By Ritesh Gupta, ChinaTravelNews - The spate of deals signed by Ctrip this year, with the most recent one being a share exchange transaction with Baidu, made its Q3 earnings call a sought-after event.
Assessing the status of the market and Ctrip’s current position, James Liang, chairman and CEO of Ctrip underlined that growing personal income has stimulated the demand for leisure travel across China in recent years.
“When compared with developed countries, such as US, the size of China leisure market is still small,” Liang said.
From operations’ perspective, Liang asserted that Ctrip’s legacy hotel and air ticketing business has maintained a strong momentum. Also, he said the new Baby Tiger projects are making strides to achieve scalability and profitability in their respective verticals. Soon most of these projects will break-even.
Another focal point is “explosive growth” witnessed in outbound travel across all business lines in 2015. “In Q3, both outbound hotel and air businesses maintained three-digit growth,” said Liang. And as for strategic alliances, he said, “We will continue to decisively, yet prudently, seek new investment targets and, in the meantime, pay more attention to post-investment operations to create more synergies.”
For Q3 of 2015, Ctrip reported total revenues of RMB3.4 billion (US$528 million), representing a 49% increase from the same period in 2014. Total revenues for Q3 increased by 26% from the previous quarter.
Association with Baidu, Qunar, eLong and Priceline
Ctrip officials expectedly faced a barrage of questions related to the impact of association with Baidu, Qunar and eLong.
Here’s what the senior management had to say about the keenly followed topics:
- With Baidu coming in, what’s the stand regarding Alibaba and Tencent?: Jane Sun, co-president and COO, Ctrip said Ctrip and its strategic partners would be supportive. “…(whichever) channel generates the best conversion rate and yield, we will support the allocation…we respect Baidu’s preference on that.” She also added, that as for cooperating with other entities, “…yes, we still can work with others on sales and marketing channel, to make sure our product is very well marketed, through all the online platforms.” She believes that this is the right thing to do for Ctrip and the right thing for Baidu also. “As they are our shareholder, they want the best from Ctrip as well,” she said.
After the recent deal, Baidu owns ordinary shares of Ctrip representing around 25% of Ctrip’s aggregate voting interest, and Ctrip will own ordinary shares of Qunar representing around 45% of Qunar’s aggregate voting interest. As indicated recently, Baidu intends to work with Ctrip on integration featuring search, maps, Nuomi and Baidu Wallet products. Ctrip is set to gain access to Baidu’s other resources, including mobile and PC traffic, and O2O offering.
Robin Li, chairman and chief executive officer of Baidu had recently said this kind of omni-channel presence on the travel products will not only enhance the overall Baidu user experience, but also opens up a lot of opportunities for travel companies to either attract new customers or provide existing customers better access. “We do not have a clear idea on the revenue and profitability impact yet,” Li said.
- Synergies: Ctrip is currently evaluating areas of improvement as far as Qunar is concerned, but there are clear benefits such as a wider audience network.
Sun said the cooperation will help Ctrip to foray into the second-tier, third-tier cities rapidly and gain market share. Specifically talking about hotels, Sun said Ctrip is very strong in the high-end, mid-end hotels. “And Qunar's team is also very aggressive penetrating into the third-tier and fourth-tier cities. So if we work together, we will be able to serve more customers,” she said. Another area is joint evaluation of campaigns, and doing away with “irrational” competition. And this will flow into the bottom-line and improve margins. Sun also said there is room to grow both Ctrip and Qunar, and expand their respective market share. Plus, both can count on each other’s products. “Our inventory is very strong in the high-end segment and we will be able to share our inventory with our partners. So Qunar team will be able to enjoy a very comprehensive product offering at their back-end,” said Sun.
Another area of interest is the association between Qunar and eLong going forward. Interestingly, the two companies have been embroiled in dispute over their contracts over the last couple of years.
Ctrip acquired a 37.6% equity stake in eLong for a total purchase price of around $400 million earlier this year.
During its Q3 earnings call this week, eLong indicated that Qunar is still its competitor. “We have some customers who are likely in low-end hotels,” shared Hao Jiang, CEO, eLong.
- Priceline: Even as Ctrip, Qunar and eLong have strong hotel content, big OTA group Priceline isn’t really counting on synergies with Ctrip in a big way at this juncture.
The US-based online travel group, which has been strengthening ties with Ctrip and chose to invest an additional $250 million in Ctrip in May this year, is stepping up its own hotel content in China via Booking.com.
For its part, Priceline in its Q3 results, released late last month, mentioned that it fully supports the recent activities featuring Ctrip. “We hope that these will ultimately lead to a more rational market environment inside China. But outside of our Ctrip relationship, we are not standing still waiting either. For instance, we started 2015 with only 8,000 properties in China on Booking.com, and now it's over 25,000 properties,” Priceline’s president and CEO Darren Huston had said. He did add that one aspect of the commercial partnership with Ctrip is the company’s product on their Chinese partner’s site, and it continues to grow.