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Chinese OTAs begin upending inbound market

01/28/2015| 3:09:55 PM|

But now those tour operators are going to have to start thinking about business differently if they want to continue to play in the Chinese market.

Just as online travel agencies (OTAs) completely changed the travel landscape in the U.S. and Europe at the end of the 20th century, online retailers are now disrupting the travel game in the fast-moving Chinese travel market, as well.

In China, OTAs “have been growing and developing rapidly,” said Haybina Hao, who as director of international development for the National Tour Association (NTA) oversees the organization’s China Inbound Program. Hao spoke with Travel Weekly last week at NTA’s Travel Exchange convention, where she was presenting a China market update.

“In 2014, they ruled the whole China industry,” Hao said of China’s OTAs. “They grew quickly and are taking away business from traditional tour operators and travel agencies.”

Many of those traditional tour operators and travel agencies are among the 200 members (up from 164 last year) that now make up the NTA China Inbound Program, established in 2008 when the China National Tourism Administration (CNTA) appointed the NTA to assemble a list of U.S. operators approved to work with Chinese tourists.

But now those tour operators are going to have to start thinking about business differently if they want to continue to play in the Chinese market.

“This is a huge [challenge] facing traditional tour operators,” Hao said. “They almost have no other way out but to either establish their own online selling capability or co-op with the existing OTAs to sell their product, because the OTAs’ selling and marketing [abilities] are so strong.”

Hao noted that with the proliferation of smartphone users in China, consumers there are increasingly relying on their phones to carry out any number of online transactions, including to book travel. 

In addition to Ctrip.com International, China’s largest online travel agency, several other players are coming onto the Chinese OTA scene. During a China market presentation at Travel Exchange, Shoubo Xu, chief technology officer for Chinese travel tech company China Tourism Group, said that other popular travel booking sites in China now include eLong.com, Tuniu.com, Caissa (Caissa.com.cn) and Utourchina.com.

And just last week, technology news website TechCrunch reported that Aoliday, a Shanghai-based travel site and mobile app that helps Chinese tourists arrange oversea trips, raised $1.5 million in seed funding from Chinese investment firm Gobi Partners. Aoliday is the latest of several Chinese travel start-ups in which Gobi Partners has invested, including Spottly, Tuniu and Yododo, TechCrunch reported.

The shift from booking through more traditional travel agencies or tour operators in China to booking travel online indicates another change in the way Chinese travelers are visiting the U.S. It marks a significant shift from group travel to FIT travel, which points to yet another way that Chinese inbound operators are going to have to adapt their businesses.

It isn’t entirely clear with what kind of packagers and suppliers the Chinese OTAs are contracting or whether they are members of the China Inbound Program or are independent agents.

“The OTAs, basically what they do with online selling, they are the marketing leg of it,” Hao said. “They don’t really handle the end delivery of the product.”

She added that the memorandum of understanding between China and the U.S., which established best practices guidelines for travel from China to the U.S., “does not really control that. It’s focused on the final delivery.”

Asked if there are likely companies that are not in the China Inbound Program that are doing business with the Chinese inbound travel market, either with Chinese OTAs or on their own, Hao replied, “Yes, we understand that there are companies that are doing that. But NTA is not authorized to police the industry.”

Indeed, she said, the NTA is doing what it can to promote the China Inbound Program and to educate its members. In order to remain competitive with the fast-paced, deal-driven online travel market, she said, China inbound operators are going to have to get creative.

“Our operators, they don’t want to get involved in that low-cost, zero-profit game,” Hao said. “It’s not their business. They’d rather look at something more meaningful and interesting that will help them make money and give the travelers a good experience. They need to be more innovative.”

Appraising the slowdown

Just as news emerged last week that China last year experienced its weakest growth in 24 years, a 7.4% increase in gross domestic product, representatives of the Chinese travel industry were quick to respond that the slowdown had to be seen in a global context.

“I always hear people talking about the Chinese economy is going to crash,” said China Tourism Group’s Xu. “This kind of news has been going on for 20 years, but we’ve never seen a real crash. We were in the double digits [of growth] for many years, and now we are slowing down, but it doesn’t mean we are going to have a recession. We are still growing at a fast pace in comparison to Europe or the States.”

Indeed, the Economist magazine reported that despite China’s reported slowdown, China’s economic output last year exceeded $10 trillion, making it only the second country in the world to achieve that feat, following the U.S. in 2000. China’s 2014 economic output of $10.3 trillion was more than five times the country’s $1.9 trillion economic output 10 years ago, the magazine reported.

In the meantime, an ever-growing number of Chinese travelers are visiting the U.S. China is expected to send 3.1 million visitors to the U.S. in 2019, compared with the 1.8 million who visited in 2013, according to the U.S. government, an increase of 172%.

The inbound Chinese travel market remains a huge and growing opportunity that was further bolstered by a deal with China announced by President Obama in November to extend the validity of short-term tourist and business visas for travelers in both directions from one to 10 years.

Consequently, more travel suppliers, tour operators and destinations are looking to carve out a piece of the China inbound market. That fact was starkly apparent when 81 people filed into a seminar at Travel Exchange titled “Tap Into the Potential of the China Market,” the largest turnout to date of any China-inbound seminar, according to Hao.

“It was a record-high audience, which shows the interest,” she said. “The market is too big to ignore, to brush it off. It’s here. Chinese travelers are going to come in huge volume. How can you not tap into that?”

For destinations, suppliers and operators that want to do just that, Hao said, “It’s not how big you are; it’s how you are speaking their language. Convince them you have the best product.”

TAGS: OTA | Tuniu | Yododo
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