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Published on : Monday, July 18, 2016
China International Travel Services Group (CITS) and China National Travel Service (HK) Group will be merging into a multibillion Yuan deal which will be the country’s largest tourism conglomeration. This partnership, however, might not be very profitable immediately according to the travel analysts.
The announcement came after China’s state asset supervisor agreed to a restructuring proposal which would see Shanghai-listed CITS become a wholly-owned subsidiary of HKCTS.
Bocom International analyst said that there is immense competition from internet giants such as Alibaba and Tencent which uses their online resources to beef up the travel trade.
HKCTS, the state-owned travel industry powerhouse saw a tremendous hike of 7.42 per cent in its share, the most in more than seven months.
The executive director with the Travel Industry Council, Joseph Tung Yao-chung said that he expects the two companies to continue operating their travel agency businesses independently in Hong Kong with separate brand names and products.
HKCTS, whose total assets are estimated to be about 120 billion Yuan (HK$139 billion) after the merger, is one of four Hong Kong-based corporate giants overseen by the State Council, with the other three being China Merchants Group, China Everbright Group and China Resources.
The merger witnessed the two former rival firms consolidate their resources in many areas and eliminate competition. In fact, HKCTS will now be able to benefit from CITS’s duty-free business, which enjoys a high profit margin. Beijing-based CITS is the parent of China Duty Free Group, which runs the world’s biggest duty-free shopping mall in southern China’s Sanya city.
However, there remains the germ of doubt according to the travel trade experts that the benefits of the deal, which is still largely struck in response to the government’s policy objectives, will take some time to materialise. As potential management revamps at the two SOEs, they will take some time to revamp as their subsidiaries were included in two different markets. This is why the proposed consolidation will not be easy to carry out the big change immediately.
Nevertheless, China’s booming tourism sector will now experience a tough competition.