Baidu-backed travel services provider Qunar brings more Chinese hotels online as network nears completion
Qunar, the fastest-growing online and mobile travel services provider in China, expects to round out its network of direct hotel partners by the end of this year and move a step closer to profitability in 2016.
"There is significant room for us to increase our [market] share as the vast majority of the hotels [in mainland China] only became our direct partner in the last few quarters," Qunar co-founder and chief executive Zhuang Chenchao said in a conference call with analysts on Tuesday.
Beijing-based Qunar, which is controlled by Chinese online search giant Baidu, had signed up 280,000 hotels across the country as direct partners as of June 30.
China's hotel industry is highly fragmented as the majority of more than 300,000 hotels are independently operated and managed, according to Qunar. Many could not previously be accessed online, it added.
Qunar’s hotel business has evolved into a so-called direct programme whereby partners, especially those operating smaller facilities, adopt its online and mobile platforms.
They also subscribe to its sophisticated software to help manage their operations, interact with customers and market, and confirm or fix bookings.
In previous years, Qunar offered a simple meta-search model that enabled hotels to display and distribute their rooms via the company's online and mobile platforms.
"We have completely stayed on track with developing our hotel direct network, and we expect to substantially finish our task by the end of 2015," Zhuang said.
"We plan to increase our volume contribution to a level on par with peers in the world's mature markets, where online travel agencies can deliver on average over 200 room nights [booked] to a hotel in a single quarter."
Qunar's hotel direct business covers four- and five-star properties, global hotel chains, domestic mass-market franchises, family-run facilities and small boutique hotels.
Its products for consumers include pay-upon-arrival, prepay, group-buying and last-minute sale offerings. They can also depend on more than seven million user-generated reviews available on its various platforms.
Zhuang said Qunar plans to launch a "merchant model" for hotels this third quarter, "in which the company will bear the majority of the business risks - including the inventory risks for the transaction".
He said the business model will be adopted for certain high-end hotels.
That aggressive strategy is backed by substantial resources. The company raised a total of US$500 million in June from a strategic investment by a group of investors led by US-based private equity firm Silver Lake.
"Chinese consumers are spending more money on travel and are increasingly using mobile devices to book their travel-related activities. We believe the company is well-positioned to address these secular trends," Wang Zheng, a managing director at Silver Lake, said at that time.
Qunar, however, must deal with the challenge of steadily reducing its losses as it continues to build its business and close the gap with China’s current online travel market leader Ctrip.
Nasdaq-listed Qunar on Tuesday reported a wider net loss of 815.7 million yuan (US$131.6 million) in the second quarter, up from 421.6 million yuan in the same period last year and 701.2 million yuan in the first quarter.
Zhao Yilu, the chief financial officer at Qunar, attributed the increase to higher year-on-year product sourcing and development, sales and marketing, and general and administrative expenses.
A bright spot for the company was it posted its fifth consecutive quarter of triple-digit revenue growth.
Revenue in the second quarter rose 120 per cent to 881 million yuan, up from 400 million yuan a year ago.
Mobile transactions jumped 322 per cent year-on-year to 600 million yuan, representing 68 per cent of total revenue.
Hotel reservation revenue climbed 262 per cent year-on-year to 259 million yuan, while flight and flight-related turnover increased 85 per cent year on year to 517 million yuan.
Zhuang said the Qunar's quarterly gross merchandise volume -- the total value of goods sold in an online marketplace during a given period -- exceeded 35 billion yuan in the three months ended June.
He said that positions Qunar as the fourth-largest e-commerce player in China behind market leader Alibaba Group, JD.com and Ctrip.
"We believe leading online travel providers like Qunar and Ctrip, which have strong mobile presence, will continue to gain meaningful share from offline traditional travel agents," Alicia Yap, the head of China internet research at Barclays, said in a report.
For the third quarter, Qunar forecast year-on-year revenue growth of 140 per cent to 145 per cent.
Founded in 2005, the company generates most of its revenue from advertising, as well as marketing and technology support services provided to merchants, such as hotel chains and travel agencies, on its platform.