Travel booking tie-up seen as boosting position
Ctrip.com International Ltd, China's largest online travel service provider, acquired a nearly 40 percent stake in domestic peer eLong Inc, a move analysts said on Sunday will further solidify its position amid fierce competition from its main rival Qunar.com.
NASDAQ-listed Ctrip announced on Friday that it had bought 37.6 percent of eLong from U.S.-based online travel company Expedia Inc on Friday for approximately $400 million, according to a press release on its website.
Upon the completion of the deal on Friday, Ctrip and the US seller also agreed to cooperate with each other in terms of user bases and product offerings, according to the press release.
Meanwhile, Expedia, which held a 62.4 percent share of eLong before the transaction, sold the rest of its ownership in eLong to other purchasers including Guangzhou-based hotel operator Plateno Group at an average price of $14.63 per share, according to a filing by eLong on its website on Friday.
The filing did not reveal the reason for the sale of eLong shares. Neither Expedia nor eLong could be reached for comment on Sunday outside of working hours.
"I'm not surprised to see Expedia divesting shares of eLong, which has suffered big losses and slow growth in its user base," Wei Changren, CEO of Beijing-based Jinlü Consulting, told the Global Times on Sunday.
NASDAQ-listed eLong on April 30 recorded a net loss of 180.7 million yuan ($29.2 million) in the first quarter of the year, widening from 35.4 million yuan over the same period of the previous year.
Its total revenue, gained mainly from accommodation reservation, declined to 225.8 million yuan during the quarter from 262.7 million yuan a year earlier.
ELong cannot really generate a good performance, as its main focus on accommodation reservation cannot help the company steal consumers away from competitors - Ctrip and Qunar - that offer more comprehensive businesses, said Wei.
A report released by Beijing-based market research firm Analysys International on May 18 showed that transportation ticket booking is now the major activity Chinese people conduct via online travel websites, accounting for 71.3 percent of the total transaction volume in the first quarter of 2015, followed by accommodation reservation.
Zhu Zhengyu, an analyst with Analysys International, however, believes that China's online hotel booking market is expected to foresee a fast growth in the following years.
The market reception currently is not warm, but online hotel booking will become heated amid online travel agencies' active promotion and is estimated to reach 112.27 billion yuan in 2017, up 114.8 percent from 2014, wrote Zhu in a research note e-mailed to the Global Times on Sunday.
After the disclosure of Ctrip's acquisition, eLong's share surged 8.67 percent, closing at $22.44 on Friday, while Ctrip closed up 17.56 percent to $84.63.
By contrast, its rival Qunar saw its shares dropping 1.04 percent to reach $52.34 on the NASDAQ on Friday.
The acquisition of eLong can further Ctrip's presence in the online hotel booking market, where the former provides budget and low-end hotel listings and the latter mainly targets high-end consumers, Zhu wrote in his report.
Both Zhu and Wei noted that with eLong as its new partner, Ctrip, which has also invested in rivals Tongcheng and Tuniu respectively in April and December 2014, will generate more pressure on Qunar.
"Merger and cooperation is likely an industry trend, especially in the mobile Internet sector where the accumulation of a user base is costly and uneasy due to a heated rivalry," said Wei, calling for tie-ups between Qunar and Ctrip to help relieve a cutthroat price war between the two giants.
Qunar, backed by search engine giant Baidu Inc, posted a net loss of 1.84 billion yuan in 2014, a big increase from a loss of 187 million yuan in 2013.
The company's final result for the first quarter of 2015 has not been made available to the public.
Ctrip on May 13 posted a net loss of 126 million yuan in the first quarter of the year, narrowing down from the previous quarter's loss of 224 million yuan.
The two companies could not be reached for comment by press time.
