Tongcheng Slows Spending As Budget Travel Frenzy Fades

About this update from Tongcheng Travel Holdings Limited

Key Takeaways:Tongecheng travel announced it scrapped its planned purchase of a fintech company as a post-Covid ‘military-style’ travel boom starts to fadeThe online travel agent’s revenue rose 81% in 2023 as it catered to a new generation of frugal travelers, but the growth rate slowed to 50% in the first quarterBy Xia FeiJust when it was flying high on a wave of “revenge spending” by budget-conscious Chinese travelers, Tongcheng Travel Holdings Ltd. OTC:TNGCF suddenly appears to be losing some of its lift.The online travel agent was soaring for much of last year, as low-budget domestic tourism emerged as one of the rare bright spots in China’s otherwise dull economy with the end of pandemic-era restrictions. That lifted Tongcheng and its peers to sky-high revenue and profit growth as they catered to a new generation of enthusiastic but cost-conscious Chinese travelers.But the company now appears to be adopting a more frugal approach, mirroring the increasingly cost-conscious mindset of its core Gen Z customers. Last week, Tongcheng revealed that it had scrapped its planned 1.15 billion yuan ($162 million) acquisition of 55% of a Guangzhou-based fintech company. When it first announced the deal in February, it said its purchase of the majority stake in Guangzhou Lvjin Technology was aimed at enhancing its customers’ payment experience.Tongcheng didn’t elaborate on why it abandoned the deal. While it’s possible the two sides simply couldn’t agree on final terms, Tongcheng may also have backed off from the transaction as its business loses some of its initial post-Covid momentum.The deal was a big bet for Tongcheng as the cost amounted to 22% of the company’s cash at the end of last year. What’s more, Guangzhou Lvjin appears to be rapidly losing value. The company was worth 2.8 billion yuan in December 2022, meaning it had lost about a quarter of its value in about a year and half.Another key reason behind Tongcheng’s change of heart may have been the labeling of Tongcheng Finance, a fintech app backed by Guangzhou Lvjin, as a loan shark by state-run broadcaster CCTV during an investigative program in March. Following that, the app was removed from most major Chinese app stores.Investors appeared to welcome the decision to walk away from the deal. Shares of Tongcheng rose by 8% in the two days after the announcement last week, though they gave back most of...

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