The dispute between two of China's major online travel companies illustrates the growing competition for a piece of the growing domestic market for booking flights and hotels over the Internet. With companies such as Alibaba, Baidu and Tencent entering the market, the competition will only get fiercer. But it won't be easy for any single company to monopolize the market.
Alitrip, the online travel service of Alibaba Group Holding, recently accused industry leader Ctrip of using its muscle to prevent hotel chains from working with Alitrip.
Specifically, Alitrip said Ctrip - or perhaps a group of its employees acting on their own - warned its hotel partners not to work with Alitrip, causing several to abandon the Alitrip platform. In an e-mail sent to the Global Times on Sunday, Alitrip added that it would never force any of its partners to choose between it and a rival.
The accusation about Ctrip remains unsubstantiated. In response, Ctrip said that it "respects its partners' choices," according to a statement Ctrip sent to the Global Times on Monday.
The dust-up highlights the rising level of competition as some of China's biggest companies vie for greater control over China's growing online travel market. The market worth 106.2 billion yuan ($16.6) in the second quarter of this year, according to a report released by Analysys International in August.
Control is the operative word.
"In the past, travel companies competed by lowering prices to attract consumers," said Zhu Zhengyu, an analyst at consultancy Analysys International. "However, now they are trying to dominate by obtaining good assets."
Many of the biggest players in the industry have gone on spending sprees in recent years to cement their control over the market, either by acquiring companies to further strengthen their positions in the industry or by buying stakes in established companies.
With more companies jockeying for control, the competition in China's online travel market is only going to grow fiercer, Zhu told the Global Times on Monday.
Promising potential
China's online travel industry is growing and will continue to grow, analysts said. In 2014, its revenue soared 38.9 percent year-on-year to 307.79 billion yuan, according to a report released by the Beijing-based iResearch Consulting Group on April 27.
"There is a lot of potential for the online travel market because it accounted for only 15 percent of China's travel market in 2014," said Jiang Yiyi, director of international tourism development at the China Tourism Academy, a research institution under the China National Tourism Administration.
Most of the industry's growth is the result of strong sales in airline ticket, hotel reservations and package tour bookings, the iResearch report said. Of those businesses, selling airline tickets is the most mature, and selling package tours is the most promising. The latter accounted for 14.6 percent of the total online travel revenue.
"Online package tours grew about 50 percent year-on-year in 2014," Jiang told the Global Times on Monday. "Many online travel operators are focusing on advancing this sector."
China's online travel industry is dominated by a handful of companies. As of the second quarter this year, Ctrip controlled 38.7 percent of the market, followed by Qunar.com with 30 percent. Alitrip ranked third with 11.9 percent.
One advantage that online travel companies have over traditional travel agencies is that they can better control costs, according to Jiang.
Buying a piece of the market
Many companies have high hopes for online travel market.
"It will become a trend for more companies to enter this market through mergers and acquisitions," Jiang said.
Several Internet giants have jumped into the online travel market since 2011. Tencent Holdings invested $84.4 million for a 16 percent stake in eLong Inc, making it the second largest shareholder of the Chinese online travel service, according to a statement posted on the website of eLong in May 2011. In August this year, it was reported that Tencent has offered to increase the size of its stake in eLong.
Also in 2011, Baidu Inc, which runs China's largest search engine, invested $306 million in Qunar, a domestic site for booking flights, hotel rooms and package tours, xinhuanet.com reported on June 25, 2011.
In October this year, Ctrip reached a deal to take a 45 percent stake in Qunar, huanqiu.com reported on October 26. The deal will create China's biggest online travel service and it has already pressured industry rivals to respond.
In a speech on October 28, Alitrip President Li Shaohua cited the deal as one reason why the company is increasing the pace of its development, according to a recent company press release sent to the Global Times Sunday.
In September 2014, Alibaba paid 2.81 billion yuan for a 15 percent stake in Beijing Shiji Information Technology, a company that provides data services for more than 400 hotel chains, including Grand Hyatt, Sheraton and Hilton, according to Shiji's website.
The e-commerce giant hopes to make use Shiji's databases to develop its travel business, Alibaba told the Global Times in an e-mail on Sunday.
Jiang said these kinds of acquisitions and partnerships can help online travel services set better prices for their users.
Difficult to dominate
In the future, most of the competition will be among the large online travel companies, but it will be difficult for any one of them to monopolize the market, analyst Zhu said, noting that small online travel operators will need to focus on creating exceptional individual products to attract consumers.
Jiang agreed with the analyst. Due to the great potential of the online travel market, there will be more well-financed competitors entering the industry that will threaten the major players' dominant positions, Jiang said.
It would become commonplace for every company to be able to provide high-quality and standardized services to their customers.
The competition among the different operators will continue in the future, but healthy competition will ultimately benefit consumers as operators will offer better services at lower prices, Zhu said.
