Smaller players jump into China's overheated online travel market
Smaller OTA players are securing backing from industry heavyweights, such as Woqu.com from Tencent, and Baicheng.com from Alibaba.
Attracted by the expanding business pie, numerous small and medium players are gearing up to jump into China's online travel market, which will likely intensify the existing price wars.
According to a report released by iResearch, the scale of China's online travel market advanced 27.1% to 277.3 billion yuan (US$44.7 billion) in 2014 and will continue to expand robustly before hitting 650 billion yuan (US$104.8 billion) in 2018.
Observers said that in striving for a market share, market players have resorted to price competition, especially in the wake of the three internet giants Baidu, Alibaba, and Tencent joining the fray as investors, with some now offering "one-yuan admission tickets" and subsidies for plane tickets and hotel accommodations. Such fighting expected to intensify further in coming years, according to the financial channel of the website of the Hong Kong-based Tao Kung Pao.
The price war has taken a heavy toll, sending many major players into the deep red in the first quarter of this year, with some such as Ctrip.com incurring net losses of 126 million yuan (US$20.3 million) compared with a net profit of 115 million yuan (US$18.5 million) a year earlier. Qunar.com experienced a net loss of 680 million yuan (US$109.6 million), a drop 455% larger than that of one year earlier. Tuniu.com showed a net loss of 233.1 million yuan (US$37.5 million), 2.71 times that of one year before, and elong.com showed a net loss of 180 million yuan (US$29 million), despite their whopping sales growth during the period.
In addition to the price war, losses also stemmed from the companies heavy spending in R&D and marketing, according to Ta Kung Bao.
Ctrip.com, the current market leader, for announced last December its plan to invest 1 billion yuan (US$161 million) for 2015's price war.
Major players appear to have sufficient financial wherewithal for the fight. Backed by US$500 million of fresh funds raised recently, which made Jingdong Mall its largest shareholder, Tuniu plans to make strategic investments continuously in the coming years, according to Yu Dunde, founder and CEO. Meanwhile, Qunar has secured a US$300 million credit line from Baidu over a three-year period. Ly.com, another major player, is also flush with cash, thanks to over US$200 million in strategic investments from Ctrip recently, on the heels of a 500 million yuan (US$80.6 million) investment by Tencent and two other institutional investors in March 2014.
Many smaller players have also secured the backing of industry heavyweights, such as Woqu.com receiving US$20 million from Tencent and MorningStar Capital, and Baicheng.com with a US$20 million investment from Alibaba.
Chu Zhengyu, analyst at Analysys International, predicted that the price war, will continue for a long time. Industry insiders forecast that China's online travel market will mature in 2020, when mobile-end businesses will become even more popular and online and offline businesses will integrate.
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