Market Trends

Chinese Travel Market Soars as Trip.com Anticipates Earnings Boost

(Bloomberg) -- A surge in tourism has sent Chinese travel stocks to new heights, particularly as investors eagerly anticipate a financial uptick from Trip.com Group Ltd.'s upcoming earnings report on Tuesday.

Record Highs for Trip.com amid Travel Revival

Shares of Trip.com, a leading travel bookings company, have reached unprecedented levels in Hong Kong, marking a consistent rise over five days. Currently, the shares have seen an impressive 58% increase since the start of the year. Trip.com's position within the travel sector is unique, according to Morgan Stanley analyst Alex Poon, who notes the company's dual role as both a driving force and a principal benefactor of the inbound travel wave.

Joining the rally, Tongcheng Travel Holdings Ltd., another prominent travel agency, also hit an all-time high just a week prior.

Cautious Spending Gives Way to Optimistic Travel Trends

Senior Investment Manager at Pictet Asset Management in Hong Kong, James Kenney, noted that overall spending has been cautious due to economic factors like the property sector, job cuts, and reduced wages. However, Kenney foresees a dual enhancement in the travel sector: an increase in traveler volume, coupled with a rise in expenditure levels as consumers begin to travel more freely.

Despite broader economic challenges, travel has emerged as one of the most resilient consumption categories. Morgan Stanley highlights this resurgence, drawing attention to a 28.2% increase in trips made during the Labor Day holiday compared to the pre-pandemic levels of 2019, measured against data from the Ministry of Culture and Tourism.

Read more about the lopsided recovery of China as factories boom and retail spending lags.

A Gateway to Chinese Wonders Reopens

The horizon for travel in China appears even more promising with recent policy adjustments. After a January announcement by Beijing easing visa requirements for visitors from 11 nations since July 2023, there has been a noted uptick in interest towards China as a travel destination not just for local vacationers but also international tourists.

"As people look to return to China, we expect this will significantly drive the travel industry forward," said Pictet's James Kenney. The imminent boost in tourism is poised to benefit various sectors, from hotels and restaurants to a larger array of service providers associated with the hospitality industry.

Domestic Versus International Bookings: A Profitability Perspective

A closer look at the economics of travel bookings reveals a striking disparity in profitability margins. Earnings from international bookings are approximately double those of domestic ones. As outbound travel inches closer to 80% of the 2019 figures during the recent Labor Day holiday, continuing trends suggest a favorable outlook, according to comments from Kenney.

Trip.com, in particular, is projected to announce a 26% revenue increase for the first quarter of the year. Citigroup Inc. analyst Brian Gong even anticipates potential earnings that surpass the market consensus, suggesting that the market may have undervalued the robustness of outbound, international, and margin improvements in the travel industry.

Hospitality Sector Set for a Rally

Hotel chains, including H World Group Ltd., are expected to ride this upward trend alongside other travel-related businesses. May Zhao, the Hong Kong-based managing director at Zhongtai International Securities Ltd.'s research department, predicts a sustained rally within the hospitality sector.

However, not all areas within the travel industry are experiencing this robust growth. Air carriers, for instance, face a unique challenge. Eric Zhu, an aviation analyst at Bloomberg Intelligence, points out that the flow of travelers is partially fueled by price drops as airlines reintroduce capacity on key routes. Despite this, companies such as Air China Ltd. and China Eastern Airlines Corp. in Hong Kong have not performed as well as their industry benchmarks thus far.

Luxury Travel's Gradual Recovery and Emerging Catalysts

The recovery trajectory is slower for sectors catering to high-end customers. Data from the Ministry of Culture and Tourism indicates that per-capita travel spending remains 12% below the 2019 level.

Yet, positive catalysts are on the horizon. The forthcoming school holidays in July and August are anticipated to contribute significantly to the travel and tourism rebound. These periods traditionally see increased travel activity as families take advantage of the school breaks to go on vacations.

Consumer Confidence and Spending on the Rise

Bloomberg Intelligence offers further evidence of a renewed enthusiasm for travel. According to a recent survey they conducted, there was a notable increase in the number of respondents intending to allocate more of their budget towards domestic and international trips in the next three months. Specifically, the percentage of those planning to spend more on domestic voyages grew by nine points to 59% from January, while those looking to invest in international travel soared by twelve points to 73%.

This compelling statistical leap signifies a burgeoning consumer readiness to embrace travel experiences once more, injecting vitality into an industry that has been eagerly awaiting a full-scale revival.

In conclusion, the Chinese travel market is witnessing a robust resurgence, driven by an improved policy environment and growing consumer confidence. With leading industry players like Trip.com Group Ltd. at the forefront of this rebound, the sector looks set to reclaim and potentially surpass pre-pandemic heights. The forthcoming announcements of first-quarter earnings will provide investors and market analysts with further insights into the trajectory of this recovery, but the current indicators are undeniably optimistic.

If the optimistic predictions from Pictet Asset Management and Citigroup align, an influx of inbound and outbound travelers could further re-energize the diverse segments of China's travel industry, including hotels, restaurants, and service providers. Collectively, these developments manifest the broader economic significance and potential of China as a global travel hub, ready to welcome explorers from around the world once again.

©2024 Bloomberg L.P.

For more information on the effects of the travel revival on China's economy and Trip.com's performance, please visit Bloomberg’s website here.