China Eastern Airlines

China Eastern Airlines, online travel agency Ctrip call ceasefire with partnership deal

PUBLISHED : Thursday, 21 April, 2016, 8:17pm
UPDATED : Thursday, 21 April, 2016, 8:17pm

State-owned China Eastern Airlines and China’s largest online travel booking platform, Ctrip, are joining forces, in a surprising twist to the war between the country’s airlines and online travel agencies.

China Eastern Airlines Group on Thursday introduced Ctrip as a possible 10 per cent stakeholder, after the latter promised to invest 3 billion yuan in the airline’s upcoming private placement.

Ctrip plans to buy with its own capital the yuan-denominated A shares to be issued by China Eastern and may further increase its stake to 10 per cent within a year of the placement, when China Eastern may give it a seat on its board, according to a strategic cooperation agreement signed by the two on the day.

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Ctrip would thus replace Delta Airlines as China Eastern’s largest external shareholder. Delta has a 3.55 per cent stake since a US$450 million deal inked in September.

China Eastern currently has a market value of 70 billion yuan and a 15 billion yuan private placement plan.

Nasdaq-listed Ctrip is China’s dominant website for booking flights, train tickets and hotels with 250 million members, according to the company.

Ctrip and China Eastern said they would collaborate on a broad range of products and services such as low-cost transportation solutions, international air travel, IT, travel insurance, and e-commerce.

The partnership between the country’s biggest travel booking platform and one of the three biggest carriers turns around a relationship marked by conflict as Chinese airlines try to increase direct sales, cutting out online and offline agents.

Only a few weeks ago, China Eastern was among the big airlines that announced terminating their relationship with online travel agency Qunar, controlled by Ctrip, which they claimed was hosting too many unauthorised ticket agents duping customers.

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Qi Qi, a lecturer at Guangzhou Aviation Academy, said he was surprised by the deal, which, he said, would benefit China Eastern more than Ctrip.

“Ctrip brings the cash and the distribution expertise. In the short run, it is good for Ctrip as its interest is now aligned with China Eastern’s. But it loses its independence, that could be fatal for such a platform,” he said.

Ctrip made 2.5 billion yuan in 2015, up from just 243 million yuan the previous year.

The other major airlines that have their own flagship shops on Ctrip could also form alliances with other online travel platforms or Ctrip itself, Qi said. “If Ctrip buys into all the ‘big three’, it would spell the end for all other ticket agents in China.”

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Air China has a pending plan to raise 12 billion yuan by issuing 1.5 billion shares at 7.89 yuan apiece. Calls made to Air China and China Southern’s spokespeople went unanswered.

Yu Nan, an analyst at Haitong Securities in Shanghai, said he does not see the deal having any significant impact on the competitive landscape of airlines.