Travel issues

Trip.com: acquiring overseas

The coronavirus pandemic has upended daily life in much of the world for so long that the idea of travelling again feels almost far-fetched. Lay-offs in the sector are mounting at the alarming rate of one million jobs a day, according to the World Travel and Tourism Council, an industry group based in London. The council reckoned that the industry could lose as much as $2.1 trillion in business by the end of the year.

Against this backdrop, local media reported that the owner of Banyan Tree Sanya, a five-star hotel, has quietly offloaded the entire property to Hainan’s provincial government for Rmb1.6 billion ($225 million). The hotel is still under management contract with Banyan Tree, which signed on to operate it until 2023. As a result, even after the sale the name will be maintained and the hotel run by the luxury Singaporean hotel manager.

An industry insider told Sina Finance that the hotel was owned by Beijing Tourism Group (BTG), which is controlled by the Beijing city government. Both sides have been in negotiations since last year. The transaction value of the property also includes Rmb1.4 billion worth of debt.

Banyan Tree Sanya is the first all-private pool villa resort in China. However, the hotel was lossmaking even before the Covid-19 pandemic. In 2019 alone, its parent company recorded operating income of Rmb39.8 million and a net loss of Rmb91 million, Sina Finance reported.

Needless to say, Banyan Tree Sanya’s losses mounted during the pandemic. In the first four months of this year, the hotel’s operating income was just Rmb8.3 million, while net losses reached Rmb18.8 million. Prior to the Hainan government’s takeover, the property’s net book value was minus Rmb671 million, China Times said.

But in China, the word crisis (weiji) is made up of two characters which denote “danger” (wei) and “opportunity” (ji). Didi Chuxing, the giant car-hailing app, is betting that travel will eventually go back to normal. The company recently invested Rmb50 million to establish a new business arm, Beijing Xiaoju International Travel Agency. It will cater to domestic travel, inbound tours, tour information consultancy and ticket sales, reported Huxiu.

It’s not Didi’s first foray into tourism. Back in 2018, US travel firm Booking Holdings and Didi announced a strategic cooperation, through which Booking invested $500 million in Didi. This tie-up allowed Booking’s app to provide ride-hailing services for its customers, while Didi users gained access to hotel reservation platforms such as Booking.com and Agoda.

“The effect of the pandemic on the tourism industry is only temporary. And besides, the tourist industry is very important to China’s economy, accounting for 11% of the total GDP. Already, the outbreak has caused many small- and medium-sized travel agencies to shut their doors, which means the demand will soon outstrip supply. It is a good time for Didi to enter the tourism industry,” reckoned PE Daily.

Trip.com, formerly known as Ctrip, has a similar mindset. It acquired Travis, an Amsterdam-based travel company, back in December in a further move to expand its travel empire outside China.

However, the deal was only announced recently after it received final approvals from the Dutch government.

Travis is the parent company of the booking platforms CheapTickets and Vliegwinkel. Industry observers say that Trip.com is attracted to the technological know-how of Travis, in particular, its ability to profit from the use of travel data.

“Data-savvy matters for agencies. Flight sales are low margin. So upselling and packaging deliver most of the profits. Yet agencies often struggle to tease out data to learn how to upsell effectively,” wrote Skift, a travel news site.

Meanwhile, the Hainan government’s takeover of Banyan Tree Sanya looked immaculately timed.

On Monday the central government announced another policy blueprint to speed up the transformation of the island province into China’s biggest free trade port and “special economic zone”.

Other indebted hotel operators in Hainan were reportedly looking for buyers as well. They may now want to hang onto their properties a little bit longer.

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