China Tourist

Less is more

Travel firms chase domestic duty-free profits

Sanya-w

Hainan: also a shopping paradise...

Chinese tourists have been the biggest source of international travellers since 2016. Two years ago they spent as much as $245 billion overseas or 16% of global travel expenditure, according to Oliver Wyman, a consultancy. But travel restrictions prompted by the Covid-19 pandemic has seen travelling abroad nosedive. With fewer trips to arrange, travel agencies have born the brunt of the decline.

On June 14 two of the larger tourism platforms on the Shenzhen stock exchange announced that they had agreed to merge. Caissa Tosun Development and UTour Group will combine in a deal designed to shore up the finances of both firms. Last year Caissa reported a net loss of Rmb698 million ($77 million) after a 73% decline in income. UTour Group did worse, with Rmb1.48 billion in losses as operating income plunged 87%.

The duo, with a combined market capitalisation of Rmb12.3 billion, were still in the red for the first quarter this year, with little prospect of much of a recovery as international borders stayed largely shut and China’s vaccination programme took time to pick up steam.

Both Caissa and UTour have tried to source funding from new investors. Last April Caissa sold Rmb450 million worth of shares, representing 5% of its issued capital, to an investment arm of JD.com, making the e-commerce giant its fifth largest shareholder. In a similar vein, UTour sold over 5% of its shares to Alibaba for Rmb385 million last September, making it the third largest shareholder.

With international travel largely off-limits, both Caissa and UTour have been shifting more of their focus to the domestic market – and especially the flourishing area of duty-free shopping.

Since duty free allowances were expanded in Hainan last July (see WiC510), the resort destination has become even more popular with domestic tourists eager to combine sea and sand with tax-free shopping. In the 12 months to the end of May, duty-free sales in the province more than tripled on the year to Rmb45.5 billion, with 8.8 million Chinese making purchases under the scheme. According to Hainan Daily, the island is now home to 10 duty-free shops with floor space of 210,000 square metres. They offer 650 international brands including Cartier, Bulgari and Tiffany, up from about 100 a year ago. Japanese cosmetics giant Shiseido is the latest to tap into the trend, announcing it will double its points of sale on the island to 60 by the end of the year, the Financial Times reported.

It was against this backdrop that Caissa, which had been controlled by the cash-strapped HNA Group (see WiC527) between 2011 and 2019, shifted its headquarters from Shaanxi to Hainan in April. The move followed its investment in three other in duty-free shop operators in Tianjin, Nanjing, and Beijing, as well as a partnership with China National Service Corporation for Chinese (CNSCC), one of China’s two duty-free state oligopolies.

Beijing-based UTour has targeted a similar strategy, signing deals with CNSCC’s main rival China Tourism Group Duty Free, as well as Wangfujing Department Store, which is trying to building its first duty-free shop at the Universal Studios theme park in Beijing, scheduled to open later this year.

The rationale behind the merger is to bring together UTour’s focus on wholesale travel tours with Caissa’s specialisation in retail, tapping deeper into the duty-free frenzy.

Shanghai-listed China Tourism Group Duty Free is also set for a secondary listing in Hong Kong and is looking to raise as much as $10 billion, Reuters IFR has reported. The company made a net profit of Rmb2.85 billion in the first quarter from a network of 200 retail outlets in more than 90 mainland cities. Its Shanghai-listed A-shares have surged 126% on a year ago, giving it a market capitalisation of Rmb580 billion.

But investors are hopeful that it will benefit further from continued spending on duty-free goods in China, with luxury shoppers largely unable to venture further afield owing to the nation’s continued Covid-19 border controls.


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