Bridge Report:（6191）AirTrip Corpthe Fiscal Year September 2023

President & CFO Yusuke Shibata	AirTrip Corp.（6191）

Company Information

Stock Information

*The share price is the closing price on June 2. EPS is from the second quarter of FY 9/23. ROE and BPS are from FY 9/22.

Earnings Trend

*Unit: yen, million yen. The forecast of DPS for this term is still to be determined. IFRS is discretionally applied from FY 9/18. Net income is profit attributable to owners of parent. Hereinafter the same applies.

This report outlines the second quarter of the Fiscal Year September 2023 earnings results and other information about AirTrip Corporation.

Table of Contents

Key Points
1. Company Overview
2. The second quarter of the Fiscal Year ending September 2023 Earnings Results
3. The Fiscal Year ending September 2023 Earnings Forecasts
4. Topics
5. Conclusions
＜Reference: Regarding Corporate Governance＞

Key Point

• In the second quarter of the fiscal year ending September 2023, transaction volume increased 2.2 times year on year to 43,297 million yen. Sales revenue grew 2.1 times year on year to 11,588 million yen due to the progress of the relaxation of movement restrictions in Japan and the relaxation of entry restrictions in various countries for inbound travel to Japan in the environment surrounding the travel industry. Gross profit rose 81.67% year on year to 5,903 million yen. Operating income increased 7.5% year on year to 1,588 million yen, mainly due to the revision to the business portfolio.

   

• For the fiscal year ending September 2023, the company has significantly revised its forecasts upwardly from sales of 19 billion yen and an operating income of 1.6 billion yen to sales of 24 billion yen and an operating income of 3 billion yen, due in part to the strong performance of the AirTrip travel business, especially in the domestic travel domain, driven by increased demand for travel triggered by the nationwide travel support program. In addition, the dividend amount remains undetermined, but the company is aiming for a dividend payout ratio at a level of 20%.

   

• Although the global infection status of the novel coronavirus and the government's response to it may have an impact, it is expected that the movement of people will become more active thanks to the relaxation of restrictions during various periods and the reclassification of the novel coronavirus from Category 2 to Category 5 on May 8. In addition, with the expected recovery of the number of foreign visitors to Japan, the company expects that the increase in transaction volume will lead to a further recovery in revenue.

   

1. Company Overview

AirTrip Corp. conducts a variety of businesses centered on the AirTrip online travel business, which operates the comprehensive travel platform "AirTrip," boasting the largest Internet ticket trading volume. In the IT offshore development business, the company employs approximately 700 IT engineers and is engaged in "the largest hybrid type offshore development among Japanese companies," in the inbound travel agency business/Wi-Fi rental business, the company provides various services to foreign visitors to Japan and private lodging management companies. Moreover, the company is focusing on the investment business (AirTrip CVC), aiming to expand service lines and improve profits by pursuing synergies through collaborations with investee companies by investing in growing companies.
The company set “Air Trip 5000” as their medium-term target to achieve a transaction volume of 500 billion yen.

【1-1 Corporate History】

In May 2007, Tabi Capital Co., Ltd. was established to provide online travel agency services.
Since then, the Company has been expanding its product line-up through M&A and business transfers.
In March 2012, the Company began IT offshore development business in Vietnam. Taking this opportunity, in order to clearly show the Company’s direction towards the integrated IT business, it changed its name to Evolable Asia Corp. in October 2013.
In March 2016, it was listed on the Mothers Section of the Tokyo Stock Exchange. One year later, in March 2017, it moved to the First Section of the Tokyo Stock Exchange.
In May 2018, the company achieved the largest Internet trading volume of airline tickets due to the reorganization of the former DeNA Travel into a subsidiary.
On January 1, 2020, as the operating company of "AirTrip," which has the largest Internet trading volume of airline tickets, the company unified its trade name and brand name to build a stronger business foundation and further improve the popularity of the "AirTrip" brand. Also, the company changed its name to AirTrip Corp. to demonstrate its stance of concentrating on various businesses centered on "AirTrip."
In April 2022, the company got listed on the Prime Market of the Tokyo Stock Exchange following the reorganization of the market.

【1-2 Mission, etc.】

【1-3 Business Description】

Regarding business domains, Regional Revitalization Business has been added to the five businesses: AirTrip Travel Business, IT Offshore Development Business, Inbound Travel Agency Business/Wi-Fi Business, Media Business and Investment Business (AirTrip CVC).
There are three reportable segments: online travel business, IT offshore development business, and investment business. Inbound travel agency business/Wi-Fi rental business and Media business are included in the online travel business segment.

(1) Online Travel Business
① AirTrip travel Business
It sells travel products such as domestic airline tickets, domestic hotels, overseas airline tickets, overseas accommodations, AirTrip plus (Airline tickets + hotels), package tours, busses, rental cars, and Shinkansen through the comprehensive travel platform "AirTrip" and various sales channels.

（From the company's website）

※IATA (International Air Transport Association): The IATA is a trade association of the world’s airlines.

The comprehensive travel platform "AirTrip" handled domestic and international airline tickets, hotels, domestic and international tours, buses, rental cars, and the Japanese bullet train (Shinkansen).
Moreover, the company steadily increased the number of users by actively developing various advertising activities such as TV commercial to raise awareness, operating various campaigns, and improving UI and UX on a daily basis.

(Strengths of business)
The Company has the largest trading volume of airline tickets in the Japanese OTA industry.
The agreements with all domestic airline groups, a unique business condition enjoyed only by the Company, enable the Company to issue flight tickets. Advantageous procurement prices combined with self-issuing of tickets (no need to outsource) make its cost competitiveness overwhelmingly strong.

In addition, the Company has “competitive supply routes” based on strong relationships of trust with each airline company resulting from long-term business relationships, “diverse sales routes”, and “low-cost system development using its own offshore IT development capacity”. Because of these factors, the Company has created high barriers to entry.

②Inbound Travel Business/Wi-Fi Rental Business
The company uses the know-how nurtured in the AirTrip Travel Business to provide services for foreign visitors to Japan.

(Primary Services)
*Wi-Fi Rental for Foreign Visitors to Japan
Inbound Platform Corp., a subsidiary of AirTrip, has been providing a Wi-Fi router rental service for travelers visiting Japan, with a performance of over 800,000 rentals, establishing its brand through the long-standing trust and word-of-mouth.

③ Media Business
Working with MagMag Inc., which is a consolidated subsidiary with the ethos of “distributing what you want to convey to those who want to know,” the company collects creators’ contents from all over the world, develops and provides systems to deliver the information to those who see value in them. They operate the free and paid email newsletter service “MagMag!,” holding the country’s largest 7.5 million-member base, “mine” where users can purchase respective articles, the online media “MAG2 NEWS,” “MONEY VOICE,” “TRiP EDiTOR,” and “by them,” in which users can discover contents and deliver them to a number of people who want to know.

(2) IT offshore development business
The company provides lab-type development services mainly for development companies for e-commerce, web-solutions, games and systems, in 3 locations in Vietnam (Ho Chi Minh, Hanoi and Da Nang). The company forms a team with dedicated staff members hired for each customer of its lab-type development services, which allows customers to check the development status of the lab whenever they need to.

（From the company's website）

(Features of the IT Hybrid Development)
The company has a number of project managers with 5 to 10 years or longer of practical experience in Japan, and carries out upstream processes in Japan, including the requirement definition. They communicate with customers in Japanese, while they communicate with engineers in Vietnamese, therefore, the company can provide development solutions that are consistent from upstream processes to downstream processes, without any inconsistency between their understanding.
Furthermore, they accumulate know-how by assigning dedicated development staff members, so that they can improve the efficiency of their business operation in proportion to the operation period. In addition, they achieve optimum cooperation and management by having a Vietnamese project manager on the ordering side.

(3) Investment business
It is positioned as the business having characteristics of CVC (corporate venture capital). The company will pursue a synergistic effect as well as opportunities for capital gains. The company also engages in investment incubation business.
As of the end of April 2023, the company had invested in a cumulative total of 94 companies, and the total investment amount was 4.1 billion yen. A total of 12 companies in which AirTrip invested have made an IPO so far.

2. The second quarter of the Fiscal Year ending September 2023 Earnings Results

(1) Consolidated Business Results

*Unit: million yen. IFRS is applied. Net income for this quarter means profit attributable to owners of parent.

Sales and profit increase significantly.

• In the second quarter of the fiscal year ending September 2023, transaction volume increased 2.2 times year on year to 43,297 million yen. Sales revenue grew 2.1 times year on year to 11,588 million yen due to the progress of the relaxation of movement restrictions in Japan and the relaxation of entry restrictions in various countries for inbound travel to Japan in the environment surrounding the travel industry. Gross profit rose 81.67% year on year to 5,903 million yen. Operating income increased 7.5% year on year to 1,588 million yen, mainly due to the revision to the business portfolio.
  

  （From the company's material）

   

  With increased travel demand, the company maximized its marketing investment. Other fixed costs were kept low, with monthly SG&A expenses kept at 700–900 million yen or slightly higher in the second quarter of the fiscal year ending September 2023.

  

  （From the company's material）

   

(2) Trends by segment

*Unit: million yen. The composition ratio of operating income means operating income margin on sales.

*Produced by Investment Bridge Co., Ltd. with reference to the material of the company.

①Online travel business
Both sales and profit increased significantly due to a recovery in demand for travel, especially domestic travel.
Profit rose 30.2% year on year to 1,637 million yen, partly due to the increased sales.

②IT offshore development business
Although profit temporarily declined from the previous year due to organizational strengthening, a new management structure aimed at growth in the second half of the year was established.
Profit declined 99.8% year on year to 0 million yen due to the decrease in sales.

③Investment business
The investee Prime Strategy Co Ltd (Securities code: 5250) was listed on the Tokyo Stock Exchange's Standard Market (12th IPO by a portfolio company). Profit increased 18.8% year on year to 366 million yen.

(3) Financial standing and cash flows

◎Summarized Balance Sheet

*Unit: million yen. “Cash, etc.” mean cash and cash equivalent. “Trade receivables, etc.” mean trade receivables and other credits. “Trade payables, etc.” mean trade payables and other liabilities. Interest-bearing debts include lease liabilities.

*Produced by Investment Bridge Co., Ltd. with reference to the material of the company.

Total liabilities augmented 1.9 billion yen to 16,126 million yen, mainly due to an increase in trade payables despite a decrease in interest-bearing debt.
Retained earnings increased, and capital stock grew 898 million yen to 10,806 million yen.
As a result, equity ratio (the ratio to equity attributable to owners of the parent) declined 0.9 points from 41.0% at the end of the previous fiscal year to 40.1%.

◎Cash Frow

*Unit: million yen.

*Produced by Investment Bridge Co., Ltd. with reference to the material of the company.

Free cash flow improved because of a increase in use of operating cash flow. The cash position kept improving.

3. The Fiscal Year ending September 2023 Earnings Forecasts

Consolidated Business Forecasts

*Unit: million yen. IFRS is applied. Net income for this period means profit attributable to owners of parent.

The company revised earnings forecast.
For the fiscal year ending September 2023, the company has significantly revised its forecasts upwardly from sales of 19 billion yen and an operating income of 1.6 billion yen to sales of 24 billion yen and an operating income of 3 billion yen, due in part to the strong performance of the AirTrip travel business, especially in the domestic travel domain, driven by increased demand for travel triggered by the nationwide travel support program. In addition, the dividend amount remains undetermined, but the company is aiming for a dividend payout ratio at a level of 20%.

The domestic travel domain was healthy due to the demand growth thanks to nationwide travel support. All existing business areas other than travel performed well, and business progressed steadily. Recovery is expected due to the reclassification of the novel coronavirus to Category 5. Overseas travel in May was on a recovery track, being at 60-70% of the pre-pandemic level.

（From the company's material）

4. Topics

(1) Executed strategic advertising investment aimed at the "profit recovery phase" by utilizing the recognition acquired during the "advertising investment phase."
Utilizing the recognition acquired during the "advertising investment phase," the company strategically invested in advertisements to respond to the recent increase in demand for travel. Profit recovery is expected in the second half of the fiscal year due to an improvement in organic search ratio.

（From the company's material）

(2) Significant improvement in cross-selling rate due to an improvement in the number of customers attracted and average spending per customer Cross-selling rate grew significantly with the upsurge in travel demand. The number of customers attracted increased 318% year on year, and average spending per customer increased significantly, achieving a record-high gross profit while maintaining the same level of CVR.

（From the company's material）

(3) Significantly exceeded the previous highest level due to nationwide travel support and enhanced recognitionGross profit from organic search, the most important KPI, significantly exceeded its previous highest level due to nationwide travel support and enhanced recognition. Significantly increased by 150% from the previous highest level in the first quarter of the fiscal year ended March 2023.

（From the company's material）

(4) Airline ticket sales, which are the mainstay, recovered to the pre-pandemic level, and furthermore, the sales of other focused products grew substantially.
Airline ticket merchandise recovered to the pre-pandemic level. Meanwhile, the sales of other focused travel merchandise achieved significant growth exceeding that of the pre-pandemic level. Other focused travel merchandise achieved 167% growth from the pre-pandemic level in the second quarter of the fiscal year ended March 2020.

（From the company's material）

Overcoming the advertising control period and restarting the "profit recovery phase"

The domestic travel domain steadily met increasing demand and led the entire business portfolio. The other business areas continued to make steady business progress and earned a monthly profit throughout the year. Strategic marketing investments will lead to significant growth in gross profit in the domestic travel domain throughout the year.

（From the company's material）

5. Conclusions

Although the global infection status of the novel coronavirus and the government's response to it may have an impact, it is expected that the movement of people will become more active thanks to the relaxation of restrictions during various periods and the reclassification of the novel coronavirus from Category 2 to Category 5 on May 8. In addition, with the expected recovery of the number of foreign visitors to Japan, the company expects that the increase in transaction volume will lead to a further recovery in revenue.

＜Reference: Regarding Corporate Governance＞

◎Organization type and the composition of directors

◎Corporate Governance Report
Last updated on Jan. 4, 2023.

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Our company group considers the swift decision-making in response to the changes in the business environment, lasting business development, and gaining trust from stakeholders as the most significant business challenges. To improve the health, transparency and efficiency of the operations, all of us are striving to enhance the structure of corporate governance, thorough compliance, and timely and appropriate disclosure (of information).

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