eLong has admitted its Q3 performance fell short of expectations, but the shortfall is a result of increased competition in the Chinese market (even before Alibaba's new travel brand Alitrip.com starts to gain traction) rather than a drop in demand from Chinese travellers.
Although eLong had its strongest ever quarter in terms of room-nights - 9.4 million booked this quarter compared with 7.7 million in the same quarter last year - it was hit by a double-whammy of a drop in average room rates alongside a drop in the commission paid to it on those rates.
So its 22% increase in stays only converted to a 6% increase in revenues - US$44 million against US$41.7 million in the third quarter of 2013.
Speaking to analysts, eLong's CEO Guangfu Cui admits
"While we have made some progress in Q3 our performance fell short of our expectations. Competition is getting fiercer and the market is dynamic. eLong now needs to enter another turnaround phase as our growth slows and we are incurring losses."
Turnaround2.0 will be to change eLong from PC-based online bookings to mobile bookings. Cui pointed out that he had already overseen eLong's shift from callcentre to online.
This will take significant investment in technology and marketing, as well as continuing to expand its lodging services team, tasked with signing up directly contracted hotels for eLong.
(eLong's cash and cash equivalents at the end of the quarter came in a c$390 million)
Amid the gloom, a few bright spots emerge. Cui talks about how its free cloud-based multi-device PMS (property management systems) Yunzhanggui and Zhuzhe have doubled their contracted hotels from 10,000 last quarter to 20,000 this time.
He also mentions how these tools enabled hotels to connect directly with OTAS but also "sell directly by setting up a WeChat store."
eLong was also keen to talk up its pre-paid business, which now accounts for more than 10% of its overall hotel business. Pre-paid works well for its four and five-star properties.
And in terms of inventory, eLong is looking to add managed apartments and hostels to its portfolio.
There have been some concerns, on a macro-economic level at least, the China's growth is slowing down and that this might curtail the so-called global recovery. eLong was insistent that there was no issue with demand in China - the reason for its subdued quarter is increased competition on a number of levels.
In the Q&A with analysts, Cui goes into a bit more detail, notably when asked about Alibaba's recent launch of www.alitrip.com as its travel brand, operating as a separate business unit and replacing travel as one of many Alibaba marketplaces.
"We think that they will make an aggressive player in the market. So, we are watching and monitoring very carefully."
And that play will see a shift from how Alibaba's Taobao Travel operated, Cui believes:
"They also will contract hotel directly going forward. [Alitrip] may follow same the same path as Qunar, initially as a market or metasearch but eventually it’s going to be a mixed model. And it’s going to be a market plus direct selling.
"But eLong also has direct contracts with the hotels and we have hotels who play directly in our market. And we are hosting a variety of third party agencies, wholesalers, traditional travel agencies. So, we are also becoming a direct plus market approach."
eLong is clearly disappointed with its performance and the focus on PC-to-mobile is key to addressing these financial concerns. Competition is hotting up in China, and the fact that demand for travel from Chinese customers is not slowing will intensify this competition.
The medium-term question is how many OTAs this demand can sustain and who will survive. Chances are it will come down to who has the deepest pockets rather than the most downloads.