JPMorgan maintains Ctrip overweight rating

Beijing time June 26 Morning news, JPMorgan released a study today, the Ctrip (NASDAQ:CTRP) stock rating maintained in "overweight" (overweight) unchanged.

The following is a summary of the contents of the report:

Preliminary thoughts on China Aviation Group's Reduction of commission rate

On June 23, China Aviation Group announced that it would cut its commission rate from 3% to 2% for the sale of domestic air tickets through a travel agency, and that it would enter into force from July 1, 2014. Before that, China Aviation Group had lowered the commission rate of international air tickets from 2% to 1%, which began to take effect from April 1. We have discussed this with other leading airlines and the result is that these companies are likely to take similar measures in the near future.

Our initial thoughts on the implications of this policy change are as follows:

-This is the continuing effort of China Aviation Group to rationalize cost structure and distribution channels:

We believe that the main idea of China Aviation Group is to optimize its cost structure, especially the cost structure related to intermediary fees, and to increase direct sales. According to China Aviation Group, direct online sales channels accounted for 15% of total ticketing volume in 2013, up from 12% in 2012. Over the past few years, we have observed that airlines have adopted similar policy changes to adjust the structure of commission rates, such as the measures taken in July 2010.

-Real changes in the Commission structure:

The Air Ticket Commission is composed of two parts: 1 fixed Commission portion (such as the Commission rate mentioned above) and 2 the Floating Commission portion (equivalent to the bonus) based on performance. In general, the larger the number of sales of the intermediary agencies will be able to get more bonuses. China Aviation Group said that after the above adjustment, bonuses will increase, but the increase is likely to be less than 1%.

-Small intermediaries may face greater pressure:

In our view, this may lead to more small intermediaries facing pressure because of their limited bargaining power. As a result, the tourism intermediary market will be further integrated by large intermediary agencies and airlines.

-The financial impact on Ctrip will not be significant in the near future:

The reason for this is as follows: 1 Airlines still rely on travel agents to advance most airline ticket sales, which means that existing ecosystems are unlikely to be destroyed immediately. We therefore expect that the total Commission expenditure will fall far below 1%; 2 after the past similar policy changes, Ctrip still maintain a relatively stable air ticket business gross profit margin; 3 Ctrip has a competitive advantage in terms of ticket sales (JPMorgan is expected to share 18% per cent of the ticket booking market).

-long-term prospects mixed: Ctrip or Where to go (NASDAQ:QUNR) better road?

In the long run, commission rates may show a further downward trend, as has happened in more developed markets. That means they will have more leeway to consolidate the market for large tourism intermediaries such as Ctrip, because small intermediaries may be squeezed out of the market.

Another possibility is that niche intermediaries, such as intermediaries offering unique products in specific areas or routes, may increase and establish relationships with airlines to gain market share. Such niche intermediaries may be aggregated by vertical search engines to get users. (Tangfeng)