Pivotal moments 2015 - the Ctrip Baidu Qunar share swap

Ctrip ending up with a big stake in Qunar, thanks to a share swap with Qunar's majority shareholder Baidu, which now owns 25% of Ctrip, could be the 2015 deal in China which has the most meaningful long-term impact.

In October, Baidu announced a share swap with Ctrip, resulting in Baidu ending up with a 25% stake in Ctrip and Ctrip ending up with a 45% stake in Qunar.

The share swap also heralded a business co-operation between Ctrip and Qunar.

How that business co-operation will pan out in real terms will evolve over time.

Could Qunar become mobile-only, leaving Ctrip as a full-service OTA? Will Baidu exploit its relationship with Uber and distribute through Ctrip? Will Ctrip and Qunar's PMS businesses consolidate and emerge as standalone hospitality IT plays? Will Ctrip's relationship with Alibaba and Tencent change now that Baidu is on board? Will Qunar ever get out of the red?

The ownership issues are also complicated and interesting - throw in Priceline's ongoing investment and co-operation with Ctrip into the mix and the Ctrip/Baidu/Qunar/Priceline combination is a powerful beast, ready to take control of China with Priceline's global reach waiting in the wings.

Another way the Qunar/Ctrip share swap deal resonates is that it shows how quickly things can move in the Chinese online travel space.

Specifically, a few months before the share swap was confirmed Qunar and Ctrip had a very public spat about a takeover plot.

As a reminder, at the start of June Qunar told the markets that it had rejected a takeover offer from Ctrip - Ctrip responded by saying that the offer was, in fact, its response to an unsolicited approach by Qunar and that its response to the offer was then rejected by Qunar.

Ctrip followed this up with an unequivocal statement saying "it is no longer interested in pursuing a potential M&A discussion with Qunar”

So the question remains, what happened in the summer months that made Ctrip change its mind?

One suggestion, which came via a question on Qunar's first earnings call after the deal, is that the share swap was a result of conversations between Baidu and Ctrip and that Qunar had very little say in the matter, whereas the initial discussions were between Qunar and Ctrip.

Whatever the reasons for the u-turn, the combination of Ctrip and Qunar is a powerful proposition for the Chinese domestic and outbound market.

Ctrip and Qunar, despite their dominant positions, still have a relatively small share of this - Ctrip CEO James Liang told analysts that Qunar and Ctrip combined have less than 10% of the Chinese online travel market, and that online as a proportion of the overall market is lower than elsewhere.

With so much growth up for grabs locally, this could explain why the Chinese giants are reluctant to spread their wings and become active on the international stage. Of the many and various deals which took place in China this year, almost all were focused on domestic and outbound travel.

The fact that no major Chinese OTA has acquired an international OTA is a big surprise, in light of the amount of cash they hold, the amount of money they seem to be able to raise and the fact that quite a few M&A targets came and went during 2015.

Maybe the Ctrip/Qunar combination - with a side order of Priceline - could be the one to boldly go where no Chinese OTA has gone before. Ctrip does have a year-old deal in place with Amadeus, with Amadeus supplying the air content for Ctrip's points of sale, beginning with Hong Kong, Taiwan, Korea and the US.

Around the same time, Qunar quietly released an English-language international-focused site, www.qua.com, with which very little has happened since.

Last year Alibaba's Alitrip was tipped to become the first Chinese-based international OTA. Fast forward twelve months and is looks as if Ctrip/Qunar could take on that mantle. But as the Chinese market itself is so competitive, and still has room to grow, maybe their focus will remain close to home as they unravel the finer details of their new relationship.

Read our Tnooz team's other picks for the pivotal moments of 2015

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