The battle for bookings
When the Chinese first began to go overseas on holiday, it was the state-run travel agencies that dominated the market because they had exclusive rights to arrange the tours. Their customers didn’t mind, liking the security of knowing that their travel arrangements were effectively state-backed.
Although the majority of bookings continue to be made at traditional agents, there are deep-rooted trends moving more of the industry online: travel on group tours is dropping as a proportion of overall bookings and younger consumers expect to arrange their holidays over the internet. Online sales have been growing at about three times the pace of the total market for travel.
Some of these trends are similar in other parts of the world. Customers that just want to book a hotel room or a flight are more likely to use an online platform, while those looking for an inclusive tour or personalised package are more likely to visit a bricks-and-mortar agent.
However, many of the flights sold over the internet in Europe and North America are booked directly with the airlines themselves. That’s not the case in China, where more than three quarters of flight bookings are made on third-party platforms. Sector specialist Eye for Travel says the same thing is happening in accommodation: seven out of 10 bookings are made through online travel agents compared to one in 10 on hotel websites or apps.
This kind of context puts intermediaries like Ctrip in a powerful position. With 150 million monthly active users, Ctrip is now China’s largest online travel agent, offering a one-stop shop for shoppers across a massive inventory of flights and hotel rooms, cruises and travel packages. The strategy is to seize share from the traditional agencies as spending on travel rises. Meanwhile Ctrip controls more than 80% of online travel sales, having merged with its main competitor Qunar three years ago. Qunar concentrates on high-volume domestic tours and group travel overseas, while Ctrip focuses on FIT (free and independent travellers) wanting international holidays.
Ctrip’s positioning as a one-stop shop has seen it make investments in a range of other technology brands and platforms, including Tujia (a home rental firm with similarities to Airbnb), Tuniu (another major player in leisure travel) and Skyscanner and Trip.com (two tech leaders in travel search, who have also provided a launch pad for Ctrip into international markets).
On top of that Ctrip has taken stakes in hotel chains, a car rental firm and China Eastern – one of the country’s leading airlines. It also operates a franchise network of thousands of bricks-and-mortar stores, recognising that outlets like these are still the best way to reach customers for package tours, whose purchasers are harder to convert online.
Tencent and Alibaba: taking aim at travel
Perhaps the greatest threat to Ctrip’s position comes from Meituan Travel, one of the many blockbuster apps in Tencent’s portfolio.
Meituan-Dianping was born from the merger of Meituan, a food delivery and group buying company, and Dianping, a restaurant review app. Since then the combination has expanded into travel and it now offers a host of information on hotels, restaurants, tourist attractions and shopping.
Bookings through Meituan Travel have helped to lift Meituan-Dianping’s valuation to about $30 billion in its most recent investment round, when Priceline, the world leader in online travel by sales, purchased a $450 million stake.
Meituan Travel boasts that it already outranks its rivals in room nights sold in the Chinese market and that it is the largest vendor of tickets for domestic attractions and excursions. It also claims to provide the most travel guides for people holidaying abroad.
That kind of traction must alarm Ctrip, which is actually a co-investor with Tencent in Tongcheng-Elong, another online platform targeting mid-tier tourists, which is set for an IPO in Hong Kong later this year.
With Brexit looming, there were signs that the mood among French, German and Italian tourists had started to turn negative on Britain as a destination last year, according to a survey from VisitBritain, the UK’s national tourism organisation.
Tongcheng-Elong relies heavily on Tencent’s payment and messaging services for much of its market, including WeChat, China’s dominant social media app. The danger for travel and tourism pure plays like Ctrip is that WeChat is now so all-encompassing that it walls in its customers completely, likewise capturing their spending on travel.
As online travel agents chase China’s Millennials, another key battleground is smartphones, where the massive majority of travel bookings over the internet are bought and paid for. And here, another powerful player joins the fray: Alibaba, China’s king of e-commerce.
Alibaba rose to prominence with its online marketplaces but the popularity of Alipay, the mobile payments app owned by its affiliate Ant Financial, has given it a new bridgehead into the travel sector.
While Tencent is muscling in on tourism through its power in social media, Alibaba’s bet is that e-commerce and offline shopping are merging, providing an integrated foundation for spending on travel.
Fliggy – Feizhu, or “flying piggy” in Chinese – also draws on a user base of more than 550 million monthly users for Alipay, which has given it the heft to do deals with global brands like Lufthansa, Marriott and American Airlines. And in the same way that Alibaba promotes its online marketplaces as storefronts for other brands, Fliggy makes a virtue of the marketing and data analytics that help travel firms to connect better with their customers (rather than risk losing contact with them through the involvement of intermediaries like Ctrip).
Fliggy has been focusing on outbound tourism because another part of the deal with its travel partners is that they accept payment with Alipay, pushing up acceptance of the app overseas.
Already, about 65% of Chinese travellers rely on mobile payment apps to buy items on holiday, compared to just 11% of non-Chinese tourists, according to a survey from Alipay this year.
Keeping it social
Some of the other competitors for Ctrip include review sites such as Mafengwo and Qyer, which offer a huge selection of user-generated content incorporating profiles of attractions, travel diaries and photos, and downloads of professionally produced guidebooks.
Both platforms started out as social networks that helped people to choose between travel options (customers on Mafengwo still look through an average of 19 hotels before making their decision for an overseas trip, the company reports). Their offer now extends much further, including location-based features that pinpoint “things to do” in the destinations once holidaymakers arrive and help them to find services such as portable WiFi, flight pickups or carpooling.
Mafengwo offers information on holidays in China and overseas, while Qyer concentrates purely on the outbound travel market. But both platforms are linking their content to travel offers from third parties and newer features like mobile-focused, personalised planning and booking are bringing them into direct competition with the travel booking sites.
The platforms also pose a threat to the online travel agents because of their focus on some of the fastest-growing parts of the market, notably the independent, younger travellers in the FIT bracket. Content on the best of the review sites generates word of mouth marketing, reaching the much-prized post-80s and post-90s generations in first and second tier cities. Mafengwo says that 53% of China’s outbound tourists were FITs last year but that almost all of the domestic travel sourced through its platform was for holidaymakers making their own arrangements. If it can direct the same customer base into international trips, it will establish a lucrative foothold in overseas travel too.
The Millennial moment?
In reaching the Millennials on review sites like Mafengwo, another important resource are KOLs, or key opinion leaders, says Helena Beard, the managing director of China Travel Outbound, a PR agency that promotes European tourist attractions, hotels and destinations to the Chinese.
KOLs with millions of followers in fashion, food and travel are offering a new form of ‘opinion marketing’ that brings authenticity and appeal to the brands they represent. In the world of tourism the opinion leaders are globetrotting stars, paid to endorse destinations and attractions. “KOLs are professional travel bloggers who can be very influential in releasing reviews of destinations on social media platforms like Weibo and WeChat, or putting them on leading review sites like Mafengwo,” Beard explains.
Her company also works with its clients to supercharge their promotional campaigns by reaching out to the fans of celebrities on social media.
In one example, the Hard Rock Cafe in London invited a Chinese rock band called Miserable Faith to visit. Band members had a meal at the restaurant and then posted about the evening to their 369,000 Sina Weibo fans, putting the spotlight on the venue.
In another case last year, Nana Ou-Yang, a 17 year-old film star, was invited to spend a few days in the city of Bristol in western England. “She did fashion shoots around the city, went up in a hot air balloon, created her own piece of ‘Banksy’ artwork and climbed the rigging on the SS Great Britain,” Beard says. “She’s the perfect age and personality for reaching out to the Millennials and she gave Bristol the kind of personal endorsement that can be really important in China. Her holiday generated a lot of coverage on sites like Haibao, a popular fashion and lifestyle website, and among her weibo following of almost nine million people.”
A common thread to campaigns like these is that they are designed entirely for circulation online. Fortunately, the explosion of social media channels has opened up new ways of reaching potential visitors that weren’t available five years ago, and ‘in-location’ engagement is also increasingly important to Millennial holidaymakers, allowing them to share and show off their experiences.
That means that travel content has to be mobile-friendly for smartphones and that connectivity is crucial for word-of-mouth marketing. However remote the location, destinations that can’t offer reliable WiFi are at an immediate disadvantage.
But there is another, more basic to-do list for any destination that wants to attract business from the Middle Kingdom. Signage in Chinese characters is a must for locations that want to capture a larger volume of visitors, for instance, while hosts who speak Mandarin are important too, even if they can only manage a few words of welcome in Chinese. The checklist is similar for restaurants that want to host Chinese diners. “You stand a much better chance of attracting food tourists if there’s upfront information in Chinese and offering them Chinese mobile payment methods will make them feel more at home as well,” Beard says. “Also, remember that communal dining is important to the Chinese, so restaurants that tailor some of their menus accordingly often do better. For instance, the big-sellers among Chinese customers at the restaurants we are working with in Brighton are the huge, seafood platters of lobster, crab and shellfish that allow diners to share their meals together.”
Yet despite all the excitement about the new wave of Millennials going abroad on holiday for the first time, Beard cautions against rejecting the traditional style of group tourist from China entirely.
“It’s true that we are seeing larger numbers of independent travellers but there is still much more group activity from the Chinese, as well as various other types of traffic that sit between the two extremes,” she warns. “Some attractions will want to appeal to FITs, while others may want to concentrate on groups. The priority for any destination or attraction is to decide on the customers that it wants to target and then to find ways to reach them.”
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