Expedia sells eLong to Ctrip & others, and now there’s Ctrip and Qunar
It was a short statement, announced today in Bellevue – if you weren’t paying attention, you would have missed it entirely – which would have meant missing possibly the most significant development in the Chinese online travel market.
Here’s what the statement said:
“Expedia has sold its 62.4% majority stake in eLong, Inc. (NASDAQ: LONG) to several purchasers based in China, including Ctrip.com International, Ltd. (NASDAQ: CTRP), Keystone Lodging Holdings Limited, Plateno Group Limited and Luxuriant Holdings Limited for a total purchase price of approximately $671 million.
Ctrip forms new partnership with Expedia.
“In addition, Expedia and Ctrip have agreed to cooperate with each other to allow their respective customers to benefit from certain travel product offerings for specified geographic markets.
“The transaction closed on May 22, 2015.”
What this statement means is that Expedia has decided it can no longer compete in China using its eLong strategy. It also means ongoing consolidation in the market, in line with global trends.
A China travel watcher quoting Sir Edmund Hilary’s “It’s not a real adventure if you have to pay for it”, said, “I’m not sure Expedia was prepared for the China adventure. Qunar and Ctrip certainly were.”
While there’s always been price competition and price cutting in China, industry sources say this year has reached maniacal levels and clearly eLong and really anyone who’s not Ctrip have suffered the brunt of it.
The price war is of course hurting everyone and putting pressure on everyone’s margins, including Ctrip.
The newly-announced partnership between Expedia and Ctrip is interesting. Ctrip also has a partnership with Booking.com. And I guess you have to ask, who else is there to work with – Ctrip is like the giant, standing alone and mighty.
Except there’s Qunar which, after doubling its revenue in 2014, is now China’s second largest OTA with a market share of around 11%.
Here’s what this analyst report on the market says.
“The Chinese online travel industry appears to be exploding, which is in stark contrast to the domestic online travel space. The leading names in this market Ctrip.com International (NASDAQ:CTRP) and Qunar Cayman Islands (NASDAQ:QUNR) have been on a tear lately as they keep wowing investors with growth numbers that seem otherworldly.
“Qunar shares were first to take off in March after the company reported a blistering 106.5% Y/Y revenue growth to $283.1 million for fiscal 2014. Ctrip reported its first quarter fiscal 2015 results a few days ago that showed the company’s top line had expanded 46% Y/Y to $373 million.
“Ctrip’s growth rate does not match Qunar’s, but exceeds it by a wide margin in dollar terms since the company’s revenue base is about five times bier than Qunar’s.”
Who will win? Well, the same analyst questions the sustainability of Qunar’s model, saying
• The company’s losses have, however, been expanding even faster than its top line.
• Qunar might not be able to maintain its growth clip for much longer in the rapidly maturing Chinese online travel market.
Offerings from Ctrip.
However observers say while Ctrip is a pure OTA model, Qunar is a hybrid and has its roots in meta, as such it has meta power and is a media owner.
It will for sure be an interesting battle ahead and it also makes it difficult for anyone else to enter the Chinese market and compete locally.
One South-east Asian VC who’s worked in China on a travel company calls the market “too deep, too dark” for foreign companies. He’s now looking outside China to focus on the outbound travel sector, now the sweet spot for Chinese companies expanding abroad, and the growing inbound sector, which the foreign brands are eyeing.
Ctrip has stepped up its expansion efforts as has Qunar.
But wait, there’s Alitrip, the newcomer to travel. Can its parent help this child and protect it from the price wars? Or give it wings to fly?
As a Chinese proverb goes, “When the wind of change blows, some build walls, others build windmills.”
In travel, the strongest windmills win.