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An easy way to lose friends in China is to say that any of its technology companies owes some its growth and profitability to receiving state money and regulatory protection from competitors.
But you can’t evaluate the performance of travel technology giant TravelSky without looking at how it benefits from having a total monopoly on its flagship services — with zero rivals in its domestic market.
The state-owned company continues to grow. On Friday, TravelSky released its audited annual results. In 2018, the company generated $1.11 billion (RMB 7,472.1 million), representing an increase of 11 percent year-on-year.
But some Chinese airlines that heavily depend on its services may wonder if TravelSky is adequately keeping pace with global needs for online distribution, retailing, and passenger services.
Like its counterparts abroad — Amadeus, Sabre, and Travelport — airlines created TravelSky. All of the domestic Chinese airlines participated in TravelSky’s birth in 2001, and a few continue to have ownership stakes.
A portion of TravelSky’s revenue growth of 11 percent corresponds to an estimated 11 percent increase in passengers flown domestically in China. TravelSky has a lock on the data exchanges related to domestic flights.
The company also sells, with essentially no competition, technology to new airports in China. China has been undergoing an airport-building spree, and TravelSky has ridden the wave by helping to install new equipment.
It distributes airline airfares to travel agencies, provides reservation systems for the agencies, provides passenger service systems to airlines, and provides passenger management systems for airports such as self-check baggage systems.
Like its foreign counterparts, TravelSky has become more profitable on average than the airlines it serves. In 2018, it generated profits after taxes of $394.8 million, representing a rise of 3 percent, year-over-year. Profit represented about 35 percent of revenues for the year, in line with average profit at its foreign peers. It maintained its profitability this year while spending about $130 million toward completing a new, 18-building operating campus in Beijing.
Tension With Airlines?
Like its foreign counterparts, TravelSky faces private grumbling by some carriers, who prefer to drive more customers to shop directly than route them through third-party systems.
Exhibit A: In April 2018, China Southern, Asia’s largest carrier, stopped allowing passengers to use online check-in services powered by third parties. TravelSky’s subsidiary Umetrip, along with other providers like VariFlight, Ctrip, and Alibaba’s Fliggy, no longer can provide check-in services online. China Southern forces passengers to check in online via its own mobile app or via its software that handles passenger requests by text-message and WeChat message.
China Southern’s snub of TravelSky’s UmeTrip product is a blow as it undercuts the plan for the consumer-facing mobile app to become popular with Chinese customers. In a half-year report for investors, TravelSky said only that UmeTrip has had “stable growth.”
China Southern has also been using a mix of internal and foreign technical capabilities to link directly with foreign players. Earlier this month, China Southern began to let American Airlines staff help members of its frequent flier programs redeem miles for flights on China Southern using Sabre’s system. By year-end, each airline’s loyalty members will be able to book flights directly through the other carrier’s website and earn and redeem miles reciprocally.
To be sure, China Southern still uses TravelSky’s wide array of distribution and operational software and the airline still owns about 9 percent of the tech company.
TravelSky’s management has a secretive reputation. They don’t allow reporters to listen to their earnings calls with analysts. They have declined multiple interview requests from Skift in the past year. A typical company statement was its recently one that its “system is following and anticipating the international distribution trends but also allows us to serve our key market in China with its special characteristics well.”
The company has, like its counterparts abroad, been working to adopt new airline expectations for how airfares and add-on products are sold and distributed.
But TravelSky’s insulation from market competition risks creating complacency.
Photo Credit: A China Southern flight attendant helps a passenger use the on-board entertainment system. Source: China Southern csair.com All Chinese airlines use travel technology firm TravelSky’s systems to manage their domestic businesses. In 2018 TravelSky, China’s travel technology giant, generated $1.11 billion in revenue, representing an increase of 11 percent year-on-year. China Southern
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