One of the things that’s most exciting about being in travel in Asia these days is that you can now see and feel the palpable effects of Chinese travellers.
What was just talk and numbers a couple of years ago is becoming tangible. From Dominican Republic to Paris to Bhutan to Dublin, Chinese outbound travellers are fanning out everywhere and destinations, cruises, hotel brands and airlines are all experiencing an uplift from the market.
35% of Chinese travellers travel solo, according to the PhoCusWright “China Consumer Travel Report”
The most dramatic changes are happening online and as the market grows, the competition is intensifying. Battles are being fought by the giants and guess what happens when elephants fight. First it was the price war between Ctrip and Elong, the two leading OTAs, and now it’s between Ctrip and Qunar, an OTA and a meta-search, although these days it’s no longer clear what is the difference between an OTA and a meta-search. Which is precisely the reason why this week, Ctrip announced its decision to remove its hotel products from Qunar.
It stated that its decision was made “because Ctrip believes that the site has largely abandoned its original model as a neutral online travel products search platform”, according to the report in Sina Tech.
“As described by Ctrip, Qunar has cooperated with several travel agencies to give preferential placement of hotel listings at the top of the Qunar site to said agencies. The customer service hotline provided by many of these top listings is in fact Qunar’s own customer service hotline, implying that Qunar is now giving priority placement to its own listings and is no longer acting as a neutral listings platform.
“Ctrip believes that Qunar’s decision to merge its total solutions (TTS) system, through which users directly complete transactions from third-party providers on the Qunar site, with its own online travel agency (OTA) business, constitutes unfair competition, spurring Ctrip’s decision to remove its travel products.”
The blurring of models is not only happening within China of course. The convergence in business models between the OTA and meta-search is happening especially in the mobile space. TripAdvisor’s Instant Booking feature which will be launched in Asia this coming quarter is a case in point, it will allow customers to convert within the TripAdvisor platform, its explanation being that Trip was allaying consumer frustration by helping hotels who weren’t mobile ready to transact. Kayak also offers what is called “assisted booking”.
The common wisdom has always been that meta-searches have the edge on costs because of lower overheads (they don’t have to fulfil the transaction unlike OTAs) but the fees they charge suppliers to generate an order are also lower than what an OTA would charge. At the same time, meta-searches such as Kayak and Qunar need to invest in customer support and other infrastructure, which increases overheads.
Said an industry observer, “Anti-fraud efforts and payment related fees alone can cost an OTA less than 2% of sales. Now that the MSE’s are doing more what an OTA does, they need to cover this, which means increasing fees to suppliers and by the way, 2% is a huge amount for an MSE.
“Over time, it will be hard to tell the difference from a financial perspective, user experience perspective, and operations perspective.”
The battle in China can only get more vicious because at stake is what will become the world’s largest travel market and an exploding online sector. According to PhoCusWright’s newly released Asia Pacific and Global Edition publication, China Online Travel Overview Seventh Edition, China’s online travel gross bookings reached US$18.2 billion in 2013, second in Asia Pacific (APAC) only to Japan’s.
With annual growth of 26-27%, online bookings will account for more than a quarter of all travel bookings by 2016, when China’s online travel market will surpass Japan’s to reach $37.1 billion.
Intermediaries such as Ctrip and Qunar have become the real agents of change, developing new technology, putting aggressive merchandising techniques to work, and unveiling new product lines. “China’s online travel agencies (OTAs) are diversifying their offerings well beyond the traditional air and hotel,” says Maggie Rauch, PhoCusWright research analyst.
“Ctrip, eLong and Qunar have become travel smorgasbords, selling vacation packages, attraction tickets, cruises, ground transport – just to name a few. They increasingly cover the entire travel cycle – travelers use their sites and apps to research, shop for, and purchase travel, as well as share feedback. And beyond OTAs, other travel planning platforms are evolving. Metasearch sites are hosting travel transactions, and shopping mall sites are featuring more travel content.”
The shift toward mobile channels – a global phenomenon in travel – has been particularly acute in China. In 2013, 23% of OTA bookings were made on a mobile device, increasing from 1% the year before. OTAs have made mobile development and marketing bigger priorities, overhauling their apps and offering discounts for booking via mobile.
And let’s not forget the impending IPO of Alibaba which will keep the world’s eyes on not only China’s e-commerce marketplaces but the travel sector.
PhoCusWright’s “China Consumer Travel Report” released earlier this year pegs the Chinese market at 256 million, compared with 115 million in the US, with half of that having travelled outside the country. And 62% of domestic-only travellers plan to go overseas within the next three years.
What’s interesting too is that only 20% traveled in groups (the way we recognise group travel, with guide and flag and all). Thirty five per cent each are travelling with small groups of friends and independently.
So guess where the market is going? As the Chinese traveller matures, more of them will venture further, alone or in small groups, and guess where the planning and booking will be done?
Not only has the Dragon risen but watch out for more battles between the giants. I know, I’ve been watching too much of Game of Thrones.
