Merger could be ticket to success for Ctrip, Qunar

Proposed deal could reshape the landscape of the nation's fast-growing online travel sector

Since the New Year dawned, cooperation and integration have replaced competition as the main themes driving Chinese online travel agencies.

Acting as a full-service company is the main strategy of Ctrip.com International Inc, the largest online travel agency, and there may be an opportunity for it to get much bigger by swallowing a major competitor.

It's been reported that Ctrip and Qunar Cayman Islands Ltd, which operates China's main travel search engine, are discussing a possible merger via a stock swap that could create a company with more than $10 billion in market value.

Rumors have been swirling for about 10 days, but both Ctrip and Qunar - in which Internet giant Baidu Inc has slightly more than a 50 percent stake - have declined to comment.

But internal e-mail comments from both companies do shed some light on the companies' respective stances.

"Ctrip will continue running independently for a long time, and we welcome investment under this premise," said Liang Jianzhang, chief executive officer of Ctrip. Usually, an acquirer leads the integration and development of the combined company, Liang said in his e-mail, and Ctrip's website has a much larger market value and operating turnover than Qunar, whose name means "where to?" in Chinese.

"Ctrip is the largest online travel agency in China, in terms of both value and market share, and the company has the ability to further explore and lead the whole market," the company said in a statement to China Daily.

Zhuang Chenchao, chief executive officer of Qunar, said in an e-mail to staff that all talks were being held on the condition that the management of Qunar would take the lead.

The average age of its senior managers is less than 35, he said, and the company also has achieved faster business growth than competitors in the industry.

"I will work at Qunar until we become the definite winner in the online travel market," Zhuang wrote, responding to reports that he would leave the company after a merger.

Whatever actually happens, other companies in the industry have already criticized any deal, which they said would increase industrial consolidation.

"The authorities need to examine any deal, as both companies are already large and a merged company may have too large a market share," said Cui Guangfu, CEO of eLong Inc, one of the largest online travel agencies in China, which focuses on hotel bookings.

But Cui said any such merger wouldn't lead to any change in his company's strategy, because eLong has already devised ways to compete. The strategy involves taking advantage of a segmented market and cooperating with other companies.

Fortunately for eLong, Cui already has an ally that's eager to expand.

Tongcheng Network Technology Co Ltd, an online travel agency based in Suzhou, Jiangsu province, signed a cooperation agreement with eLong on March 10. Under that deal, eLong will share its 10,000-plus domestic hotel listings and Tongcheng will share its scenic attraction ticket-booking services, which cover more than 8,000 domestic sites.

"It's an easy method of cooperation, but it is significant for both of us," Cui said, "We'll each continue to concentrate on our main businesses, which is hotel booking for eLong and scenic attraction ticketing for Tongcheng."

Strategic targeting of segmented markets is the only way for smaller players to challenge the industry giant, he added.

"None of us can compete with Ctrip in the full-service market. It is too big," said Cui.

The market capitalization of eLong was only $537 million on Thursday, while that of Ctrip was $7 billion.

But the combined hotel booking business of Tongcheng and eLong in 2013 was almost equal to 80 percent of Ctrip's hotel business, Cui said.

"We can provide various services in the hotel booking market after we start cooperating and beat Ctrip in this segment of the market," he added.

The development of mobile terminals also makes it easier to succeed in segmented markets, Cui said, as consumption is being fragmented and consumers can easily buy travel products on their mobile devices.

Cui said market share remains a priority for eLong, and it will continue pursuing a larger share "at any cost", including price cuts.

Wu Zhixiang, CEO of Tongcheng, said that Ctrip's goal of expanding into scenic spot bookings pushed him to agree to the cooperation pact.

Although both Cui and Wu denied that their common investor - Tencent Holdings Ltd - had any role in the cooperation, it's still viewed by many in the industry as an "arranged marriage" by the Internet giant.

"It is necessary for smaller online travel agencies to form alliances to compete with the industry leader, especially when their investors are pushing," said Wei Changren, general manager of Ctcnn.com Inc, an analysis firm that focuses on the travel industry.

It's also possible that Baidu is pushing the merger of Ctrip and Qunar, Wei said, as it seeks another method to compete with other Internet giants in China.