Nine 2014 Chinese travel industry highlights
1. OTAs up the ante in price war and battle for mobile bookings domination
Major OTAs made low pricing and mobile bookings their weapons of choice. The price war between Chinese OTAs has spilled over to attractions and visa service sectors following pushback from hotel groups over the cashback strategy. LY.com launched a “RMB1 attraction pass” while Ctrip and Baicheng offered visa services free-of-charge.
2. Acquisition frenzy for tourism enterprises
Major conglomerates vied to snap up travel industry acquisition opportunities, with Wanda Group picking up traditional tour operators while Ctrip invested in LY.com and Tuniu, Utour restructured China Vista, Alibaba took equity in Shiji Tech and Tempus acquired Cncn.com. Hints of bubbles are looming in the frenzy though.
3. Startups zero in on booming outbound travel market
Riding on China’s outbound travel growth to 120 million trips in 2014, startups entered the market in droves carving new niches in hotel bookings, car rental, destination travel, shopping services, travel planning and travel reviews sectors.
4. Major Chinese carriers lower agent commissions
China’s four major carriers lowered their ticket agent commissions from 3% to 2% in the second half of the year, putting pressure on agents to transform their business models as their profit margins were further squeezed. A major ticketing agent in southern China Zongheng Tianxia [S1] bacame a casualty as it faced bankruptcy due to capital flow issues.
5. International GDS companies enter China
Abacus entered the Chinese market with its first BSP ticket issued on August 26, heralding in a new era where international airlines can use international GDS for distribution in China thus breaking the monopoly of the domestic GDS. However international GDSs still have various hurdles to overcome in their foray into China.
6. Tuniu gets US listing
Tuniu became the fourth Chinese OTA to IPO in the New York Stock Exchange on May 9, at the offer price of US$9 and raised US$101.2 million. The surge of its share price has propelled it pass eLong in terms of market valuation.
7. “Embarrassing” performance for China’s inbound tourism
Inbound arrivals to China fell 2.8% in the first half of the year, with just 62.3138 million arrivals, according to official figures from China’s National Bureau of Statistics. This is the third consecutive half-year drop reported for inbound tourism, in stark contrast to the boom of China’s outbound tourism. The surging RMB, environment issues, visa restrictions and heavy competition are named as the key reasons for the slide.
8. Fierce competition looming over the car rental market
Didi Taxi and Kuaididache locked in a bitter driver commission war in 2014 while CAR Inc. and eHi Car Service had NYSE IPOs. The car sharing models of Yongche and Uber have been skirting government policies to operate and China’s big three tech companies Biadu, Tencent and Alibaba (BAT) have entered the mobile car rental sector, raising the possibility of major upheavals in the sector.
9. SEA tourism industry rocked by MH370 tragedy
Malaysia Airlines flight MH370 headed for Beijing with 227 passengers (154 of them Chinese nationals) and 12 crew members went missing in the early hours of March 8, 2014. This incident caused the numbers of Chinese tourists to Malaysia to plummet and diminished Chinese travelers’ interest in other Southeast Asian destinations like Singapore and Thailand as well.
Eight Trends and business models to watch in 2015
1. Reshuffling of online travel startups
Online startups that have been attracting massive capital injections in the past two years have seen tremendous growth. While their new concepts in the market coupled with insatiable market demand has captured a vast customer base, the sky-high valuations created along the way are inflating the investment bubble. As startups are still plagued by weak product differentiation and liquidity, a reshuffling of the sector seems inevitable.
2. Integration the way to go for outbound travel wholesalers
The battlefield for European tour wholesale has been redefined with Ctrip’s investment in HY tours and Utour’s acquisition of Vista. Large travel companies are reaching out to wholesalers of different outbound destinations in order to achieve globalization.
3. The sharing concept revolutionizes the travel industry
Uber and Airbnb are global leaders in the “sharing” economy while P2P car sharing and tour guide services are also increasingly popular around the world. The sharing concept spearheaded by these companies is infiltrating traditional travel service models. Uber and Airbnb have even partnered with Concur to bring the P2P experience to traditional business travel.
4. The ascendance of tourism finance
The major players in the travel industry have each begun to test the waters in offering tourism finance. An example is “Travel Pay”, which integrates travel and internet finance offering interest-free installment loans to customers and small short-term capital loans for SMEs and agents. How tourism finance becomes a viable form of financing and loans will affect the healthy development of the sector.
5. Massive development for daytrip and excursions travel
Excursion is fast becoming a hit as this form of travel has a huge customer base, high consumption frequency and appeals to weekend holidaymakers who are car-owners. The companies that can effectively leverage suburban travel resources to make attractive and creative products will be ahead in the game.
6. Marketability of the user-generated content (UGC) model
Startups Qyer and Mafengwo have started to test the marketization of the UGC model after getting large capital investments. The touchstone for the marketability of this model is finding the correct cross-over between product recommendations and bookings.
7. Property management system (PMS) to play a pivotal role in distribution
Oracle acquired the largest global PMS software developer Micros for US$5.3 billion. Priceline acquired PMS server HotelNinjas and Alibaba invested in Chinese PMS developer Beijing Shiji Technologies. The need for mega-data technology collection is driving these major tech firms to invest in PMS developers, signaling that the strategic value of PMS in the hotel sector in the tourism industry is being re-evaluated.
8. After-payment for hotels
Alibaba and Beijing Shiji Technologies launched a hotel after-payment service following their tie-up. The service allows guests to check in without paying in advance but instead have the charges deducted from Alipay accounts after check out. This eliminates the need to queue or handle payment at the front desks. How well this model is received by hotels and guests is yet to be seen.
Top ten companies to watch in 2015
We should see what new model Alitrip will use to establish a unique online travel ecosystem and capture the top spot among China’s OTA’s after it burst onto the scene this year, riding on the limitless data resources of parent company Alibaba.
After baring its ambitions this year, we are keen to see what new services Ctrip is brewing, how its platform service will further develop, and how it will incorporate its major acquisitions and investments of the past year.
3. Wanda Tourism
Wanda Tourism has acquired 11 regional tour operators this year and has announced its plan to become the largest travel company in China by 2016 with revenue exceeding RMB20 billion. It remains to be seen if its acquisitions will be successfully consolidated, paving the way for Wanda’s dominance in the travel industry.
After cementing its position as the leader in air ticket sales, Qunar has focused separately on the budget and high-end hotel markets and made a major acquisition of tour agency Travelling Bestone in late December, starting its O2O integration. We will be watching how this plays out in their ongoing development.
Meituan has already achieved undisputed hegemony in the hotel group-buy market. We will now watch its next phase of penetrating the hotel distribution sector and challenging the monopolies of the top OTAs.
Facing intense competition in major cities, Tuniu has set itself apart as a specialist outbound tour distributor and bolstered its offline networks in second and third tier cities via its “city-to-town policy”. So the question is “can Tuniu break out and obtain mastery of the online vacation travel market”?
Tujia is a startup of the O2O+B2C-model, pioneering the development of China’s vacation rental market. Will its rapid expansion in the sector cut into traditional hotels’ share of the market?
Utour was the first private travel company to be listed with A shares in China. It leapt to the top of Chinese outbound tour wholesalers to Europe after acquiring Vista. It also jointly participated in a bid for France’s Club Med with JD Capital. We will see where Utour is heading with its investments in the coming year.
9. Plateno Hotels
Within just over a year of establishing, Plateno Hotel Group has introduced more than 10 hotel brands and three new trans-national brands. We will see if its multi-brand strategy will be successful in 2015.
10. China Lodging
China Lodging had quite an aggressive brand marketing strategy in 2014. It partnered with “Voice of China”, a national spinoff of hit reality show “The Voice”, to gain a wide marketing audience for its J1 hotel brand. It also announced a strategic alliance with Accor on December 15 and won management and development rights to five hotel brands in China, Taiwan, Mongolia etc. We will see in 2015 if China Lodging Group can leverage its partnerships to stand out in the mid-range hotel market.(Translation by David)