China Consumer Association probe should have minimalimpact
Higher-than-expected organic demand for VASs
Maintain Buy and DCF-based TP of USD58
We believe reaction to China Consumer Association probe is overdone. Ctripshares fell 4% last night after the company received a letter from China ConsumerAssociation, alleging that Ctrip is inappropriately cross-selling insurance products andhotel coupons together with air tickets. We believe that the market has overreacted tothe news and see two reasons why the China Consumer Association’s allegation fallsshort: (1) Users can freely cancel the cross-sold products by simply unticking theoptions. (2) Consumers are informed of the exact products that they are purchasingduring checkout. They can go back to edit the selection if they don’t want to includecertain products. In our view, the likely outcome of the investigation is that Ctrip andother online travel service providers (including airlines’ official sales channels) willmake the cancellation options even more obvious but the value-added services(VASs) will still be ticked by default as it doesn’t violate consumer protection rights.
Diversified value-added services and higher-than-expected organic demand.Ctrip offers a diversified VAS portfolio, including but not limited to insurance products,hotel coupons, airport pickup/drop-off services, low-price parking, and VIP loungetickets. The organic demand for these VASs has been higher than the market hadexpected. The top 3 VAS products are insurance, hotel coupons and airportpickup/drop-off, which should contribute over half of VAS income. With increasingweather fluctuations and flight delays, consumers tend to purchase flight delay orcancellation insurance to protect against these events. Also, if someone is travelling,it’s very likely that he or she might need accommodation, and hotel coupons can bepartially redeemed for hotel reservations. Airport pickup/drop-off is gaining inpopularity as a result……[汇丰银行]