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The Tuniu Throwdown

04/30/2015| 10:16:21 AM| ChinaTravelNews

What happened to one of China’s largest online travel agencies in three crucial days and what led up to it?

ChinaTravelNews, By Nicole Sy - The Tuniu-UTour debacle has come to an end, with UTour and 16 other tour operators ending their planned boycott and returning their offerings to Tuniu’s platform.

It all started on April 23, when 17 tour operators issued a joint statement announcing a planned boycott of online travel agency, Tuniu starting July 15 due to “unreasonable low-priced travel products.”

Tuniu responded by immediately removing UTour’s products on its platform, with its stock falling to a low of near 16 percent that day, though closed at $15.84, slipping 4.7 percent at closing. Tuniu issued a statement, singling out UTour as breaching their contract, and therefore suspending all cooperation with them as the orchestrator of the event.
Tour operator, UTour targets outbound Chinese travelers, and also specializes in MICE operations. They are China’s is China’s first private-owned, publicly listed tour operator.
Tuniu was UTour’s largest customer in the first half of 2013. For the entire year of 2013, Tuniu generated RMB 95 million for UTour in revenues, out of its total RMB 3 billion total revenues, accounting for 3.16 percent of its transactions.

Some of those involved in the boycott included CYTS, Utour, ETI Holidays, Caissa Touristic and Nanhu Travel, however none of the other 16 signatories of the statement's products were removed from Tuniu.
Industry regulatory body, China National Tourism Administration (CNTA) launched an investigative panel to look into the case, saying the breaches of contract would be seriously dealt with.

Through CNTA mediation, a joint statement announced that all parties would resume their partnerships on April 26. All parties “have reached a consensus acknowledging the importance of working together to maintain market order with the uninterrupted supply of quality products and services, and grow the industry with concerted efforts,” according to the statement, as translated by ChinaTravelNews

This is not the first time Tuniu has found itself in a much-publicized price war. In December last year, Tuniu reportedly demanded its partners offer them lower prices than rival, LY.com. Some received an ultimatum: stop working with them altogether, or stop working with us.
In an internal memo, LY.com called out Tuniu’s “arrogance and monopolistic practices in its international travel service,” as translated by TechInAsia.

Incorporated in the Cayman Islands in June 2008, Tuniu listed on Nasdaq in May last year and currently has market capitalization according to Nasdaq worth US$1.05 billion as the day’s end of April 28. It describes itself as a “leading online leisure travel company in China that offers a large selection of packaged tours, including organized and self-guided tours, as well as travel-related services for leisure travelers through its website tuniu.com and mobile platform.” It focuses mainly on tours and targets those in second and third tier cities in China.

Tuniu comes second to Ctrip.com in China’s online vacation market by transaction value in 2014. Online travel agency giant, Ctrip led with 23 percent market share, followed by Tuniu with 14 percent and eLong with 8.4 percent.

Ctrip and Chinese e-commerce leader, JD.com, who re-launched their own travel site, invested in their competitor, Tuniu. Ctrip and JD invested US$13 million and US$50 million, respectively. During the Tuniu-UTour melee, Ctrip’s stocks slipped by 0.8 percent at closing time, to $65.62.
Tuniu had planned on raising more funds in a succeeding public offering, but its lackluster debut prompted it to accept private funding instead. In 2014, the company grew 81 percent in revenues, but has yet to make a profit since its IPO debut. But for CEO Donald Yu, growth trumps profit—at least for now.

“Looking at the long term – by continuing to expand our scale, reducing our marginal costs, including reducing our overall rates, reducing our purchasing costs, increasing our operating efficiency – profit is something that will naturally run its course,” Yu said, in an interview with ChinaTravelNews earlier this month. “I believe once we reach a certain size, a certain stage, profit will take care of itself.”

It is of note that Ctrip has also invested $200 million US in Tuniu rival, LY.com.
But online travel players shouldn't be worried about the industry shrinking, according to Dr. Zhen Lu, Associate Professor at Ryerson University’s Ted Rogers School of Hospitality and Tourism Management. “A major trend expected in the Chinese tourism market is technology and infrastructure applications increase for tourism,” he says. “In the future, there will be 70 percent of Chinese travelers using the internet, which is the biggest proportion of all countries in the Asia Pacific region.”

And the boundaries of the online and offline market blurring, spelling opportunities for Tuniu. In March 2015, Tuniu acquired majority stakes in two offline travel agencies: Zhejiang Zhongshan International Travel Services Co., LTD and China Classical Holiday. Both agencies have licenses to offer and operate tours in Taiwan, further expanding the company's reach outside Mainland China.

Tuniu also rolled out plans to set up 100 regional service centers in 2015, to counter LY.com’s recent announcement of opening 11 new experiential showrooms around China by the end of April.

The moves are part of a key strategy of Tuniu in relieving some of the pressure brought on to their tour operator suppliers. By moving up the supply chain and directly sourcing suppliers they own and operate, they cut a layer of costs from the middlemen, who in this case, are the tour operators.

“In 2015, we plan to further optimize our supply chain and expand this business model to outbound tours to certain destinations,” says CEO Yu.

TAGS: Tuniu | Utour | boycott
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