'Revenge Travel' Slowdown Puts Damper On Trip.com's Banner Year

After delivering impressive results for 2024, China's leading online travel platform said it is confident of more growth in 2025

Key Takeaways:

• Trip.com's reported its profit grew by a robust 72% last year to 17.1 billion yuan
• The leading online travel agent's revenue reached 12.7 billion yuan in the fourth quarter, up 23%

China's economy may be hitting some turbulence lately, but don't tell that to Trip.com Group Ltd. (9961.HK; TCOM.US).

Even as China's economic slowdown and resulting weak consumption undermine other consumer sectors like restaurants and apparel makers, people aren't skimping as much on travel – at least not yet. And as China's leading online travel agent, Trip.com's latest quarterly results show the company is making the best of one of the few areas where Chinese consumers continued to spend last year.

In its latest report released last week, Trip.com said its revenue rose 23% year-on-year in the fourth quarter of 2024 to 12.7 billion yuan ($1.75 billion), while its profit lifted off with a 69% rise to 2.2 billion yuan. Not surprisingly, it cited strong demand for travel as the main driver behind the growth.

More growth ahead

Trip.com reported strong quarterly growth in all its business lines, led by a 33% year-on-year rise in its accommodation reservation revenue to 5.2 billion yuan. Its transportation ticketing revenue rose 16% to 4.8 billion yuan, packaged-tour revenue grew 24% year-on-year to 870 million yuan, and corporate travel revenue increased 11% year-on-year to 700 million yuan.

The fourth-quarter gains brought the company's full-year revenue to 53.3 billion yuan, up 20% year-on-year, while its full-year profit jumped 72% to 17.1 billion yuan. Excluding share-based compensation charges and other fair value changes, Trip.com posted a profit of 18 billion yuan last year, up 37% year-on-year from 13.1 billion yuan in 2023.

"The travel market has shown remarkable resilience in 2024," said the company's longtime Chairman James Liang. "We are committed to investing in AI and promoting inbound travel to foster innovation and enhance the overall travel experience. We anticipate another year of growth and success within the industry."

Bye-bye revenge travel?

While the investment community generally agrees with Liang's expectation for growth this year, many also believe the huge wave of post-pandemic "revenge travel" spending that fueled an explosive tourism rebound over the past two years is fading into the history books. Especially given rapidly weakening consumer sentiment, tourism industry growth, while it may continue, is unlikely to advance at such a rapid pace.

Chinese logged 4.89 billion domestic trips in 2023, up 93% in the year after pandemic restrictions ended, according to the China Tourism Academy. The growth continued but at a far slower 14.8% last year, as the number of trips rose to 5.62 billion. Total spending by domestic tourists on their trips rose by a similar 139% to 4.91 trillion yuan in 2023, and by 17.1% to 5.75 trillion yuan last year. Clearly, the data shows that growth slowed dramatically last year after the post-pandemic "revenge travel" spree.

Trip.com's profit tracked the slowing trend over 2024, especially in the final quarter. Its profit totaled 4.3 billion yuan in the first quarter, 3.8 billion yuan in the second, and 6.8 billion yuan in the third, before sagging to 2.2 billion yuan in the fourth.

The third quarter jump is customary in the highly seasonal industry due to the peak travel period during the summer holidays. But the fourth quarter is also typically strong for China, since it includes the weeklong National Day holiday at the beginning of October. Thus, the noticeable profit decline in that quarter to levels far below the first and second quarters, which are also traditionally weak, shows Trip.com's business may also be weakening.

Industry experts believe the growth trend will continue, but at more subdued levels. Du Yili, vice president of the China Tourism Association (CTA) and former deputy director of the China National Tourism Administration, emphasized at a recent industry event that demand for tourism in 2025 will be characterized by "more travelers but little revenue growth."

She pointed out the growth in travelers will be fueled by general public interest in getting out and about. But overall tourism spending could be tempered as increasingly cautious consumers look harder for bargains and stay closer to home. And heightened competition among travel agents for that cautious spending will inevitably lead to new price wars, setting the stage for turbulence ahead for the sector after its post-pandemic high.

Competitors coming on strong

Even as competition looks set to enter a new phase, there's no doubt that Trip.com has an overwhelming advantage due to its position as the industry's heavyweight. Yet despite that leading position, a vibrant field of competitors continue to nip at its heels for a piece of the huge travel pie.

So far, none of those, including Tongcheng (0780.HK), Meituan (3690.HK) and Fliggy, have made much a dent in Trip.com's hold on the market, despite their many efforts. But we should note that Meituan's service is backed by its powerful platform with all kinds of online-to-offline services for everything from takeout dining to shared bikes. And Tongcheng has a powerful backer in Tencent, which provides the company with a steady flow of business from a portal on Tencent's hugely popular WeChat platform. Trip.com can't afford to dismiss any of them.

Then there are also newcomers like Douyin, the Chinese edition of TikTok, as well as lifestyle community operator Xiaohongshu and short-video platform Kuaishou (1024.HK). While none of those are threatening Trip.com's leading position just yet, all have powerful resources to achieve such aims via their popular video and livestreaming platforms used by big segments of the public. Given the huge amounts of time many people now spend on these platforms, it may be just a matter of time before they turn to these familiar places for their travel needs as well.

Trip.com currently trades at a price-to-earnings (P/E) ratio of 19 times, the same as Tongcheng. Given its greater size and profitability, that leaves some room for Trip.com to gain some value, meaning some potential upside for its shares. But investors probably shouldn't expect too much from this company's stock, which is up about 60% over the last two years, as concerns build over slower travel spending in China and heightened competition from both established and new players.