How will Ctrip and Qunar conquer 70% of China’s tourism market and 70 million users?
Are they are agreeable more and how their cooperation will go?
Ctrip announced a share exchange with Baidu on Monday night. In exchange for handing over 11.5 million newly-issued ordinary shares to Baidu, Ctrip acquired 179 million Class A ordinary shares and 11.5 million Class B ordinary shares in Qunar, which together account for a majority voting position of 45% of Qunar.
As a result of the share exchange, Ctrip will take four positions on Qunar’s board of directors while Baidu Chairman Robin Li and Tony Yip, Vice President and Head of M&A, will each take a seat on Ctrip’s board of directors. Baidu now holds 25% of voting rights in Ctrip, twice the amount of Priceline, which increased its stake in Ctrip to 12.63％ as of Oct 16th.
Though Ctrip will now control Qunar’s board of directors, according to an internal letter from Qunar CEO Zhuang Chaochen, Qunar and Ctrip will continue to function as independent companies. Zhuang will remain as leader of Qunar.
It’s reported that an earlier deal attempted back in May between Ctrip and Qunar fell through mostly because Ctrip and Qunar disagreed over the future of Zhuang and the Ctrip team. Compared with previous recent mergers between leading tech companies like Meituan and Dianping, Ctrip and Qunar didn’t adopt the co-CEO model; instead, they have maintained the independence of both companies in the form of a share exchange, which supports written statements in both internal letters — “the two companies will each choose a focus area in the industry for more efficient development”.
Ctrip Co-President and COO, Sun Jie said that by the end of first quarter 2015, Ctrip already had 50 million active mobile users. Based on its 2014 financial report, by the end of fourth quarter last year Qunar had 42.2 million yearly active mobile users.
Ctrip and Qunar have relatively different business focuses in spite of the perceived clashes between the two in the broader online travel service market. Ctrip is an online tourism agent, which directly interacts with both suppliers and users. Qunar, in contrast, is a platform with a majority of its income coming from advertisements. However, as Ctrip opened up to third-party service providers and Qunar began to transform into an OTA, the distinction between the two companies became blurred.
Ctrip achieved net revenues of RMB 2.53 billion (USD 408 million) for the second quarter 2015, up 47% year-on-year, according to its second quarter financial report. In comparison, total revenues for Qunar in the second quarter were merely RMB 881 million (USD 142.1 million) in spite of a year-on-year increase of 120.0%.
According to a report by CNNIC-Research, Qunar had a penetration rate of 24.8% while Ctrip was at 24.1% for 2014. Because Ctrip entered the market seven years ahead of Qunar, Ctrip is naturally much larger than Qunar in terms of overall volume but the threat from Qunar has been more than obvious to Ctrip. The two companies combined will account for 70 to 80% of China’s online hotel and air ticket booking market, Bloomberg reports.
As for Baidu, after acquiring Qunar in June 2011, Qunar has proved to be a heavy burden on Baidu’s finances ever since. In the past year, Qunar lost over RMB 2.76 billion, pushing Baidu to release itself from the severe financial pressure brought by Qunar.
As Ctrip becomes the primary shareholder of Qunar in addition to being on the board of eLong, Tuniu and Tongcheng, the other top players in China’s online tourism market, Ctrip will now be able to fan out the cash-burning war in the online tourism sector and seek for more efficient development.
“Players in the online tourism sector will be more able to have better collaborations. Everyone can focus their business on how to breakthrough the current situation and improve service quality (instead of burning cash for market share),” Tongcheng CEO Wu Zhixiang told Tencent Tech.
But the alliance still faces a challenge from Alitrip backed by Alibaba. According to iResearch, though Ctrip and Qunar each take a leading position in online tourism, Alitrip has seen a strong increase of traffic. Embedded in Alipay, China’s most used online payment system, Alitrip saw 43 million visits to its platform last September.
Meanwhile, Wanda took over from Tencent as primary shareholder of Tongcheng with RMB 3.58 billion in July. Wanda was already one of the biggest tourist agents in China with growth of 50% per year, according to chairman Wang Jianlin. The acquisition of Tongcheng indicates Wanda’s ambition to expand from offline to online.
Although Ctrip will now take a leading position in the industry following its acquisition of shares from Baidu, competition from other industry giants will remain intense.
(Photo created by Rhea Liu at AllChinaTech. All rights reserved.)
Originally published at www.allchinatech.com.
Rhea Liu is a writer at AllChinaTech. She acquired a Master of Science in Communication Studies from Boston University and a Bachelor of Arts in English Literature and Linguistics from Beijing Foreign Studies University. She also co-founded a podcast featuring Chinese post-90 generation lifestyle and intercultural communication. You can follow her on Twitter @yushan_l.