TravelSky Technology (696 HK) is a Chinese travel technology company owned by state holding company SASAC and the Chinese airlines.
The company provides a booking and inventory management system for airlines - a so-called Global Distribution System (GDS). This system connects airlines with travel agents, enabling airlines to offer their airline seats to customers on a single platform, updated in real-time.
You can look at TravelSky as a virtual “toll booth” on air travel in China: a monopoly taking a cut of all air ticket reservations, leading to stable, recurring revenue in a growing market.
The worldwide GDS market is dominated by three firms: Sabre in the United States, Amadeus in Europe and to a lesser extent Travelport. TravelSky, on the other hand, dominates the Chinese market where it has a virtual monopoly.
TravelSky is also engaged in a number of other businesses. These include departure control systems, flight connecting services, baggage handling systems, automatic check-in counters as well accounting, settlement and clearing software.
The Chinese air travel industry is an attractive market. Only ~10% of Chinese citizens have passports. The number of air trips per capita is currently only 0.4x vs 1.7x in South Korea and 2.7x in the United States. This is the major driver of growth for TravelSky, with air travel passenger volumes likely to grow 8-10% per year on a secular basis.
I believe that TravelSky is more nimble than most Chinese state-owned enterprises (SOEs). It has a clean balance sheet with no debt, pays a dividend and rarely engages in M&A. It now has a customer-facing flight information app. It responded very quickly to COVID-19 by rolling out a tool to alert a traveller who tested positive in January 2020. This shows that TravelSky is actively looking to add value to its customers - not just seeking economic rents.
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