Make Efforts To Sink The Market And Cross Sell Tongcheng Yilong Will Make A Profit Of Nearly 1 Billion Yuan In 2020

On March 23, Tongcheng Yilong (0780. HK) released the annual performance report of last year. In 2020, Tongcheng Yilong achieved revenue of 5.933 billion yuan and adjusted net profit of 954 million yuan, becoming the only online travel platform that has made profits for four consecutive quarters since the outbreak of the epidemic.

Compared with his colleagues with heavy losses, the report card handed over by Tong Yilong is undoubtedly eye-catching and also makes people curious. In the worst year of the tourism industry, what can we do to make a profit?

On March 24, Ma Heping, CEO of Cheng Yilong, and fan Lei, CFO of the company, faced the media for the first time and analyzed the secret of profit. The key words were market sinking, cross selling and brand investment.

Profit secret 1: sinking the market

The new crown pneumonia epidemic in 2020 is the biggest impact that the global tourism industry has encountered. The epidemic has occurred for more than a year, and tourism enterprises are scarred, almost reflected in their financial reports.

In 2020, Ctrip will lose 3.2 billion yuan, tuniu will lose 450 million yuan, Fosun travel and culture will lose 2.568 billion yuan, CYTS will lose 239 million yuan in advance, and Expedia will lose 2.7 billion U.S. dollars. Compared with Cheng Yilong's 945 million yuan profit, it is particularly valuable.

Looking back at the impact at the beginning of the epidemic, Ma was as flustered as he was. The loss of refund in February 2020 was very large. Although the recovery began in March, there was not enough confidence in the recovery. "Everyone thinks March is very pessimistic, but our whole team has started to investigate the whole sinking market in China and found that it can be optimistic." Ma Heping told reporters that at that time, he went to Anqing, Loudi, Xiangtan, Yongzhou and other 10 fourth tier cities in China, and found that their local consumption was very strong. Whether hotels or travel, a large number of users were local consumption. For example, the city consumption of hotels accounted for 70% - 80%, while 70% - 80% of hotel consumption in first and second tier cities were business guests.

Tongcheng Yilong provided a data for verification in the financial report. In 2020, 86.3% of the registered users of Tongcheng Yilong lived in non first tier cities, and about 61.3% of the newly increased wechat payment users came from third tier and lower tier cities in China.

It is the active consumption of these users. Although the number of monthly active users and the average monthly paid users of Tongcheng Yilong in 2020 decreased by 6.7% and 14.5% respectively, the total number of paid users in the whole year of Tongcheng Yilong has reached 155 million, with a year-on-year increase of 1.8%.

"If there is no such difference, China's sinking market consumption is the same as that of the first and second tier, then we will be helpless." Ma Heping Road.

Finding out the difference between the sinking market, Tongcheng Yilong quickly mobilized resources to focus on the sinking market, and its organizational agility reflected its value. Whether it was personnel adjustment or organizational structure adjustment, Tongcheng Yilong has made many responses in the past year. So "whether we can see the real situation of the real first-line market, whether the organizational ability (agility ability) can cope with the opportunities in different regions and seize it," Ma Heping said, "this is the core reason for continuous profitability under the epidemic situation."

Ma Heping explained that the fine layout of service scenarios is the key to the growth of paying users. Starting from the second quarter of 2020, Tongcheng Yilong has accelerated the layout of diversified offline service scenarios, such as auto ticketing, scenic spot tickets, hotel code scanning, etc., to create a new development mode of "online and offline integration", and has formed a positive cycle of "offline scene + online capability".

It is worth mentioning that Tongcheng Yilong's continuous investment in the brand, such as "Qihua Shuo" last year, has effectively reached the young user group. Ma Heping believes that in the next two or three years, the company will increase brand investment, and form brand awareness in young groups in 3-5 years.

Profit secret 2: cross selling

Sinking market is the future, which has become the consensus of many companies, but it is not easy to excavate the sinking market, especially difficult to realize. How does Tongcheng Yilong do it?

Ma Heping pointed out that the low online rate and low chain rate of the sinking market is a challenge, but also an opportunity, because it will give companies like Tongcheng Yilong a new channel to obtain customers. For example, there are a large number of more than 300000 small hotels in cities below the third and fourth tier in China, and the operation of bus stations also needs to improve the digital level. But their common problem is that they can't afford the high cost of change. Therefore, Tongcheng Yilong has spent a long time around the accommodation ecology to establish its sinking market. It has launched scanning code accommodation, scanning code into the park, and bus ticket machine deployment, which helps enterprises reduce operating costs and improve operational efficiency. At the same time, the company obtains customers. "This is the core reason why we can still grow consumer users in 2020."

Ma Heping also revealed that the core of cash realization is to improve cross sales, which currently accounts for 20%, and will even be higher in the future. He explained that the product lines related to travel and accommodation, such as accommodation, car use and scenic spot tickets, are most likely to cross among all travel users.

Fan Lei added that for customers, Tongcheng Yilong uses cross selling liquidation and diversified products to provide more demand for cash. But in the next few years, there will be b-end cash flow mode. For example, advertising has become an important revenue channel in its financial statements. Fan Lei pointed out that the platform has gathered so much traffic, including hotels, airlines, tourism bureaus and other industries have demand for traffic, so there are more and more ways to realize revenue from advertising on the platform.

Fan Lei also revealed that the SaaS products provided by Tongcheng Yilong were mainly used for revenue management and inventory management in the past, and will provide more marketing management in the future. For example, where to find traffic in a hotel? It needs integrated marketing solutions, so Tongcheng Yilong is ready to provide comprehensive SaaS services to b-end suppliers, which are all means of realization.

Financial reports show that with Cheng Yilong in a number of businesses have ushered in adverse growth, especially in the fourth quarter of last year. In the fourth quarter of 2020, the income of accommodation booking service of Tongcheng Yilong is 647 million yuan, with a year-on-year growth of 4.1%; the number of domestic hotel room nights consumed by users on Tongcheng Yilong platform is 21% year-on-year; among them, the number of room nights in low-level cities is more than 30% year-on-year. In the fourth quarter of 2020, Tongcheng Yilong traffic ticketing business revenue is 1.003 billion yuan. Among them, the domestic air ticket volume increased by about 5% year-on-year in 2019, and the car ticket volume increased by nearly 180% year-on-year. The huge market scale also makes the ticket business a new engine for the growth of Yilong users. In the fourth quarter of 2020, Tongcheng Yilong's other revenue, including scenic spot tickets, advertising services and supporting value-added services, was 162 million yuan, an increase of 6.2% year-on-year. In October 2020, together with Cheng Yilong, the hotel business division and scenic spot ticket business will be integrated to establish a liquor and tourism business group, so as to achieve better synergy and improve cross selling.

In the fourth quarter of 2020, Tongcheng Yilong's adjusted EBITDA (profit before tax, interest, depreciation and amortization) was 441 million yuan, with a year-on-year increase of 6.2%, which was the first increase in 2020; the adjusted net profit was 307 million yuan, and the adjusted net profit margin was 16.9%; the number of domestic hotel nights increased by 21%, the domestic air ticket volume increased by 5% year-on-year, and the car ticket volume increased year-on-year Nearly 180% in length.

Future layout? Test the hotel industry

In recent years, Tongcheng Yilong has frequently participated in the hotel industry. From huajiantang and Meicheng to the launch of oyu and strategic investment in Perlin Hotel, what strategic considerations does Tongcheng Yilong have on the hotel industry? "The essential reason is that we want to see what kind of format is behind this." Ma Heping said that it is difficult to really go deep into learning from the outside or looking at other people's wine management. "We hope to use such an attempt to try to empower this industry and make the industrial chain more efficient. The hotel management company is a beneficial trial of our strategy of enabling the supply chain."

Ma Heping said that the company is exploring the way to enter the accommodation industry. The previous investment was a test of water, but now it is still exploring and entering informally.

Ma Heping said that Tongcheng will create an ecology around the two strategies of high hotel growth and enabling industrial chain, focusing on OTA or ITA hotel reservation.

He thinks that at present, the chain rate of hotels in China is relatively low. The chain rate of the first and second tier cities is about 25%, and the sinking market may be only a single digit. There is still a huge space for the chain rate of hotels in the market below the third tier, and there is also a large space for hotel consumption upgrading.

It can be seen that Tongcheng Yilong is full of interest in the accommodation market, and the company hopes to try to find opportunities in the hotel management industry in the next 3-5 years.

"We hope to see the hotel management business in 5-10 years." Ma Heping said that at present, the first step is to finish from zero to one, that is to say, "is this valuable for the ecological chain?" If there is value, the company will do one to ten, but "from zero to one is still being verified.".