Corporate China | Investors favour online travel with Tujia funding
A new mega-funding by Tujia is the latest sign of overheating in the online travel space, with a wave of consolidation likely to follow in the next 2-3 years
Online travel is quickly taking on a new cult-like status among investors, with word of a major new funding for vacation rental site Tujia. This latest fund-raising frenzy in online travel looks very similar to what happened in group buying about four years ago, when investors pumped billions of dollars into a wide range of money-losing start-ups. Internet watchers will know that many of those companies later went bust, raising the prospect that a similar fate could be waiting for the online travel sector.
I've followed the Chinese Internet now for more than a decade, and during most of that time the online travel space was dominated by two companies: sector leader Ctrip (Nasdaq: CTRP) and eLong (Nasdaq: LONG), and distant second backed by US travel giant Expedia (Nasdaq: EXPE). But then investors and entrepreneurs started to discover the space around 3-4 years ago, betting on the rapid rise of a new generation of newly mobile Chinese business and leisure travelers.
Many of the new companies springing up are somewhat niche-oriented, unlike Ctrip, eLong and recently listed Qunar (Nasdaq: QUNR) that are more general travel agents providing air tickets and hotel reservations. Tujia is a good example, focusing on the market for hotels and tour packages in popular vacation destinations.
I completely agree that China's travel market is experiencing rapid growth, which is apparent in the constant stream of news stories about Chinese traveling abroad. But current growth rates of 20-30 per cent probably can't support this much faster growth in online travel services.