Tom K is a financial blogger and investor who embraces continuous learning. He believes in living below one's financial means, expanding one's financial means and crafting an effective system to capture opportunities in the Singapore stock market. This article was first published on Tom K's blog, and is reproduced with permission.
Tourism landscape: As Asiatravel.com noted in its FY2014 annual report, travel demand in the region might have been shaped by consumer sentiments after the tragic flight incidents of Malaysia in 2014.
Additionally, tourism is, in my opinion, a cyclical industry. Asiatravel.com needs not only to adjust its business to the demands of this cyclical industry, it has to manage its business in the online world where most of its business resides (which I will discuss below), hence I believe Asiatravel.com is in a business which it has to manage really well.
Online management: The online world is a dynamic one where opportunities arise just as quickly as they go. To illustrate this point, for FY2014, Asiatravel.com had to incur more advertising and promotion fees as a result of the sprouting of meta search-engines which add an extra layer to consumer marketing. This has contributed to the lower profits of Asiatravel.com. As part of its online management, Asiatravel.com has switched some of its advertising model from a "pay per click" model to a "pay per action" model for advertisers.
I believe the threat to an online business like Asiatravel.com can come simply from the sprouting of new players as the entry barrier into an online business, in my opinion, is not that high.
How sustainable an online business can be is pretty much the contacts and experience it already has. In this respect, Asiatravel.com has touted that its business is pretty much worth more than the current valuation as it is one of the few travel-related players with an integrated suite of accommodation, tour package and airfare offerings with an established track record and customer base.
Asiatravel.com believes pretty much its collaboration with Zhong Hong's tourism asset as well as possible M&As and investments with other travel business with little online presence could bring out the actual worth of the Asiatravel.com stock.
While I believe in the online track record of Asiatravel.com, I also note that of its business, almost 69% is in hotel reservation business.
I am not sure how the sprouting of new online hotel reservation websites like Hotels.com and Trivago will impact this main business of Asiatravel.com.
Also as mentioned, Asiatravel.com has three core online reservation businesses: hotels/resorts; tours & packages as well as air tickets; hence the company has to really sustain its good share of the online market for not only the hotel reservation business but also for each of the other two areas as well as continually, new players will spring up to grab a slice of the online pie.
In summary, Asiatravel.com is in a cyclical travel-related business and has to manage its online lead in each of its three core reservation businesses in accommodation, tour packages and air fares in a competitive online domain; hence I think the business of Asiatravel.com is not an easy one.
I believe it may not be easy for the stock price of Asiatravel.com to soar unless there are mergers and acquisitions or other investments for the company to interest investors. In Oct 2014, the share price spiked up briefly when it was announced that a tourism-related company, ZhongHong Holding, would pay S$10 m for 40 million new shares of Asiatravel.com.
But the stock price has been on a downtrend in the second half of 2014.