China’s Fragile Travel Rebound Runs Into Another Headwind

The leading second-tier online travel agent, alongside rival services operated by Alibaba and Meituan, are being investigated by China’s market regulator image credit: Bamboo Works Key Takeaways: Tongcheng, along with second-tier online travel services operated by Alibaba and Meituan, are being probed for anti-competitive behavior The probes come just two months after industry leader Trip.com was fined 5.3 billion yuan for similar anti-competitive behavior Just when you thought China’s market regulator was finished punishing companies for anti-competitive behavior on the internet, it turns out its work is still in progress. In this case we’re talking about the online travel industry, where industry leader Trip.com was fined and ordered to make refunds totaling a massive 5.3 billion yuan ($789 million) in July for anti-competitive practices. Many thought that was the end of the story, since China’s market regulator, the State Administration for Market Regulation (SAMR) typically targeted industry leaders like Alibaba and Tencent for its earlier anti-competitive investigations in areas like e-commerce and online music. But now we’re learning the SAMR wasn’t finished with its work in the online travel industry, with word that it’s now investigating most of the largest operators behind Trip.com. Specifically, the regulator is looking into anti-competitive practices by Tongcheng Travel Holdings Ltd. (0780.HK), as well as similar services operated by Alibaba (BABA.US; 9988.HK) and Meituan (3690.HK), according to a Reuters report last week. It’s also looking at Tujia, which operates a domestic homestay service similar to Airbnb (ABNB.US), according to the report. All four companies acknowledged an ongoing investigation, mostly by saying they were cooperating with regulators. The China Hotel Association said on its website that the SAMR was investigating four companies for unfair anti-competitive actions, but didn’t provide any names or additional details. It’s not surprising that the Hotel Association would welcome such probes, as many of its members are probably the most unhappy with the current situation. Trip.com was notorious for demanding concessions from hotels for their placement on its network, often requiring them to work with Trip.com exclusively. The SAMR earlier levied a record 18.2 billion yuan fine on Alibaba for similar anti-competitive practices in e-commerce, as it often forced merchants to work with it exclusively. What’s interesting in this instance is that the market regulator is now going after second-tier companies in the travel sector, which means perhaps it might start reopening some of the other sectors that were subject to similar investigations. Here, we’ll zero in on Tongcheng to try to better understand what’s happening, as the company’s business practices are more transparent than the others because of its publicly traded status. Tongcheng is 24% owned by Trip.com and 21% owned by Tencent, which may be part of the reason it’s being investigated. That cross-ownership gives Tongcheng status as effectively the exclusive travel agent on Tencent’s platforms, most notably WeChat. It may also receive preferable terms from Trip.com, which provides Tongcheng with hotel booking services. Notably, in its anti-trust ruling against Trip.com in July, the SAMR didn’t require Trip.com to sell its stake in Tongcheng, nor did it demand Tongcheng end its use of Trip.com’s hotel booking services. So, this latest probe could potentially result in Trip.com and Tencent being forced to sell their stakes, and Tongcheng possibly losing its preferred status on WeChat and any preferential terms from Trip.com’s hotel booking services. Slumping shares Investors certainly weren’t too happy about the latest development, with Tongcheng’s stock slumping 5.7% over the five trading days after the Reuters report. The shares are now down 55% this year, outpacing a 45% decline for the similarly battered Trip.com. The selloff has dropped Tongcheng’s price-to-earnings (P/E) ratio to a lowly 8.4, similar to Trip.com’s similarly depressed 7.6. Both of those are well behind the 11.3 for the much smaller Tuniu (NASDAQ:TOUR), and are half or less of the 18.2 and 16.6 for global leaders Booking Holdings (NASDAQ:BKNG) and Expedia (NASDAQ:EXPE). Here we should also note that China’s travel industry isn’t exactly booming these days due to the nation’s slumping economy, though lately it has shown some signs of rebounding slightly from a weak 2025. But this type of investigation certainly isn’t helping things. For Tongcheng, a loss of its preferred status on WeChat could be devastating. While it doesn’t provide specific figures, Tongcheng repeatedly describes the WeChat ecosystem as a "vital traffic source" for the company in its financial reports. Tongcheng appears to be lessening its reliance on Trip.com for hotel bookings. Most notably, the company is rapidly emerging as a hotel manager, complementing its core hotel booking and transport ticketing businesses. That gives Tongcheng preferential access to the 3,500 hotels it managed at the end of June, with another 2,000 in the pipeline, according to its second-quarter report issued last month. We wouldn’t be surprised if Tongcheng demands the same type of preferential booking arrangements from its managed hotels that Trip.com once demanded of many of its partners. Thus, the company may be required to end such demands and open its network of managed hotels more widely to rival online travel agents as a result of the probe. Tongcheng already operates on lower margins than many of its rivals as a result of its heavy reliance on Trip.com for hotel booking services and Tencent for preferential placement on WeChat. The company’s gross margin in the second quarter was just 66.3%, compared with 80.6% for Trip.com last year and an even higher 85.8% for Expedia. Less reliance on middlemen like Tencent and Trip.com would help to boost its margins, but at the expense of the large business volume that WeChat and Trip.com bring. There’s also the question of fines. Trip.com was fined about 7.5% of its 2025 revenue, which would translate to about 1.5 billion yuan if Tongcheng gets fined at a similar rate on its 19.4 billion in revenue last year. That looks relatively affordable, but would still represent a sizable portion of the company’s 6.8 billion yuan in cash at the end of June. All this shows there are many uncertainties currently hanging over Tongcheng, any of which could result in quite significant impact on its business depending on the market regulator’s final verdict. The one consoling factor for Tongcheng is that it isn’t the only company being targeted in this latest series of probes. That could indicate the SAMR is mostly interested in sending a signal that anti-competitive practices won’t be tolerated by any company, rather than seeking systemic changes in Tongcheng’s key relationships with Tencent and Trip.com. To subscribe to Bamboo Works free weekly newsletter, click here Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.