Posted On 2015/08/07 By In Business, Branding, China Domestic, China Inbound, News, China Outbound, Internet, Media, Distribution, Social Media With 757 Views

China OTAs to consolidate to take Advantage of Tourism Boom

China’s 219 billion yuan online travel market is poised to consolidate further this year in order to ride on the mainland’s tourism boom after years of cut-throat competition left the main players bleeding red ink.

A new proposal by China’s internet giant Tencent to privatise eLong, the mainland’s third largest online travel agent (OTA) company, means eLong’s largest shareholder Ctrip – China’s largest OTA – has emerged as the dominant leader in China’s online travel market that is stabilising after an intense battle the past five years against top competitors that also included eLong and Qunar.

ELong, which reported net loss of 356 million yuan for the second quarter this week, announced the offer by its 15 per cent shareholder Tencent to buy all its shares not held by majority stakeholders and certain management – which would make Tencent the second largest shareholder after Ctrip, a 38.6 per cent stakeholder since May when it made a US$400 million surprise purchase.

This has stoked talks of an alliance between Tencent and Ctrip, putting the second-largest OTA Qunar under the spotlight after it rejected an acquisition bid from Ctrip in June.

“(The) potential tie-up with China’s No. 1 internet company, Tencent, may further cement Ctrip’s leadership in China’s travel space,” said Wendy Huang, head of Asian internet and media research at Macquarie Securities. Tencent’s mobile traffic getaway and strong data analysis capabilities could make CTrip “a formidable champion”, she said.

Credit Suisse analyst Dick Wei also said Tencent’s buyout bid is positive for both eLong and its shareholder CTrip, as Tencent’s dominance as a social platform helps with distribution channels.

Ctrip reported non-GAAP net income of 296 million yuan on revenue of 2.5 billion yuan for the second quarter of 2015, beating analysts’ estimates. Huang said Ctrip’s earnings came well above expectations, after the company had a loss-making quarter at the end of 2014. “The worst margins are behind us,” she said.

“China’s online travel industry has hit an inflection point in 2015 as leisure travel takes off and competition stabilises,” she said.

Huang said she expects Ctrip and Qunar to converge in their target users and business models, leading to more head-to-head competition in lower-tier cities and lower-end hotels. Outbound travel, which have been identified by mainland airlines as the fastest growth driver this year, is set to outnumber inbound visits to China for the first time in 2015.

Transportation ticketing, which accounted for 38 per cent of Ctrip’s second quarter revenue, was the fastest growing business in volume at a year-on-year rate of 106 per cent.

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Article: SCMP / Image: David Woo

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Stefan (from Austria, Europe) has been living, studying and working in China since 2010. Stefan has worked on several research, publication and consulting projects focusing on the China Travel Market. He holds three Masters degrees and is an expert on China Outbound Tourism, Marketing and Social Media in China. Stefan works with BMG on the Global Ready China Seminars as well as the Global Ready China News and related projects. He also has teaching engagements in the areas of eMarketing and Tourism Strategy.

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