Ctrip Has Been Buying Up Its Chinese Rivals: What’s the Benefit?
Ctrip Posts 3Q15 Results: Can It Continue Down the Growth Path?
Ctrip seeks to consolidate Chinese online travel
Ctrip International (CTRP) has been busy trying to consolidate the Chinese online travel agency (or OTA) market by buying stakes in potential and existing rivals. It has added many newer and lucrative services to its portfolio. This will help reduce competition among players and thus put an end to the price wars that have afflicted the industry for the last two years.
Let’s take a look at some key investments Ctrip made in 3Q15.
eLong deal
In May 2015, Ctrip International (CTRP) bought a 40% stake in eLong (LONG) from Expedia. After that, Ctrip and eLong entered into a partnership to share inventories in some geographies, especially the air and packaged tours segments. In August 2015, Tencent, which held 16% of eLong, took the company private by offering investors $18 per ADR (American depositary receipt).
Ctrip’s buying stake in eLong reduced the price wars among China’s online travel agencies that were adversely affecting margins. After privatization by Tencent, Ctrip’s position improved further, as it can now gain access to an important channel via Tencent’s popular mobile messenger platform WeChat. This will further strengthen the company’s domestic stronghold and improve its dominance.
Qunar partnership
In October 2015, Ctrip completed a share exchange transaction with Baidu (BIDU). After that, the company became a significant shareholder of Qunar Cayman Islands (QUNR). Ctrip and Qunar are currently exploring ways to effectively cooperate in order to enhance their respective products and services and better serve the market.
The deal is expected to take Ctrip’s market share in hotel and airline bookings to 70%–80%. The Qunar deal will also further reduce price wars and thus reduce advertisement spending.
Suanya acquisition
In July 2015, Ctrip International (CTRP) acquired Suanya, the popular Chinese train ticket purchase application. This is a key acquisition, as Suanya was Ctrip’s main rival in a market that’s about seven times larger than air ticket booking.
What does Ctrip look like now?
Ctrip International (CTRP) now has stronger ties with the world’s largest OTAs, Expedia and Priceline, through its strategic investments in many lucrative companies and acquisitions of rivals. Priceline Group (PCLN) invested $500 million in Ctrip to increase its stake to 15%.
Ctrip’s consolidation of the Chinese OTA industry gives it scale and distribution power, thus enabling it to take on the global OTA market. However, we should note that there’s a risk that China’s anti-monopoly regulator may come down on the company.