Ctrip can't go it alone as travel market heats up

By Adam Skuse Source:Global Times Published: 2013-3-27 22:28:01

The latest from the China tech rumor mill is that online travel giant Ctrip is in talks to acquire travel services search engine Kuxun, currently owned by TripAdvisor.

These stories should always be met with a healthy dose of skepticism, but such a purchase would make sense for Ctrip, which since last year has been on a spending spree to shore-up its position in a rapidly-changing and more cutthroat market.

Last year was a turning point for Ctrip as the barrier to entry into the online travel sector became low enough for many smaller and arguably more innovative upstarts to start nipping at its heels; while large Internet players such as Baidu, Tencent, 360buy and Alibaba Group rallied to elbow in on the market.

This led to a vicious price war, with Ctrip earmarking $500 million in the middle of the year for marketing and promotions. Rumors of possible acquisitions also flew, some of which - such as its purchase of luxury travel operator Trip TM - turned out to be true. By the end of the year, Ctrip's financials had taken a bruising, with income from operations down 39 percent for 2012 to 655 million yuan ($105.45 million).

It's not surprising more entrants are jumping into the field - online travel has huge potential in China, particularly outside of first-tier cities where the middle class is beginning to spend increasingly on holidays. The market is expected to show growth of around 500 percent over the period 2008 to 2013 to reach $15 billion. Meanwhile, traffic to travel websites is growing around six times faster than overall Web traffic growth, with the former category up 40 percent year-on-year in the second quarter of 2012 compared to 7 percent growth for the latter.

Of course, this is all good for consumers as prices will be driven down. But it also means there are more options to choose from, making platforms that help consumers search for the best deals across a number of sellers - such as Kuxun and Baidu-invested Qunar - even more appealing. This makes Kuxun (which aggregates travel products from other providers into search results, but sells no products directly itself) a good purchase for Ctrip.

While Ctrip is the most experienced operator in the online travel market, having been established in 1999, it has come under criticism, both externally and from within, for what many see as its lack of innovation. With the rise of the mobile Internet as well as platforms such as Taobao that give suppliers more channels of access to consumers, any inflexibility on Ctrip's part could see its lead falter.

But the company seems to have roused itself from its slumber, and under the leadership of new CEO, Liang Jianzhang, this year we can expect to see more acquisitions and investment in research and development.

Some of these will fail and fall by the wayside, such as the firm's much-hyped but then underused Weibo-based service bot. But others will succeed and set it in good stead to defend itself in future.

The author is a freelance writer based in Shanghai. adam.skuse@yahoo.com.

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