China, part 2: A conversation with Ctrip founder James Liang

This month train stations and highways around China are experiencing peak volume, as hundreds of millions of the country’s citizens travel to celebrate the Lunar New Year Spring Festival.

The Year of the Pig officially began February 5, but Chinese people celebrate it during a 40-day travel rush period known as “Chunyun,” which this year runs from January 21 and March 1.

During that time the government estimates more than three billion trips will be made, up 0.6% over 2018, with an 8.3% increase in train trips and a 12% increase in air travel.

Growth in travel is not confined to this celebratory period, however. Chinese people traveling year-round have made the country the world’s largest outbound travel market - and it's only getting bigger.

The China Outbound Tourism Research Institute (COTRI) forecasts an increase of 11% year-over-year in 2019 to a total of 180 million border crossings from Mainland China, with 49% of those trips ending in Greater China (Hong Kong, Macau and Taiwan) and 51% going to other destinations around the world.

And for millions of Chinese people, those travel plans are inspired, researched and booked through Ctrip, the country’s largest online travel agency and also one of the largest players globally.

It’s been 20 years since James Liang and three others founded the Shanghai-based company and in that time Chinese tourism has boomed – and Ctrip has ridden that wave.

In its financial report for the third quarter of 2018 – the most recent results available – Ctrip reported net revenue of $1.4 billion, a 28% jump from the previous quarter and 15% increase from the same period in 2017.

The company has acquired several other brands in recent years, including Skyscanner, Trip.com and Tours4Fun, and now has 40,000 employees worldwide.

For the second piece in our China theme month, we talked to Liang - now the company's chairman - about Ctrip’s ambitions, his outlook on the Chinese economy and why the country is at risk for a slowdown in innovation.

You were educated in the United States – at Georgia Tech and Stanford – and then worked for Oracle for several years before co-founding Ctrip in 1999. What did you learn in your time in the U.S. that impacted the development of Ctrip?

My experience studying and working in the U.S. was extremely valuable. After studying at Georgia Tech, I joined the R&D team at Oracle, where I gained rich experience in research and development.

During that time, I paid a visit back to China, and realized how many great opportunities there were. I decided to move back to China, applying for a management position as consultant director for China at Oracle.

During my work there, I provided advice to multiple Chinese companies on their management, software and e-commerce, as well as helped to established management systems for several large companies, experience which proved essential when we founded Ctrip.

At that time in late 1990s, the Chinese government was making great efforts to promote the technology sector, creating an ideal opportunity for us to start Ctrip, combined with my technology background and management experience.

What are some of biggest things the west does not understand – or misunderstands – about Chinese travelers?

Chinese travelers not behaving appropriately while abroad has long been a topic of hot debate among Westerners. It is estimated that Chinese travelers made 148 million outbound trips in 2018.

Within such a large data set, the relative numbers of travelers who misbehave is small, but the absolute number is high, which means it is a phenomenon that has attracted attention.

Westerners also have an image of Chinese travelers all loving to go shopping for luxury goods.

However, what may surprise many is that according to a recent survey the interests of Chinese tourists traveling abroad have changed greatly in the past few years. Now, sightseeing and sampling local cuisine are the most popular past times for Chinese travelers, more than shopping.

I believe that Westerners’ impressions of Chinese travelers will further change significantly in the future as China continues to develop.

This will particularly be the case when younger generations of Chinese born in the 80s and 90s begin to dominate the travel industry, as they are on average much better educated and more aware of Western norms.

According to Phocuswright, Ctrip is almost on par with Expedia and Booking in terms of gross bookings – what will it take to surpass them?

Booking Holding and Expedia are both great players in the industry. In terms of gross merchandise volume, we are now the leading online travel company.

Ctrip is positive, confident and enthusiastic about the potential of the tourism industry, both in China and in the world. Our growth still relies on the evolvement of globalization, and I’m convinced of more great opportunities in the future.

On January, 19, 2019, we held our annual meeting in Shanghai and I mapped out Ctrip’s vision for the future, which is to become the biggest, the strongest and the best company in the global travel market.

We will continue to provide the best service, the best technology and the best products to travelers travelling from anywhere to everywhere.

What are Ctrip’s ambitions in the west?

As far as I know, I haven’t seen any successful case studies about a Chinese service-oriented company succeeding in setting up their overseas market. That’s the ambition for Ctrip, which we are working hard to pursue.

Technology is the one of the dominant advantages for Ctrip when we are competing with other players in the industry.

We have also gradually expanded our footprint through mergers and acquisitions, such as our acquisition of Skyscanner. We are very competitive in China and some Asian markets. Europe and U.S. are not our key focus yet.

We know it’s all about mobile for Chinese travelers, and Ctrip’s app has much more rich content and location-based information than western counterparts. Why do you think Western travel companies have not built equally robust mobile interfaces?

China’s large population and the scale of the market has provided opportunities in sales prospects and other aspects to a great number of companies around the world, including Ctrip.

China’s has also undergone a uniquely rapid development in the internet and mobile industries. We took this advantage when we launched our mobile app in early 2010, continuously pushing for innovation. Today around 80% of our transactions are from our mobile platforms.

Comparatively speaking, as I understand, Western users still prefer booking their trips via their computers. This might be a key reason for this phenomenon.

Ctrip, with our 300 million members, has been focused on providing premium travel services for the past 19 years, bringing us an industry expertise that allows us to provide bountiful travel content and information to our customers.

Moreover, we also greatly encourage our innovation and entrepreneurship among our employees, and we seek to incubate their projects. All of these three aspects have helped Ctrip maintain its position as an innovative leader in the industry.

The growth of China’s economy slowed quite a bit in 2018 and Ctrip’s stock struggled in the last year. What were some of the key factors that impacted Ctrip’s stock? And what is your outlook for the coming year?

I am very optimistic about the long-term prospects of the Chinese economy, especially China’s tourism industry.

2018’s data showed that despite the downward pressure on the overall economy, the tourism industry was and will be still very healthy, outpacing the overall economic growth rate. This trend will continue and become more pronounced in the future.

As you mentioned, at Ctrip’s recent annual meeting you expressed a determination to make Ctrip not only the biggest company in travel but also the strongest and the best. How will that happen?

We still have a lot to learn from our peers, but we are confident in our desire in the near future to become not only the largest company, but also the very best company in the industry.

We will continue to strengthen our core competitiveness in terms of service, technology, and products.

In terms of innovation, we seek to lead the industry’s development through the expansion of our innovative services. For example, in 2018, we launched high-speed rail tours and opened thousands of offline stores.

In terms of service, we have continued to focus on our philosophy of putting the customer at the center of everything we do, providing 24/7 service to customers around the world and creating value for them during their trips.

We leverage 50TB of data generated daily on our platform by 300 million Ctrip members to analyze and understand demographics, customer demands and travel behaviors in order to offer tailored products or services.

James Liang - Ctrip

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Our platform enables our partners to benefit from Ctrip’s ecosystem and empowers them to provide better service to more customers.

Whether you are the owner of a homestay, you want to open an offline store, or you are a tour guide, there will always be a place for you on Ctrip platform where you can get help with your business development.

Last but not least, we will continue to ramp up our efforts in social responsibility.

We’ve made meaningful attempts to improve the education of disadvantaged groups such as children in poverty-stricken areas and to help migrant worker family members come to the city for reunions.

Ctrip’s users generate huge amounts of data as they use the platform. How are you using that data to improve customer service?

We leverage 50TB of data generated daily on our platform by 300 million Ctrip members to analyze and understand demographics, customer demands and travel behaviors in order to offer tailored products or services.

We are now much more pro-active and open about this approach. Last December, we held the first ever Ctrip Day, where we analyzed the travel business by inviting partners from across the industry.

The key aim of the day was to show how our big data can empower our partners through the Ctrip’s platform.

Partners such as travel agencies, offline stores and customized travel planners can all access Ctrip’s big data, helping revolutionize their approach to products, pricing, services and finance.

In recent years, Ctrip has made some notable investments and acquisitions, including taking a major stake in MakeMyTrip and the acquisitions of Skyscanner and Trip.com. What types of companies are on your radar for future investments or acquisitions?

Ctrip is committed to the travel industry and this remains the core of our business. This is reflected in the fact that all the investments we have made are related to travel and tourism.

Last year, we invested in Boom Supersonic, a leading start-up in the supersonic airplane space, supporting the acceleration of Boom Supersonic’s new Mach-2.2 airliner.

When the Mach-2.2 is in operation, travel times will be greatly reduced. For example, a flight from San Francisco to Shanghai will only take six hours, compared to the current duration of 11 hours.

Going forward Ctrip will continue to concentrate on the tourism industry, making investments in companies which are industry leaders, adhering to our mission of “making travel happier.”

Ctrip has an interesting relationship with Booking Holdings. That company has invested close to $2 billion in Ctrip since 2012, and yet on some levels you compete – Kayak vs Skyscanner for example. And Booking has made investments in Meituan Dianping, which has a growing hotel booking business. What does Ctrip need from Booking right now? What does Booking need from Ctrip?

Booking Holdings is our investor and partner. Gillian Tans, the CEO of Booking.com, is an observer on Ctrip’s board.

I know Booking.com attaches great importance to China’s tourism industry, considering the scale and its potential.

Ctrip has a dominant position in China and is competitive in some Asian countries, and our partnership can benefit Booking.com in improving its influence and market share in the region.

We share hotels inventory with each other, enabling customers choosing the most competitive products around the world, which helps Ctrip provide better and more competitive overseas hotel products for customers.

Globally, both Booking and Ctrip are the key players in the industry and our partnership will create more value to the travelers around the world.

You stepped down as Ctrip CEO in November 2016, with Jane Sun taking over. How are your two roles defined?

I work with Jane very closely. At the moment, I pay more attention to the company’s innovation, internationalization, technological development, investments and strategic alliances.

As the CEO of Ctrip, Jane focuses on the overall management of the company, including business planning and operation, organizational structure and training of personnel.

You published a book last year – The Demographics of Innovation – in which you explore the link between a country’s economic growth and innovation and its demographics, and for China you’ve said the pace of innovation will slow after 2030 because there will be a much smaller cohort of young entrepreneurs. What can you do to counter that?

In my opinion, a young population is crucial for a nation’s ability to innovate. After 2030, the demographics of the Chinese workforce will become much older and there is a risk that China’s economic growth will slow.

It will take 20 years for these demographics risks to emerge, and in terms of government policy, I would suggest the following four aspects are most important – liberalizing birth control policies and encouraging fertility; increasing the educational opportunities; liberalizing the household registration system and increasing exchanges with other countries.

Ideally, with the support of appropriate policy, China will be able to maintain a normal fertility rate with a healthy demographics, and China’s income per capita could reach 60% of the current U.S. level.

Looking back on what you’ve learned since co-founding Ctrip 20 years ago, what advice do you have for travel startup entrepreneurs?

I would say, concentrating on your industry. Ctrip has always focused on the travel industry, starting as a hotel reservation provider and becoming a one-stop travel platform and ecosystem.

This success is a result of almost 20 years of hard work and keen focus on travel, reflected in the fact that in terms of gross merchandise volume, we are now the leading online travel company.

• China, part 1: The big (and getting bigger) picture