Ctrip (CTRP) shares are down sharply on a Sina.com report that the 3 leading domestic airlines in China – China Eastern, China Southern and Air China – have cut the commission rates paid to travel agencies for certain domestic flights. The cuts reportedly affect flights from Shanghai and Beijing.
Goldman Sachs analyst Kathy Chen writes in a research note that “it appears airlines are taking steps to reduce the commissions they are paying to travel agents as they are also increasing their own direct sales efforts.”
Piper Jaffray analyst Michael Olson notes that commission rates could fall by up to 50%, from 3%-4% now, to 1.5%-2%.; he notes that air ticket commissions account for 43% of projected 2010 revenues.� Olson says a partial offset is that the company will likely gain market share from weaker lower-volume travel agents. He thinks the worst case revenue impact is a 5%-10% hit to 2011 results.
Several weeks ago, Ctrip shares tumbled on a similar move to cut commissions by international carriers.
CTRP is down $5.69, or 15%, to $32.38.
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