Why investors in online travel need to be picky about China in 2015

There can be no doubt that China is a crucial market for travel brands but it may not be for everybody, writes Sally White

Fast growing China’s foreign travel market may be, but investors should be very picky about buying into this story. Certainly, the market is eye-wateringly large – 100 million outbound trips were made in 2014, according to the China National Tourist Administration (CNTA). Adding to its allure for companies wanting a growth story to woo shareholders, this figure could reach 1.4 billion by 2030 with a spend of $1.8 trillion. Also, the number of countries Chinese travellers can visit easily rises this year as more governments and tourism boards are offering them visa-free access.

But these numbers could be a snare and delusion for foreign corporates not already well established. Most of these travellers keep to their own turf, with 90% staying within Asia according to the CNTA. Not only are local giants already well established, spending heavily and growing fast in all areas of online travel trading! The international heavy-weights are there, too, with the necessarily thick wallets to help their Chinese partners and subsidiaries.

To name just one local - Qunar Cayman Islands, a metasearch travel website which is owned by Chinese search giant Baidu and internet holding group Tencent saw its revenue jump 108% in 2014 Q3. Qunar is considered to be the largest travel search engine in China, according to tech blog TechNode.

Alibaba, a formidable competitor is clearly ready for a fight.  

Beyond search marketing, even Qunar has been struggling to compete with the big foreign-linked online travel agencies such as Ctrip, and eLong, in travel product sales. To pull in innovation more quickly, Qunar recently launched an open platform project, providing data and tech support, and funding for entrepreneurs to bring their travel products and services onto the site. The strategy is to attract travel start-ups to set up on Qunar and grow the platform

To name another, Alibaba, hailed as the world’s most important technology and e-commerce group last year at its $168 billion New York stock exchange debut, has been pumping money into Alitrip travel unit. This unit is aimed at tapping mobile phone users for the very good reason that 57% of Chinese make their travel bookings online. Formerly known as Taobao Travel, Alitrip has more than 10,000 merchants for airlines, hotels and package tours.

No sooner had Alibaba completed its IPO than it paid out $458 million for a 15% stake in Beijing Shiji Information Technology, a hotel management-system provider to merge it with Alitrip. Alibaba has also been pouring money into its outbound travel site Qyer.com as well as online travelogue service 117go.com.

So, Alibaba, a formidable competitor is clearly ready for a fight.   

Among the foreign giants facing up to the growing band of locals, leading global brand Expedia has been protectively stepping up investment in to its majority owned eLong business. Priceline, which has been collaborating with Chinese travel website Ctrip for a couple of years, has recently invested $0.5bn in it to broaden its presence there.

The Chinese market is probably most fun for private punters as Chinese travel companies have loads of money to spend on mergers and acquisitions and increasing reason to put it overseas. 2014 saw some headline grabbers - HNA bought more of Spain’s NH Hoteles, Fosun stepped up its bid for control of Club Med and Dalian Wanda launched an IPO in Hong Kong to fund its targeted global portfolio of 150 hotels.

Watch out for more action in 2015!

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