HKCTS and CITS claim merger could create market leader in nation's tourism industry

Two of the country's leading tourism firms are planning to merge, creating the market's biggest travel operator.

China National Travel Service (HK) Group Corporation (HKCTS) and China International Travel Service Group Corporation (CITS) announced they were considering a strategic reorganization on Tuesday, although the proposals have not been finalized yet.

Both are State-owned travel service providers, and the proposal will be subject to the approval of the relevant supervisory authorities.

In a statement, China Travel International Investment Hong Kong Ltd, the listed subsidiary of HKCTS, insisted the revamp "does not involve any material asset restructuring of the company nor any securities issues, and does not have any material impact on the normal operation of the company".

Its shares rose 3.73 percent to HK$ 2.78 (36 cents) on Wednesday in the Hong Kong Stock Exchange, while China International Travel Service Corporation Ltd enjoyed a 4.73 percent bounce to 47.65 yuan ($7.3) at the Shanghai Stock Exchange.

China has four State-owned tourism companies, all relatively small, said Lin Zhouyong, an analyst from Haitong Securities Co, who was not surprised by the proposed merger, adding that it is reasonable to reform or integrate them.

At the end of 2015, HKCTS' assets were worth around 100 billion yuan, and it delieverd annual net profit of 2.37 billion yuan last year. CITS's net profit is expected to rise 9.38 percent to 1.608 billion yuan in 2015.

Competition in China's tourism industry is fierce and growing, and has been attracting significant amounts of investment, said Wei Changren, general manager of tourism industry consultancy CTCNN.com Inc.

"Once the two groups merge, its scale will be huge, making it easier to attract more capital," said Wei.

"Both own some non-tourism businesses, and it is still unclear whether those will be kept or spun off."

CITS has three major business units－travel agency, duty free shop service and investment－as well as a tourism project-development operation.

HKCTS' business structure is more diversified, involving seven business units, including travel agency, hotels, real estate and logistics.