China Tourist

Travelling salesmen

Popular travel booking website Ctrip suddenly has a lot of competition

Three of the 300 million

China’s tourist officials had a bright idea in 1999. In order to promote domestic tourism they created a one week holiday surrounding the October 1 National Day, and called it Golden Week. It has been a spectacular success (although those wanting a quiet break may disagree) and this year’s National Day holiday set a new record, with more than 300 million Chinese taking holidays inside the country or abroad.

According to the Boston Consulting Group, Chinese tourists now spend as much as 8% of their annual discretionary income on trips, much more than other emerging markets. So no surprise that many companies are now competing to snare some of that spend. One of them – Baidu, China’s largest search engine – has just announced plans to list the shares of travel service operator Qunar, on which it spent $306 million for a majority stake back in June.

Founded in 2005, the Beijing-based Qunar – in Chinese it means “where to?” – is a search engine for air and rail tickets, hotels, and tour packages. The site now boasts listings for more than 11,000 air routes and 102,000 hotels around the world.

Baidu is now planning a Qunar IPO on Nasdaq, although it isn’t the only Chinese internet giant eyeing a piece of the travel market.

In May Tencent, operator of the popular instant messaging software QQ, spent $84.4 million for a 16% stake in eLong, another Chinese online travel company. Last year Taobao, the country’s largest consumer site, also beefed up its online travel service platform.

Qunar’s business model resembles the B2C sales leader Taobao, says Century Weekly. Like Taobao, Qunar serves as a shopfront and doesn’t complete any of the orders for tickets or hotel rooms itself (instead sending consumers directly to the hotel and airline websites).

That means that Qunar doesn’t take commission, making money primarily from advertising. According to Zhuang Chenchao, Qunar co-founder and chief executive, 80% of the company’s revenue comes from pay-per-click ads and the rest from display revenues. Essentially, Qunar is a media company.

That explains why Ctrip, the market leader in the online travel industry, doesn’t consider Qunar direct competition. Ctrip, which is listed on Nasdaq, controls a 52% market share of online travel bookings and operates more or less like an old-school travel agent, earning revenue primarily from commissions on flight and hotel bookings. The company also owns stakes in Home Inn and Hanting, large domestic hotel chains.

Moreover, Ctrip has adapted from its original online focus. That’s because only 8% of China’s 500 million internet users have used a travel website, compared with 35% in the US, says China Internet Network Information Centre. And most of them are still reluctant to buy tickets online. So Ctrip has hired 5,000 sales representatives to handle hundreds of thousands of calls every day. In fact, 70% of Ctrip’s sales volume goes through call centres, with only 30% made online, says TechCrunch, a technology blog. Many customers want a real ticket instead of an electronic one. So Ctrip sends out motorcycle couriers to deliver them.

One threat to Ctrip’s revenues: airlines. They don’t want to end up beholden to online distributors, if it means that they then have to pay higher commissions – they would rather sell direct through their own websites. Qunar’s ‘referring’ model suits them better than Ctrip’s.

Ctrip, meanwhile, has countered by investing heavily in the business travel market, an area it first entered back in 2001 but then gave up on because the number of business travellers was small. Analysts now say the market has been growing at a compound annual rate of 40% in the last three years, reigniting Ctrip’s interest. Already, it has surpassed American Express to become the largest corporate travel services provider in China.


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