Ctrip gets $500m investment from Priceline

Leading Chinese travel booking service provider Ctrip.com International will receive a $500 million investment from US online travel giant Priceline Group to promote each other's business in and outside of China, Ctrip said Thursday (Beijing time).

The deal would boost Ctrip's hotel booking business overseas, but may not lead to significant growth in its overall online travel operation, analysts said.

Ctrip's customers would be allowed to access Priceline Group's portfolio of more than 500,000 hotels overseas, while Priceline's customers can enjoy Ctrip's over 100,000 hotels in China, a statement that Ctrip posted on NASDAQ said.

The investment will be completed through a convertible bond, and Priceline has been granted the right to acquire shares of Ctrip in the open market in the following 12 months, according to the statement.

Upon the completion of the transaction, Priceline would hold a 10 percent stake in Ctrip and can appoint an observer to Ctrip's board.

Ctrip and Priceline, which have had a commercial relationship since 2012, will increase the cross-promotion of each other's hotel listings and other services including air and attraction ticketing, according to the statement.

"The amount of hotel booking, outbound or inbound [by foreign visitors], is not large when compared with that generated by domestic Chinese tourists, which is still the mainstream," Wei Changren, general manager with Beijing-based Jinlü Consulting, told the Global Times Thursday.

The total number of China's outbound travelers was estimated to reach 54.1 million in the first half of the year, up 18.7 percent from the previous year, according to a report issued by China Tourism Academy in July. Travelers made 1.85 billion trips in China in the first six months of 2014, up by 10.2 percent year-on-year, the report said.

China's inbound travelers dropped by 2.8 percent year-on-year to 62.3 million, China National Tourism Administration said in July.

The data appears to show that the domestic tourism market is still the core segment for Chinese online tourism agencies (OTA), like Ctrip and eLong.

The OTA market, where online tourism websites run businesses like off-line traditional tourism agents, is promising. Ctrip dominated the market with a 54.2 percent share of the market in the second quarter, with eLong coming in second with 8.7 percent, according to Beijing-based market research firm iResearch on July 18.

However, the deal with Priceline, which would enhance Ctrip's brand value, cannot be something that Ctrip could bank on to continue maintaining its predominant position in the fiercely competitive OTA battleground, said Yang Yang, an industry analyst with iResearch.

Qunar will be a big threat to Ctrip in the OTA segment in the near future, as the former is starting to tap into the market and has a stronger capability to bargain with hotels and airlines because of support from Baidu, Yang told the Global Times Thursday.

Baidu is Qunar's major shareholder, owning 61.05 percent of the company. With the help of Baidu, Qunar has already topped the online travel market on the mobile front with its app user ship reaching 4.9 million in the first quarter of the year, followed by Ctrip's app with 3.4 million, Analysys International, another Beijing-based market research firm, said on July 22.

"Qunar offers a better user experience than Ctrip for price-sensitive Chinese consumers, since it allows its users to compare prices among all travel booking services, both online and off-line. By contrast, Ctrip can only offer price comparisons between services it provides," said Yang.

Backed by Priceline, Ctrip could roll out more acquisitions in the future, analysts said.

Its investments in peers could help it gain access to their user base and even tap into their competitive resources, said Wei.

However, integration and cooperation with companies after investment from Ctrip may not go through smoothly, as these companies may just want the capital injection and be unwilling to share core resources and technology with Ctrip, noted Yang.

Ctrip is now ly.com's second-largest shareholder after its acquisition of a 30 percent stake in the Suzhou-based attraction ticket service provider for $200 million in late April.

The company is also one of the anchor investors for Nanjing-based travel website tuniu.com in connection with the latter's IPO on NASDAQ, eyeing tuniu.com's edge in leisure package tour business.