This article is written by Ritesh Gupta, reporter at TravelDaily China.
Travel e-commerce category in China has proved to be a major conundrum for most of the intermediaries till date.
An intermediary has to sort out of a gamut of complex operational issues before it can achieve profitability. All multinational players acknowledge the same, as many have failed to make any serious dent. If one were to assess the situation today, the gap between Chinese OTA Ctrip and others depicts a clear trend. In fact, Ctrip emphatically states that its performance stands out for its 12% operating profit margin vs. heavy loss making by literally all its peers.
However, there are foreign entities that are ready to make inroads into China. Meta-search brand Skyscanner is one such organisation that is optimistic about replicating their success in China. The company, which recently acquired Chinese travel search site Youbibi, has been profitable over the years. Skyscanner self-funds all its growth. Last year Skyscanner saw EBITDA growth of 100% to £24.1 million.
Skyscanner, which recently completed three years of presence in the APAC region, intends to build on the momentum.
“In Asia Pacific last year, we saw monthly visits to our APAC sites grow by 141% with mobile visitor growth standing at 359%. Asia accounts for more than 20% of our overall traffic,” shared Andy Sleigh, general manager – APAC, Skyscanner. As for the APAC numbers, the sites see 7.5 million monthly visits, and growth in mobile visitors was over 350% last year.
The meta-search company set up a local office in Beijing in 2012 and has been operating Tianxun. “It’s a local offering that also brings Skyscanner’s international coverage to bear. The Youbibi acquisition has simply brought this to more focus as we move forward with our China strategy,” said Sleigh. He mentioned that the team has grown its China business – Tianxun - well over 100% year on year for the last couple of years. “But we’ve got a long way to go. We’re now at an inflection point where we can really start to take advantage,” he said.
Skyscanner chose to acquire Youbibi as the plan is to shape a “better product for the Chinese market, based on Chinese technology and built by Chinese travel tech specialists for Chinese travellers”, said Singapore-based Sleigh.
According to industry specialists, the route taken by Skyscanner will enable it to counter product-related challenges such as the depth of content, and better comprehend cultural sensibilities, language-related nuances, local regulations and also strengthen supplier relations.
According to sources, a specialist like Qunar would cover over around 150,000 lodging options, including hotels, B&Bs etc. Other than inventory and availability of suppliers’ offerings, one also has to cope up with the issue of website accessibility in China.
Recently, a meta-search executive based outside of China told TravelDaily.cn: “One of the biggest challenges we faced was the recent GFW (Great Firewall), which completely blocked all Google services in China recently, and slowed down the Internet access speed into and out of China. Another was the complicated Internet connection within mainland China which slowed down the average loading speed of our site for our mainland Chinese users.” Overcoming this was a relatively slow process that involved purchasing additional CDN services dedicated to the market and ensuring that the team complied with all the local regulations.
Another area where Skyscanner would get a kick-start would be related to the concept of facilitated bookings where a user doesn’t leave the meta-search site and still completes the booking with supplier/ OTA has been prevalent for both flights and hotels here in China. While any non-Chinese meta-search entity brand that hasn’t focused on facilitated bookings would need to look into technology as well as regulatory licensing requirements, Skyscanner is in a position to leverage its association with Youbibi.
The Chinese market is witnessing key players embracing interesting initiatives. Qunar has opted for revenue generation via its cost per sale basis, in addition to CPC and display ads. OTA Ctrip has gone ahead with its open platform model. “As Ctrip is moving forward on this model, the team is attempting to quickly shorten the gap on pricing advantage which has been existed between them and Qunar for long by consolidating the competitive offers from various suppliers, including travel wholesalers. This has posed significant challenges to Qunar as the meta-search brand has attracted a lot of price sensitive consumers over the past few years.”
As for Skyscanner, Sleigh said, “We believe our business model works.” He added, “For the past four years, Skyscanner has been roughly doubling in growth year on year. We’ve been profitable and self-funding our rapid growth for several years. Last year we grew revenue by 96% and EBITDA by 100%. We make our money through a combination of commission and advertising – I don’t see that changing in the short term.”
The travel distribution landscape is evolving with mega strategic alliances between established OTAs and meta-search companies.
A section of the industry is already feeling the pressure. A meta-search executive said, “The formation of these partnerships could potentially put capital pressure on the very few remaining independent major meta-search players. It is important that these companies remain objective and fair.”
As for being impartial, Skyscanner stated that it displays “comprehensive travel options” and allows them to be compared by consumers in an unbiased and clear way so they can go on to book the best offer for their needs. “We won’t change this model,” said Sleigh. “We’re one of the few truly independent meta-search players left – we favour no one.”
Other than independent meta-search players, Qunar.com, too, needs to reassess its presence, especially outside China. As reported recently by TravelDaily.cn, it is learnt that Qunar is planning to set up a team that is going to target Taiwan, Singapore and Thailand for hotel inventory.
The likes of Qunar.com and Ctrip.com can also be counted upon for their supplier relations in the domestic market.
And then one can’t also ignore KAYAK’s attempt to target China with a local site. Also, now that The Priceline Group and Ctrip.com have expanded an existing commercial agreement, and with priceline agreeing to invest $500 million through a convertible bond, the industry would be keenly following how the two bigwigs go beyond cross-promoting their respective offerings.
“One can’t rule out the possibility of Agoda.com favoring KAYAK for listings, featuring lower price. China is a rate sensitive market, even a difference of US$1 can tilt the booking in favor of a particular website,” said a source, speaking of how the cut-throat competition might shape up.
All of this makes for an intriguing tussle indeed, and it would be interesting to see how Skyscanner takes on the likes of Qunar and KAYAK.
Skyscanner’s Andy Sleigh is scheduled to speak at the upcoming 2014 TravelDaily Conference in Shanghai (September 3-4, 2014).