Tuniu, once on par with online travel giant Ctrip, has lost its place in the sun.
Written by ZHENG Cuiying
Translated by GU Yiwei
Five years after its Nasdaq debut, Chinese online travel agency Tuniu is on the verge of delisting.
The company's shares have been hovering below US$ 1 (7.1 yuan) since April 6. On the Nasdaq, if a company closes below US$1 for 30 consecutive business days, a notice is issued, which ordinarily affords the company a compliance window of 180 calendar days to get the price back above sea level. This would have given Tuniu shares until May 15, but, due to the COVID-19 pandemic, Nasdaq suspended the 180-day countdown and set a new date of June 30, an extra six weeks grace for Tuniu to get its house in order.
Tuniu, one of only two online Chinese travel agencies listed on Nasdaq, was once the darling of the industry. Shortly after its IPO in 2014, shares rose above US$20, more than double the issue price. Things took a turn for the worse in 2016, well before the pandemic sent the company to the ICU. By the end of 2019, its stock had dropped to around US$2, and COVID-19 did the rest.
Tuniu has denied rumors of bankruptcy. In fact, its financials do not look all that dismal. The 2019 year-end balance sheet shows 1.9 billion yuan (US$ 270 million) of highly liquid assets. According to Simply Wall St, a financial data and investment platform, the company's market capitalization is 68.5 percent lower than its fair value. Current liabilities can be largely covered by current assets, while the value of long-term assets far exceeds the company's long-term debt.
Despite the starry numbers, Tuniu is in obvious turmoil. Its CFO and CTO have jumped ship, leaving founder and CEO Yu Dunde holding the wheel alone against the stormy onslaught of the market. With its stock price is heading for the rocks, the waters ahead for Tuniu are more treacherous than ever.
Founded in 2006, Tuniu rode the wave of rapid expansion across China's overseas travel market by focusing on leisure travel and group tours. It quickly gained ground in the already-crowded market and in 2014, a sixth of all Chinese heading for the Maldives booked through Tuniu, earning the company a visit from the nation's president.
There is nothing the capital market loves more than commercial success. The company made its Nasdaq debut in May 2014 and a year later, it received a US$500 million investment from internet giant JD.com and exclusive rights to operate JD.com's travel channel for five years. In November that year, it received another US$500 million, this time from HNA Group. Now with deep pockets, the company grew fast. By Q3 2015, transactions on Tuniu reached 4.65 billion yuan, a quarter of China's online travel market.
Tuniu spent lavishly on advertising. Around 2015, China's top reality TV shows were all splashed with Tuniu ads, and the company retained two of the most expensive pop stars, Jay Chou and Jimmy Lin as brand ambassadors. The astronomical marketing cost weighed heavily on its financials, causing a 1.5 billion yuan loss in 2015. That year marked the beginning of the slow decline to today's unviable state.
In October 2015, two online travel giants, Ctrip and Qunar, which together controlled 80 percent of air tickets and hotel bookings in China, announced a merger, ending a fierce price war and steering the industry toward profit.
Tuniu came under tremendous pressure to catch up. To turn a profit, it cut costs aggressively, butchering its marketing budget and dumping half of its East China headquarters' office space. It shut down overseas operations and cast off its vacation and financial technology units, incurring thousands of dollars in penalty fees. At the time, these measures were seen as essential. In a 2018 interview with Jiemian News, Yu Dunde said, "We cannot lose money forever. We've gone through a period of high growth and big losses. It's time for the next phase, one of stable growth and profitability."
Two years of ceaseless cost-cutting took to Tuniu into the black for the first time in 2018, but growth was becalmed. Toward the end of 2016, group tour business grew only 8 percent, a sad contrast to the 100 percent growth less than two years before.
As the shape of China's online travel industry emerged, rumors abounded that Tuniu was in talks Ctrip and JD.com about a takeover, rumors that Yu denied whenever approached by the media.
Former employees have claimed Yu is adamant about retaining control of the company. It is widely known that disagreements over acquisitions exacerbated the tension among company executives. Yan Haifeng, Tuniu's co-founder, and former COO resigned in 2017, and CFO Yang Jiarong followed soon after. A source close to the board said Yu had been grievously hurt by Yan's defection and refused to even be in the same room as him.
One of the few partnerships Tuniu entered into was with the HNA Group. If things had gone according to plan, its business would be greatly expanded. The idea was to "strategically integrate HNA's resources in air travel, hotels, and financial services" into Tuniu's "ecosystem." Ultimately, HNA failed to come up with the money, and its air-ticketing coverage was insufficient for Tuniu's needs. HNA is today deeply mired in its own debt crisis, and Tuniu has been left to its own devices.
In the industry, Yu's management style is described as "down to earth" and he is well known for his attention to detail, qualities useful during cost reduction, and quality control.
In addition to taking a hatchet to advertising spending, Yu brought the company's daily expenses under control with almost military zeal. Employees report that he went as far as to monitor photocopying costs and reminded staff to unplug water coolers when leaving the office. Fastidious about the customer experience, he hired a large customer service force and matched each customer with two specialists, one for the itinerary and another for logistics. In 2018, when complaints arose about the common practice of binding plane tickets to travel insurance, Yu was one of the first to end the practice, calling it "the right thing to do."
Those closest to Yu feel his micro-management style may have slowed the company down in a reshuffling industry that demands companies be quick on their feet.
As online travel agents started to expand offline, Ctrip and Lvmama adopted a franchising model. Yu did not feel comfortable handing over customer service to a franchisee and decided to operate hundreds of brick-and-mortar stores as a chain. When explaining this decision, he said, "It helps Tuniu retain our customers, who have always been our most valuable asset."
The strategy worked at first. As of 2018, the stores had an average 60 percent customer conversion rate, far higher than any website, and revenue covered costs.
But those costs were nonetheless very high, hundreds of millions of dollars, and began to weigh heavily on the company. Travelers are increasingly drawn to unpackaged online products, making Tuniu's chain stores even less profitable. Around the beginning of 2020, when Tuniu finally started to explore a franchise model, it was too late. The COVID-19 outbreak hit, and the travel industry ran aground.
"The offline business was the last chance saloon for Tuniu, but it failed miserably," a former employee said.
As the pandemic unfolds, uncertainty clouds Tuniu's horizon.
"Tuniu is a respectful competitor," a travel industry expert commented. "It would hurt the entire industry if it goes under. Plus, it would be a huge blow to market sentiment."
Tuniu has been trying to save itself. Products such as domestic road trips have been launched to accommodate the "new normal." Yu, often seen as an introvert and loner, even went live on Douyin to promote his company. But will it be enough to turn the tide?
The industry consensus is that a takeover is Tuniu's best hope, a proposal seen as largely feasible among analysts.
"This would call for a comprehensive valuation of the company. You examine its assets, evaluate its customer base, and compare it with liabilities. If the price is right, an acquisition is very doable." Said Luo Haizi, an industry analyst.
The three largest shareholders - HNA Group, JD.com, and DCM Ventures - together own 54 percent of Tuniu, and will have their say in deciding Tuniu's future.
When asked in 2018 whether Tuniu would consider being listed on China's A-Share market, Yu said he was "open to the idea."
Regardless of the future course, changes are coming to Tuniu and to the whole travel industry.