China's online tourism sector may see more integration, acquisitions

Tourist board a Finnair flight at the Xi'an airport.The online travel industry in China may see consolidation this year. (Yuan Jingzhi / China Daily)

China's online travel industry may see more integration and acquisitions this year, driven by the giant Internet companies.

LY.com and eLong Inc announced their cooperation on Thursday. Tencent Holdings Ltd, a shareholder in both of the online travel agencies, was seen as the guiding hand behind the agreement under which LY.com shares its allocations to scenic spots and ELong reciprocates with its hotel slots.

"The cooperation with LY.com will bring 10 to 20 percent extra hotel business growth to eLong," eLong CEO Cui Guangfu said in a statement. Separately, Ctrip.com International Inc, Chna's largest online travel agency, and Qunar.com, the main travel search engine in China, have reportedly discussed a merger that, if completed, would create an enterprise with a more than $1 billion market value. Both companies are listed in the US.

The two companies' share prices increased more than 7 percent on April 9, when it was reported they two were in negotiations. No comment was carried on either of the firms' websites. Some insiders said Baidu Inc, the largest shareholder of Qunar.com, is leading moves toward consolidation.

"Integration in the online travel agency industry is actually being pushed by the three giants in China's international industry: Tencent, Baidu and Alibaba Group Holding Ltd," said Wei Changren, general manager of Ctcnn.com Inc, an analysis company focusing on the travel industry.

The three, known as BAT, are optimistic about online travel and keep investing, Wei said.

Alibaba launched its own travel platform in 2010 and invested in March about $15 million into , an online agency focusing on outbound travel.

In 2013 it bought shares of qyer.com, an online travel information and service provider.

To boost its performance and compete with the other two, Baidu would like to buy shares in Ctrip.com but neither Ctrip.com nor Qunar.com is motivated to to merge, Wei said. Ctrip.com is already the industry leader with healthy cash flow and Qunar.com, which listed at the end of 2013, also has its own development plan, he said.

"A merger means the two companies have to cut some overlapping business and neither wants to do so," he said.

But Ctrip.com's mainly institutional shareholders may not refuse a good offer from Baidu. Swallowing a rival is also attractive for Ctrip.com, Wei added.

Ctcnn.com figures show Ctrip.com had a 23.3 percent market share in 2013 and a possible merger with Qunar.com, China's largest travel search engine, may deliver a monopoly, some analysts said.

"It is definitely a thunderclap for the small and medium enterprises and the whole online travel industry," said Wang Tingting, an analyst from iResearch Consulting Group.

The Ministry of Commerce needs to investigate a possible merger and whether it will lead to a single company dominating the market, Wang said. Ways may be found to avoid any monopoly investigation, he added.