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Looking Ahead:Investment opportunities in the Chinese travel market

06/25/2009| 11:15:50 AM| 中文

“If you look at its overall development, the Chinese travel market is still growing quite strongly despite the economic downturn,” said William Bao Bean, partner at Softbank India and China Holdings, speaking recently at the China Travel Innovation Summit in Beijing.

Beijing’s recent rapid hotel growth contributed to a huge occupancy rate drop last year--the biggest of any major global city between November 2007 and November 2008, according to STR Global. Average occupancy in China’s capital during that period declined 32 percent, dipping just below the 50 percent mark.

While Beijing’s high-end hotel market may be an example of over-development run amok, the travel industry as a whole is a different story.

“If you look at its overall development, the Chinese travel market is still growing quite strongly despite the economic downturn,” said William Bao Bean, partner at Softbank India and China Holdings, speaking recently at the China Travel Innovation Summit in Beijing.

In sessions at the Beijing conference, travel industry players discussed the market’s evolution, ways that it is changing and opportunities for investment in areas from online booking to corporate travel to rental cars. The ability for all those disparate aspects of travel to work together was identi?ed as key to the industry’s maturation in China.

“It is a scattered industry. To integrate the pieces, it takes time,” said Wu Hai, CEO and founder of Orange Hotels Group.

“A Web site is not the travel industry. An airline is not the travel industry,” said Liu Erhai, managing director of Legend Capital. “The travel industry is one that can promote a lot of other industries.”

Liu added that with integration is coming professionalization: “It is my impression that there are not a lot of professionals in the travel industry, but there are more talented people joining it now. The inflow of professionals will lead to more capital flowing into the travel industry. If we have good people and money, opportunities will appear.”

One area that’s been identi?ed by investors is China’s online travel booking. Despite China’s high online penetration rate, only about 10 percent of travel is booked online. But it has grown, and will continue to grow, said Softbank’s Bean. “Two years ago, online was less than five percent,” he said. “I think if you look a year or two down the road, you’ll see online going to 20 percent. And I think we’ll see, in maybe three or years, half of all travel booking happening online.”

Singapore-based online travel agent Wego.com should like the sound of that. The company is set to launch three Chinese-language sites, but CEO Martin Symes acknowledges that there’s still a lot to be learned about tapping the market here." Theres a lot of traffic [in China], but making that traffic profitable still appears to be a challenge," Symes said.

So where are the best opportunities online? “I still think there’s some room for niche travel sites,” Bean said, adding, “Generally, I think Chinese people don’t look at travel every day. If you can be front and center when they do go online to look at travel and give them a good experience in terms of planning, pricing and then sharing back into their online social community, there are opportunities there.”

A speci?c niche that Bean sees as under-served is corporate Web-based booking. Only 27 percent of companies in China, including multinationals, use IT systems for corporate travel booking, according to PhoCusWright’s latest report, “Corporate Travel Management and Travel Practices in China.” Less than half contract with a single travel management company.

“Working with Chinese companies, the biggest challenge is educating them on the role of working with a travel management company and how it´s different from booking leisure travel,” said Gregor Lochtie, Greater China vice president for American Express Business Travel. But he is optimistic that Chinese companies will make the transition, saying, “Theres so much need out there. China is a market built for online booking of corporate travel.”

Other areas mentioned at the conference as having strong investment potential included amusement parks, car rental and destination management. Of these three, the car rental opportunity was discussed the most, although its potential was called into question. While the Chinese market lacks a strong rental car company brand, it’s debatable how much demand there would be for it here, since taxis are such a viable alternative for travelers.

“In China, taxis are not very expensive,” said Allen Zhu, a partner at GSR Ventures., “From the airport to downtown in most cities is 70 or 80 RMB. In the United States, from the airport in San Francisco to the city center costs $140-plus. In China, it’s also not very convenient to drive because of population density and traf?c. In the United States, in many places it’s more convenient.” But Zhu adds that Chinese rental car companies don’t currently cooperate with hotels, implying that a company looking to grow in the Chinese market might bene?t from a strong working arrangement with hoteliers.

While he’s a bit skeptical about the rental car business, Zhu is bullish about the wider market. “China´s leisure travel market is coming up,” he said. “I think the travel industry can maintain the momentum of its development.”

Media Contact:

Gary Chan
Marketing Specialist
TravelDaily
Tel: 86 20 87605706
Fax: 86 20 37615190
Email:
gary@traveldaily.cn

TAGS: Chinese travel market
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