Price war among mainland online travel agencies to leave few survivors
Ctrip, the mainland's biggest internet travel company, says the fierce competition will result in only a few survivors in the industry
The mainland's biggest online travel agent, Ctrip, says the fierce price war being waged by online agencies will leave only a few survivors in the industry.
"This is the first time we have encountered such a cut-throat price war since we set up business 13 years ago," said Fan Min, the chief executive of Ctrip.com International, the biggest online ticketing portal on the mainland.
"The profitability of all the players is under great pressure, and the longer the price war persists, the deeper the consolidation will go.
"At the end of the day, only a few players will remain."
Ctrip took up the challenge from its main rival in July when it began offering cash rebates on bookings made through its portal for more than 10,000 mainland hotels. The discounts were a response to a collective buying promotion launched two years ago by eLong, of which technology giant Tencent Holdings is a major shareholder.
Other competitors then joined the fray, offering similar promotions. Mangocity.com which is operated by China Travel International, offered 80 million yuan (HK$97.9 million) in subsidies to lure customers to its online service, prompting two other players - 17u.cn and Uzai.com - to also set aside similar amounts to subsidise bookings made on their platforms.
"There will be some consolidation, but not with the big players," Alicia Yap, an analyst at Barclays Capital Asia, said.
The price war would squeeze out the smaller offline travel agents, which collectively took up the biggest share of hotel bookings, Yap said.
Although Ctrip dominates the online market for hotel room bookings, it only accounts for 3 per cent of total hotel room nights on the mainland because most bookings are done by traditional, or offline, agencies.
Yap said online agencies such as Ctrip and eLong were seeking to take business away from these traditional agents at the expense of profit margins.
With Ctrip's dominant market share coming under attack from newcomers in the past two years, its Nasdaq-listed shares have taken a hammering, plunging by more than 65 per cent to about US$18. The company is pressing hard to expand its international hotel network to cash in on the growing number of mainland tourists going overseas.
The number of outbound mainland tourists reached 39 million in the first half. The number surpassed 70 million last year and is forecast to grow to 100 million in 2015.
As part of its overseas push, Ctrip signed a deal last month with Booking.com a subsidiary of Priceline Group. The agreement enables Ctrip to access Booking.com's portfolio of more than 235,000 hotels across the world, compared with its own coverage of 50,000 hotels.
Fan said the challenge facing online travel agents was unprecedented as the internet had made a large amount of travel information available to the public. The days when agents could easily make money through their knowledge of the market and ability to access information had gone.
The internet had shifted the industry into a buyer's market, he said.
"We need to transform ourselves into a one-stop-shop travel platform by extending our service," Fan said.