Recently, the government has introduced a series of heavyweight policies aimed at stimulating economic recovery, with a major focus on stimulating consumer spending. And within consumer spending, tourism consumption is an important sector.

With the recovery of the capital markets, the short-term wealth effect may gradually stimulate consumption, and in the medium to long term, the opportunity for the recovery of residents' consumption capacity will also be bullish for travel consumption.

For example, in 2023, the total number of domestic tourists was 4.89 billion, an increase of 93.3% compared to 2022. In the first half of 2024, the total number of domestic tourists was 2.725 billion, a 14.3% increase compared to the same period in 2023. By the end of the third quarter, the total number of domestic tourists increased to 4.29 billion, a 16.8% year-on-year increase. It is expected that the total number of domestic tourists in 2024 will reach 6 billion, with the data expected to return to near historical highs.

The industry's revenue situation appears more optimistic, with domestic tourism revenue reaching 4.91 trillion yuan in 2023, a 140.3% increase from 2022.

In the first three quarters of 2024, domestic tourism revenue reached 4.32 trillion yuan, a 17.1% year-on-year increase. The data for the first three quarters is approaching the historical peak level of 2019.

Today, both domestically and internationally, the government is showing a strong determination to revitalize the economy. The tourism consumption sector, which has taken the lead in many consumption tracks, is once again faced with the 'right time, right place, and right people' conditions. Will the industry seize the opportunity for a new round of development?

1. The right time: multiple factors intertwine and resonate

China's tourism industry is already one of the world's second-largest and fastest-growing tourism markets. According to the World Travel & Tourism Council (WTTC) report on the Economic Impact Trends for 2024, the Chinese tourism industry contributed $1.3 trillion to the GDP in 2023. Long-term China has enormous market potential: according to WTTC predictions, in the next decade, China is expected to surpass the USA to become the world's largest tourism market, leading to a profound change in the global tourism landscape.

At the current moment on the eve of macroeconomic recovery, the total domestic travel revenue is expected to return to or exceed historical highs. After reaching a record high, according to forecast guidelines, the Chinese tourism industry still has at least double to two-fold potential.

Breaking it down, whether it's urban/rural residents' travel frequency or per capita spending data, there is a continuous improvement.

Here, it can bring out a core issue, why is resident consumption expenditure (increment) likely to be released in travel? There are at least several key supporting points here.

Firstly, the top-down transmission direction is relatively clear, essentially following the path of 'overall GDP/per capita GDP improvement - consumption increase and its proportion increase - increase in travel consumption amount'.

We see in developed countries GDP composition, the proportion of consumption in GDP is basically above 50%, with the United States private consumption accounting for 67.7% of GDP in the second quarter of 2024. In our country, this data shows that (household) consumption accounts for approximately 38% of GDP. With the refinement of the domestic financial system and policy guidance, it is expected that the proportion of China's (household) consumption in GDP will further increase in the future.

Respondents who participated in the survey expressed that in China, the average household travel expenditure already represents or even exceeds one-fifth of their annual income. If this proportion can still be maintained in the future, then it can be inferred that travel expenditure will increasingly grow along with GDP and consumption growth.

In terms of directly calculating the domestic gross value added of the tourism industry, by 2023, tourism revenue may account for 3% of global GDP. Following the above trajectory, China's data may long-term maintain at more than double this figure.

Secondly, it is closely related to the structure of participants involved in travel consumption across society.

For example, the travel consumption habits of different age and income groups are becoming differentiated. The lower-income group has the lowest level of travel planning, preferring short trips, while the middle and higher-income groups have stronger planning and prefer higher-quality travel services and outbound tours. Another point is that young people have become the main force in travel, with the highest proportion of the 23-40 year old middle-aged and young consumer group, especially driven by social media platforms, with platforms such as Xiaohongshu and Douyin becoming the preferred choice for young people to access travel destination guides.

Furthermore, the wealth effect brought about by the capital market is being unleashed. Since September 25th, the central bank, the National Development and Reform Commission, the Ministry of Finance, and other departments have released unprecedented stimulus policies, driving a strong rebound in the mainland and Hong Kong capital markets. The robust rebound of the capital market has significantly boosted residents' and enterprises' confidence in the economic recovery prospects in the short term.

The wealth effect of the capital market is expected to be transmitted to the consumption field in the fourth quarter, further stimulating residents' consumption of travel services.

An example in the short term can be seen from the recent National Day Golden Week, where residents' enthusiasm for travel consumption surged, with holiday passenger flow and tourism revenue in many regions across the country reaching historic highs.

From a long-term perspective, the prosperity of the capital market typically means an increase in investors' wealth, which enhances consumers' confidence and makes them more willing to engage in travel consumption. According to the wealth effect theory, the rise in asset prices increases the nominal value of assets held by the public, and wealth growth encourages the public to increase consumption of goods and services, leading to increased consumption. On the other hand, as wealth increases, people are more inclined to engage in upscale travel consumption, such as choosing more comfortable lodging, more exquisite dining services, and a more diverse range of travel experiences. This trend of consumption upgrade has brought new growth opportunities to the tourism industry.

A historical case to consider is the prosperity and rise of Las Vegas in the United States after World War II. The recovery of Las Vegas was once seen as a microcosm of the economic recovery in the United States, highlighting its significant connection to the U.S. capital market cycle. After World War II, the United States did experience the largest bull market in history, lasting from 1949 to 1959, with a 273% increase during the ten-year period. With the growth of the U.S. economy and the significant wealth effect brought by the largest bull market in history, people at that time had more disposable income for entertainment and travel consumption, laying a huge foundation for the development and takeoff of the tourism industry in Las Vegas.

Second, geographical advantages and national trends: geographical advantages and the unstoppable trend of national tourism

In recent years, the Chinese government has significantly increased its attention to the tourism industry, implementing multiple policies to promote its sustainable growth. These policies comprehensively cover various aspects of the tourism industry, not only driving high-quality development in the industry, but also reflecting deep attention to national tourism planning. For example, policies such as the "14th Five-Year Plan" for the development of the tourism industry and the "Domestic Tourism Enhancement Plan (2023-2025)" demonstrate one of the best periods of policy support for the tourism industry in China, showing the country's high level of attention to the long-term development of the tourism industry.

In terms of 'favorable conditions', in addition to the heavy long-term policy support, the diverse and unique comparative advantages of the Chinese market are also significant and should not be overlooked.

Against the backdrop of frequent global geopolitical crises, the relative stability of China and its surrounding regions provides a favorable environment for the prosperity of international travel formats such as cruises and inbound and outbound travel. At the same time, the increasing international influence of China has opened up a new situation for the participation of the Chinese tourism industry in international competition, manifested in the rapid increase in the number of visa-free countries and the continuous improvement in the openness of the tourism market.

China's modern culture and urbanization process also have strong attractiveness. Modern art exhibitions, music festivals, film festivals, and food festivals and other cultural thematic activities provide new travel motivations for young tourists.

Meanwhile, the downward trend in the Chinese tourism market is also worth noting. Consumers are increasingly inclined to pursue higher cost-effective and more relaxing travel experiences, leading to a trend of market penetration, making niche cities and cities below the third-tier new travel hotspots. Taking the travel data during the 2024 'Golden Week' holiday as an example, the domestic travel consumption market continues to grow, especially the rapid growth of travel consumption by residents of second- and third-tier cities and below.

The rise of national travel trend is also a phenomenon that cannot be ignored. In China, tourism has become a part of people's daily lives, and lower-tier cities, small airport cities, county towns, and central towns are becoming new growth points for domestic tourism.

Thirdly, the deterministic development of the tourism industry has improved, and leading platforms are favored by institutions.

In the current new situation, the prospects of the tourism sector are unanimously bullish, with selling research institutions generally acknowledging a much higher level of industry determinism than before, gradually forming new characteristics.

For example, the latest research report from Founder Securities is bullish on the future opportunities in the OTA market, indicating that driven by the high prosperity and increased online penetration of the tourism industry, the future OTA market may present a long and thick snow slope.

In addition, Guotai Junan International's research report also stated that the new trends emerging in the current tourism market include: further shortening of booking windows, a clear trend of non-peak travel; strong growth in outbound tourism, differentiation in user destinations, among other strengthening factors. The new tourism trends have a certain reference value for adjusting the supply side, therefore, they are bullish on the agility advantage of OTA platform operations. The bank maintains its 2024 full-year performance forecast for Ctrip and Tongcheng Travel, bullish on Ctrip's supply side advantages and the long-term potential of inbound and outbound tourism, while also bullish on Tongcheng Travel's advantages in user scale and repeat purchase rates driving user value enhancement.

After the release of third-quarter economic data, the capital markets began to anticipate a stronger promotion fee policy in the fourth quarter. Once implemented, household consumption represented by tourism consumption is expected to further benefit. On October 21st, A-share tourism, hotel, and civil aviation sectors saw a general rise, reflecting preliminary market and industry continuous resonance opportunities.

As mentioned earlier, since the conditions of 'right time, right place, right people' have come together again, a group of high-quality companies in the tourism track have good development opportunities.

The '2024 Q2 Chinese Tourism Consumption Trend Insight Report', jointly launched by Global Travel News and Digital100, points out that in terms of changes in travel booking habits, OTAs remain the first choice for users, but interest content platforms such as TikTok, Kuaishou, and Xiaohongshu are gradually emerging.

Looking at the listed OTA platforms, Ctrip and Tongcheng Travel each have their own strengths - both occupy a leading position in the Chinese OTA (online travel market) and have increased their market share since 2019. Tongcheng Travel has significant advantages in the mass tourism market, sinking market, and young user market, with noticeable improvements in user consumption frequency and average consumption amount compared to 2019.

Compared to competitors in the same industry, in the first half of 2024, Tongcheng Travel's revenue increased by 48.77% year-on-year, higher than the growth rates of other OTAs during the same period, indicating that the company has more growth elasticity.

From a long-term perspective, Tongcheng Travel's leading advantage is still in the rapid realization and unleashing phase.

For instance, this year has seen the gradual formation and rapid implementation of the industry chain layout and internationalization strategy. Data from the second quarter of 2024 shows that Tongcheng Travel's daily average international flight volume set a new record, with a growth of over 160% year-on-year; international hotel room nights increased by nearly 140% year-on-year, indicating significant achievements in Tongcheng Travel's expansion and layout in the international market.

Gathering and empowering the industry chain, rapidly promoting international layout, these validated effective strategic measures may provide the company with new growth opportunities and greater market potential.

Tongchengtravel recently received an increase of nearly 48 million Hong Kong dollars in corresponding shares from JPMorgan. It is understood that after this increase, JPMorgan's latest number of shares held is approximately 0.118 billion, with a latest shareholding ratio of 5.09%.

As an internationally renowned investment bank, JPMorgan's actions to a certain extent reflect a high level of recognition for the continuous important position of the travel industry in Chinese national consumption. Tongchengtravel is expected to be bullish by more institutional investors and 'smart funds' in the new bullish market.