Interesting battle lines are being drawn as the online travel market in China is witnessing strong interest from international players like Priceline and Skyscanner.
NB: This article is written by Ritesh Gupta, a reporter at TravelDaily China.
In this article, we will assess Skyscanner's hope to strengthen its presence via its acquisition of Youbibi.
The travel ecommerce category in China has proved to be a major conundrum for most of the intermediaries to date.
For example, they have to sort out a gamut of complex operational issues before they can achieve profitability. All multinational players acknowledge the same, as many have failed to make any serious dent.
If one were to assess the situation today, the gap between Chinese online travel agency Ctrip and others depict a clear trend. In fact, Ctrip emphatically states that its performance stands out for its 12% operating profit margin versus heavy loss making by what it claims are literally all of its peers.
However, there are foreign entities that are ready to make inroads into China. Metasearch brand Skyscanner is one such company that is optimistic about replicating its success in China. The company has been profitable over the years. Last year Skyscanner saw EBITDA growth of 100% to £24.1 million.
Skyscanner, which recently completed three years of presence in the APAC region, intends to build on the momentum.
General manager – APAC at Skyscanner, Andy Sleigh, says:
"In Asia Pacific last year, we saw monthly visits to our APAC sites grow by 141% with mobile visitor growth standing at 359%. Asia accounts for more than 20% of our overall traffic."
As for the APAC numbers, the sites see 7.5 million monthly visits, and growth in mobile visitors was over 350% last year.
The metasearch company set up a local office in Beijing in 2012 and has been operating Tianxun.
Sleigh added:
"It’s a local offering that also brings Skyscanner’s international coverage to bear. The Youbibi acquisition has simply brought this to more focus as we move forward with our China strategy."
He mentioned that the team has grown its China business – Tianxun - well over 100% year-on-year for the last couple of years.
"But we’ve got a long way to go. We’re now at an inflection point where we can really start to take advantage," he said.
Skyscanner chose to acquire Youbibi as the plan is to shape a "better product for the Chinese market, based on Chinese technology and built by Chinese travel tech specialists", said Singapore-based Sleigh.
Advantage
According to industry specialists, the route taken by Skyscanner will enable it to counter product-related challenges such as the depth of content, and better comprehend cultural sensibilities, language-related nuances, local regulations and also strengthen supplier relations.
According to sources, a specialist like Qunar would cover over around 150,000 lodging options, including hotels, B&Bs etc. Other than inventory and availability of suppliers’ offerings, one also has to cope up with the issue of website accessibility in China.
Recently, a metasearch executive based outside of China told TravelDaily.cn:
"One of the biggest challenges we faced was the recent GFW (Great Firewall), which completely blocked all Google services in China recently, and slowed down the Internet access speed into and out of China.
"Another was the complicated Internet connection within mainland China which slowed down the average loading speed of our site for our mainland Chinese users."
Overcoming this was a relatively slow process that involved purchasing additional CDN services dedicated to the market and ensuring that the team complied with all the local regulations.
Another area where Skyscanner would get a kick-start would be related to the concept of facilitated bookings where a user doesn’t leave the metasearch site and still completes the booking with supplier/ OTA, this has been prevalent for both flights and hotels here in China.
While any non-Chinese metasearch entity brand that hasn’t focused on facilitated bookings would need to look into technology as well as regulatory licensing requirements, Skyscanner is in a position to leverage its association with Youbibi.
Monetization
The Chinese market is witnessing key players embracing interesting initiatives.
Qunar has opted for revenue generation via its cost per sale basis, in addition to CPC and display ads.
Ctrip has gone ahead with its open platform model.
As Ctrip is moving forward on this model, the team is attempting to quickly shorten the gap on pricing advantage which existed between Ctrip and Qunar for long by consolidating the competitive offers from various suppliers, including travel wholesalers. This has posed significant challenges to Qunar as the metasearch brand has attracted a lot of price sensitive consumers over the past few years.
As for Skyscanner, Sleigh said:
"We believe our business model works. For the past four years, Skyscanner has been roughly doubling in growth year-on-year. We make our money through a combination of commission and advertising – I don’t see that changing in the short term."
Multiple possibilities
The travel distribution landscape is evolving with mega strategic alliances between established OTAs and metasearch companies.
A section of the industry is already feeling the pressure. A metasearch executive said,
"The formation of these partnerships could potentially put capital pressure on the very few remaining independent major metasearch players. It is important that these companies remain objective and fair."
As for being impartial, Skyscanner stated that it displays comprehensive travel options and allows them to be compared by consumers and eventually book the best offer for their needs.
Sleigh added:
"We won’t change this model. We’re one of the few truly independent metasearch players left – we favour no one."
Other than independent metasearch players, Qunar too needs to reassess its presence, especially outside China. As reported recently by TravelDaily, it is learnt that Qunar is planning to set up a team that is going to target Taiwan, Singapore and Thailand for hotel inventory.
The likes of Qunar and Ctrip can also be counted upon for their supplier relations in the domestic market.
And then one can’t also ignore Kayak’s attempt to target China with a local site.
Also, now that Priceline and Ctrip have expanded an existing commercial agreement, and with Priceline agreeing to invest $500 million through a convertible bond, the industry would be keenly following how the two bigwigs go beyond cross-promoting their respective offerings.
"One can’t rule out the possibility of Agoda favoring Kayak for listings, featuring lower price. China is a price sensitive market, even a difference of $1 can tilt the booking in favor of a particular website," said a source, speaking of how the cut-throat competition might shape up.
All of this makes for an intriguing tussle indeed, and it would be interesting to see how Skyscanner takes on the likes of Qunar and Kayak.
NB: Skyscanner’s Andy Sleigh is scheduled to speak at the upcoming TravelDaily Conference scheduled for September 3-4, Shanghai.
NB2: This article is written by Ritesh Gupta, reporter at TravelDaily China. It appears here as part of Tnooz’s sponsored content initiative.