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Ctrip buying stake in China Eastern to ease airline boycott

04/26/2016| 8:02:43 AM|

Ctrip is buying a $463 million stake in China Eastern Airlines to avoid a damaging boycott by big airlines

China’s top OTA Ctrip is buying a RMB 3 billion ($463 million) stake in China Eastern Airlines, and could yet buy more. Ctrip’s investors probably did not expect to own a minority stake in a state carrier. But this may be the only way it can avoid a damaging boycott by big airlines.

The $19 billion group is participating in a 15 billion yuan private placement, in exchange for about 3 percent of the carrier. Ctrip can also increase its stake to 10 percent within a year – which at the same price, would cost another $1 billion-plus.

The alliance between a lucrative, commission-driven travel agency and a capital-intensive, indebted airline is vital for Ctrip and 45 percent-owned affiliate Qunar. The two former competitors made peace last year with a complicated share swap which fell short of a full merger.

Qunar has since come under pressure after China Eastern and China’s other two top airlines pulled their sales from the site over a pricing dispute. A prolonged absence would have been very painful: the state-owned trio control 56 percent of China’s domestic market, according to analysts at HSBC. Qunar’s shares have fallen 19 percent this year.

Taking a minority stake should help smooth relations between China Eastern and Qunar. It also makes it less likely that Ctrip runs into similar problems. Some other airlines have stopped paying commissions on international flights sold via travel agencies, including Ctrip, and China’s authorities have been trying to encourage carriers to sell more tickets directly on their own websites.

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TAGS: Qunar | Ctrip | OTA | China Eastern
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