Ctrip-Qunar share swap gives online agents more clout in air-travel sector

Ctrip-Qunar share swap gives online agents more clout in growing air-travel sector, but analysts say other players still have some cards

PUBLISHED : Wednesday, 28 October, 2015, 12:51am
UPDATED : Wednesday, 28 October, 2015, 12:51am

The creation of a giant online travel agency (OTA) following the merger of China's two largest players in the field will change the balance of power in the country's burgeoning air travel market, at a time when domestic Chinese airlines are scrapping commissions for travel agents.

Industry insiders say the consolidation will speed up direct bookings, helping OTAs and direct airline sales dominate the market as Chinese consumer behaviour changes and traditional travel agents turn to new revenue sources.

Shares of Ctrip, China's largest online travel agent, surged 22 per cent in New York after it announced on Monday a share-swap deal with Baidu, owner of the second-largest OTA, Qunar.

The deal, which will give Baidu a quarter of Ctrip and Ctrip 45 per cent voting rights in Qunar, marks Ctrip's ultimate success in courting long-time rival Qunar after a buyout bid was rejected earlier this year. It also cements Ctrip's dominance in the online travel market.

The merger comes at a time when airline companies are investing big in their own websites and mobile apps, to attract more direct bookings and reduce handling costs as well as to increase revenue from related products such as seat selections, hotel packages and insurance.

Li Dianchun, the commercial director at Hong Kong Airlines, said that while airlines' official websites and OTAs were rival sales channels, "a consolidation is not bad news for airlines".

While Ctrip's market dominance after the merger is expected to increase its bargaining power with airlines as well as smaller agents, Li said he was not worried. Airlines could always reserve unique offerings for their own sites or even pull their products from third-party websites, he said.

A manager of a Shanghai-based travel agency said he welcomed the Ctrip-Qunar consolidation, as it reduced costs by removing the number of platforms agencies needed to use. "But the market and airlines are not going to like monopoly, so that may mean an opportunity for Alibaba to beef up its OTA, Alitrip."

Delta Airlines earlier this year started to block many OTA sites, including TripAdvisor, from accessing its flights, while Lufthansa Group launched a radical campaign to charge extra for bookings not made through its own website.

By comparison, major Chinese airlines have only this year abolished a three per cent commission they used to pay agents for booking tickets. They have been ordered to increase their direct booking ratio, which averages around 20 per cent at the moment, as Beijing seeks to improve the efficiency of the state-owned enterprises.

Li said he expected to eventually see airline direct bookings account for 45 per cent of the market, OTA bookings another 45 per cent, and corporate-focused travel-management firms account for the rest.

Qi Qi, a lecturer at Guangzhou Civil Aviation College, said travel agencies had long ago forged new relations with airlines and OTAs as airlines started phasing out commissions.

"This merger is not going to hasten the death of small agencies. Those who would die, died a long time ago. None of those who survive rely on commissions."