded one billion since the establishment of the program.
As per the company’s Q2 results, the team at Tongcheng has been steadily increasing its registered users residing in non-first-tier cities in China. The figure has risen from 86% or so at the end of 2020 to 86.6% at the end of 2021 to 87% by the end of June.
The company has been evaluating consumption scenarios in these parts of China. What stands out is the fact these consumers are relatively new to certain travel products, and the demand “for quality travel products” is on the rise.
Heping said the company continuously explored scenarios for hotel stays during the quarter.
Other than serving travellers, Tongcheng has also worked out a software-as-a-service offering for hotels in lower-tier cities to augment their daily operational efficiency. Tongcheng asserts that as the online penetration and digitalization of the industry step up in the coming years, all of this would enable to take advantage of its solid foundation and continue to grow its B2C and B2B businesses.
User acquisition
The user acquisition tactics behind the rising penetration in lower-tier cities have been astute. The company is relying on marketing campaigns, promotions and also tying up with hotels, tourist attractions and bus operators for several initiatives (these include letting a consumer scan a QR code and this enables users to book through Tongcheng’s mini-program, cooperating with Jiangxi’s provincial Tourism Bureau to facilitate the free entry of university students in attractions in this province etc.).
The company introduced its Campus Card program last year to strengthen interactions with students and offering them tailor-made products. In Q2, this card program featured in cooperation with Jiangxi’s provincial Tourism Bureau.
“…consistent efforts were made to diversify the user base of the business,” said Heping. He highlighted the prowess of consumer insights and industry know-how. “…we have established effective engagement with new users such as college students (and other segments),” he said. Tongcheng is also looking at Tencent for strong affiliation with the youth. During Q2, the teams worked on certain initiatives, for instance, counting on IP rights to launch eSports events, targeting “effective interaction with the younger generation”.
Tongcheng has been running advertising campaigns over the past two years, working on a varied media mix from time to time, from digital channels to placing offline ads at railway stations, high-speed trains etc. In a recent initiative, the team chose to promote its Black Whale membership via a television drama series. The number of members is now more than 15 million (at the end of Q2).
Tongcheng acknowledged that its average MPUs decreased by 21.9% year-to-year to 26.1 million in Q2. It was stated that this performance was still commendable owing to cost-effective offline user acquisition.
Transportation business
Heping pointed out that even as Tongcheng has strengthened its position in the air ticketing business in “some advantageous regions”, the main objective now is to identify growth areas in the overall transportation business.
So if on one hand, the team is making its digital asset smarter by integrating all available travel routes with various means of transportation (working on the Huixing Smart System, it continues to play a key role in satisfying users' travel needs via this all-in-one transportation planning tool), on the other it is ensuring a consumer can take multi-modal option to cover their entire journey. For the same, the team is adding transportation options. “In addition to bus ticketing, we have also been ramping up efforts in car-hailing business to further penetrate the short-haul travel market. We strive to provide users with convenient access to one-stop-shop services, and they extend the traditional airport pickup service to car-hailing services,” he said.
Transportation ticketing revenue for Q2 was RMB 619 million, representing a 49.8% decrease from the same quarter of 2021.
Tongcheng is also using its association with transport service providers for offline marketing campaigns. For instance, evaluating how the bus network can contribute. “The bus ticketing business remains an effective instrument for the company to grow our user base bigger,” said Heping.
