COVID-19 halted a decade of dramatic
growth in Chinese travel. With borders closed for three years, OTAs rebuilt
their domestic models while awaiting the return of outbound travel.
Chinese travelers returned to the global map on
January 8. In the first half of
2023, a bumpy economic recovery and various supply and demand constraints
slowed the outbound recovery. The second half of the year should see a stronger
acceleration, with Asia Pacific destinations the primary beneficiaries.
With COVID restrictions
finally eliminated, Chinese OTA bookings are rebounding. Cindy Wang, CFO of Trip.com, said net revenue increased
“83% quarter-on-quarter” in Q1 of 2023. The first
quarter was “a historic quarterly record for the top-line and bottom-line, with
margin growth exceeding our expectations,” said Tongcheng’s CFO Julian Fan.
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They are also launching
new collaborations, such as Fliggy’s partnership with Globaltix, introducing AI chatbots like TripGen,
gamified NFTs such as Trekki and augmented reality glasses that create visually spontaneous experiences for
visitors to European museums. New marketing partnerships are being signed with
tourism boards and travel suppliers worldwide, while Tongcheng is exploring
M&A options in international package tours.
As we await the interim
results of leading OTAs, Trip.com (known in China as Ctrip), Fliggy, Meituan,
Tongcheng, Qunar and Tuniu, it’s worth retreading the tough path they traversed
since COVID-19 was identified in Wuhan at the turn of 2020.
China’s OTA turnaround
China’s long border
closure forced its entire travel industry to redirect resources into the national
market. Between Spring 2020 and January 2023, OTAs reframed their business
models by
growing their customer bases in lower-tier cities, supporting user-generated content
and investing in intelligent
booking, marketing and membership benefits tools.
China entered the
pandemic as the world’s largest outbound market, with 170 million cross-border
trips in 2019. Although outbound travel grabs headlines, the domestic market
counts exceptional numbers. China is a continental-sized nation of 1.4 billion
people where 6 billion domestic trips were made in 2019. The scale of domestic demand
underpins China’s status as the world’s second-largest air market, which it comfortably
retained during the pandemic.
The three-year journey undertaken by OTAs was
transformative. China’s experience of SARS in 2002-03, and other coronaviruses
since, and the government’s refusal to countenance foreign vaccines cautioned
against a quick resolution to COVID-19. China’s travel industry hunkered down
for an extended period of isolation.
Suspension of the profitable outbound sector
forced OTAs into uncompromising decisions. Securing short-term competitiveness
by slashing costs was paramount. Simultaneously, they needed to invest in smart
technology and diversified products to stimulate China’s travel comeback –
whenever that might be.
But first and foremost, they needed to
optimize revenues from Chinese domestic travelers as competition intensified. Here
are some of the steps they took:
OTAs knew the key to surviving and thriving was
mobile. China is a mobile-first economy, and consumers
expect smartphone-based travel and lifestyle apps to frequently evolve and
offer new experiences. For travel booking, China’s exceptionally high
pre-pandemic mobile penetration rate was forecast to accelerate, but only if
travel products and services adapted to unprecedented circumstances. And so it
proved. In 2022, Trip.com reported 90% of its bookings were made on mobile
devices.
During COVID’s darkest days, some Chinese
cities required proof of a negative test for visitors from other provinces. Domestic
flights were often cancelled. Travel confidence was fragile. OTAs developed new
strengths to meet demand for weekend staycations within a narrowed travel
radius. They added boutique glamping, camping and hiking products catering to
the changing appetites of people taking short trips close to home.
- Targeting lower-tier
cities
Chinese
cities are grouped in tiers relative to size, population and economic output. Beyond
the first- and second-tier cities are hundreds of lower-tier cities comprising
nearly 70% of China’s urban population. Consumer spending is rising in these cities, but few
international flights made them previously less appealing to OTAs. Since 2020,
OTAs stepped up their customer acquisition strategies in lower-tier cities by
marketing to young populations developing new tastes for travel. “Lower-tier cities are under-penetrated yet contain
colossal potential. We optimized products and services and persistently
penetrated lower-tier cities that remained resilient amid the pandemic and
outpaced the overall market recovery,” said Wu Zhixiang, Co-chairman of
Tongcheng.
- Livestream goes mainstream
OTAs adapted their sales channels to more adeptly
anticipate new trends across demographics. Livestreaming is a good example. In the late 2010s, it became a Chinese shopping
phenomenon. Ambitious young salespeople stand in front of backlit banks of
smartphones selling discounted consumer goods broadcast on platforms such as
Douyin, Kuaishou, WeChat and Taobao Live. Part of the appeal of
livestream commerce is attributed to a desire among Chinese Gen Zs to learn new
things while shopping online. OTAs used livestreaming to sell discounted flights and hotel rooms.
Ctrip’s Chairman James Liang launched a livestream series attracting customers
across China. Tuniu deployed livestreaming to sell new travel packages and
product upgrades, and Meituan is
investing resources into “short-form broadcast video.”
Chinese consumers avidly use homegrown social networks
and short-video apps. During the pandemic, these platforms enhanced their
social commerce offerings with new interactive content. Travel, which is a
major driver of social activity, followed suit. Chinese travel bookers seek fresh
product information when researching trips. This informed OTA strategies as
they developed
their own mobile content platforms. They encourage travelers to share their own
content – such as in-trip videos, destination tips and hotel recommendations –
on OTA apps, rather than social networks. This makes consumer engagement
stickier, generates vast proprietary data flows, and creates new cross-segment
advertising and sales opportunities for travel suppliers and partner brands.
Although China has the world’s second-largest air
market, business and leisure travelers increasingly jump aboard the world's longest
high-speed rail network,
which connects most cities nationwide. During the pandemic, faster trains were
rolled out on key routes with enhanced onboard services, such as flatbeds and
mobile food ordering. Pre-pandemic, OTAs had scaled up mobile train booking.
Since 2020, they launched new rail plus car rental and flight booking options
to give travelers more freedom in their trip planning. Chinese airlines, such
as China Eastern, did likewise.
Demand for car rentals accelerated as a flexible and
cost-effective way to customize short-trip itineraries. In 2022, Fliggy
teamed with Zuzuche,
China’s largest mobile car rental services platform for outbound travelers.
Zuzuche reacted swiftly to China’s border closure in 2020. It built a domestic
car rental portal
from scratch featuring 3,000 suppliers in 600 cities. This enabled it to tap the
surging appeal of self-drive travel. “The demand for car rentals and road trips
in China, even during the difficult circumstances of the past three years,
surpassed our expectations,” says Ben Li, CEO of Zuzuche.
“Monetizing the past
three years”
Anticipating the next phase of China’s travel recovery is
tricky. It is a notoriously difficult market to second-guess and the distribution
landscape is fragmenting. Trip.com’s 2022 annual report noted strong competition
“from hotels and
airlines as they increase their direct selling efforts or engage in alliances
with other travel service providers, as well as content platforms and social
networks entering into the travel industry.” This threat is crystallizing. In
May, social video app Douyin (TikTok’s parent) introduced a new hotel booking service.
Meanwhile, international air capacity is rebuilding, surpassing
50% this summer compared to the 2019 level, and forecast
to reach 80% by year end. Unleashed pent-up
domestic demand is helping OTAs benefit from their pandemic focus on creating more
diversified national customer bases and enhanced travel offerings. As Ma Heping, CEO of Tongcheng, commented “2023 is about monetizing the investments
from the past three years.”