China Securities Co., Ltd.: The second half of the domestic OTA industry needs to focus on deepening supply optimization capabilities to seize the growth opportunities in the market.

China Securities Co., Ltd. released a research report stating that the domestic OTA industry has gone through a period of rapid development in the mobile internet era, gradually forming an oligopoly structure. The ability to extend the industrial chain and empower it has become the main competitive barrier at present, and the industry in the second half needs to focus on optimizing the supply capabilities. The entry of AI and internet giants into the industry is expected to reshape the competitive elements, with the leading OTA still having a strong first-mover advantage. New trends are expected to reshape the industry's traffic sources logic and synergistic advantages. Domestic leading OTAs also have differentiated advantages in overseas markets and are expected to gradually enhance their structural and refined operational advantages, capturing the continuous growth of the inbound and outbound markets. Key points from China Securities Co., Ltd. are as follows: Deepening differentiated comparative advantages in the domestic OTA oligopoly structure The development of China's OTA industry has gone through stages of internet popularity, rapid growth of mobile internet, the explosion of domestic and outbound travel demand due to rapid GDP growth per capita, the gradual refinement of the supply side resources, accompanied by complex mergers and acquisitions and competitive game between domestic and foreign giants in the capital market. The future years may see more profound changes in the core competitiveness and supply side reform of OTAs. The leading OTA companies in China have strategic advantages related to the core resources of "air + hotel" and have gradually expanded their capabilities to empower the overall cultural tourism industry chain, forming barriers. Other OTA platforms are also focusing on empowering and filling ecosystem segmentation links along the industrial chain, creating differentiated comparative advantages. The tide of leading OTAs entering the international market, with AI and internet giants reshaping the industry's competitive elements Following the overseas OTA giants, Chinese companies have experienced stages of recovery differentiation, clearer strategic directions, market development choices, adjustments in business models, and embracing the AI trend since 2020. In general, they also exhibit complementary advantages between leading companies, focus on different aspects of business models, seek unique markets, and actively engage in AI trends. Domestically, leading OTAs rely on their capabilities in supply chain cultivation, transaction, and scenario closure, and compared to AI, they still have distinct comparative advantages. However, they need to consider more synergy and integration with AI capabilities in the future, making AI an important source of traffic and entrance, reshaping traffic logic and awakening consumer willingness logic. The challenges faced by internet giants against OTA leaders have historically been due to their core differences in comparative advantages. However, with the current trend of increasing demand for internet giants in incremental markets, they may have advantages in traffic, technology, and cross-business synergies, reshaping the industry's competitive elements. OTAs need to focus on optimizing the supply and channel value. Demand side: huge potential in inbound and outbound markets Since 2023, domestic tourism demand has shown resilient growth, but it is expected to gradually return to a reasonable growth range. Inbound and outbound tourism are expected to become important incremental demands. In particular, inbound tourism, benefiting from policy improvements and consumption environment under current geopolitical conditions, may reshape the world's perception of domestic tourism resources and environments, potentially creating a trillion-dollar market increment. Outbound tourism growth remains stable, benefiting from the "silver economy" and other demands. Recommendations include focusing on TRIP.COM-S, TONGCHENGTRAVEL, and others. Risk analysis 1. Geopolitical influences affecting short-term impacts on outbound and inbound tourism demand, as well as uncertainty related to fuel prices and their impact on transportation channels such as flights; 2. Under the AI wave, the extent of global OTA giants' integration and adaptation to AI may reshape the OTA track landscape; 3. Internet giants gradually strengthening their OTA track businesses, with advantages in synergy across multiple businesses, traffic, technology, or impact on the overall track landscape; 4. Under industry regulatory trends, uncertainties exist in changing trends in take rate, costs, which may affect business models and profitability.