Motley Fool on eLong, Ctrip, Home Inn and more in China

It is definitely China week here are the BOOT. Two posts on Ctrip last week one on an interview with their CFO Jane Jie Sun and one on their acquisition war chest plans.

This week I came across another interesting post for China watches to read. Rick Munarriz over at the Motley Fool site published a post titled "Panoramic View of Chinese Travel Plays" In the story Muarriz discusses the performance of online travel company eLong (Nasdaq: LONG) , budget hotel chain Home Inn (Nasdaq: HMIN) (interesting side bar - Home Inn was founded by CTRIP founder) as well as Ctrip (Nasdaq: CTRP) itself and even Priceline (Nasdaq: PCLN) and AirMedia (Nasdaq: AMCN).

Good comparison on performance of eLong and Ctrip. Worth a read. Interesting note on eLong. Though it is profitable, more than half its market cap is explained by the $139mm in cash in the bank.

thanks to steve webel for the great photo care of flickr

Ctrip makes very strong hints that looking for acquisitions

Day for a Ctrip double post. A few movements ago a link to a Tom Botts post from a presentation by Ctrip CFO Jane Jie Sun. Now I have just spotted a Reuters/Yahoo! Finance news story that Ctrip are planning to place 5.7mm American Depositary Shares (currently priced at around $36). In non-finance English this means they are looking to raise somewhere around $200mm in capital. What do they plan to do with it? The Reuters story says they plan to use the money to buy or invest in "complementary businesses and assets" and for general corporate purposes. In non-finance English "complementary businesses and assets"means buying some one. Ctrip plus $200mm equals consolidation. Speculation time....who do you think they are most likely to buy?

Ctrip CFO Jane Jie Sun presentation notes

BOOT recommended read of the week - Tom Botts of Hudson Crossing's summary of Ctrip CFO Jane Jie Sun presentation at the Goldman Sachs Technology and Internet Conference in San Francisco. Post is called "Ctrip and Home Inn: How Different China Really is". Includes notes like "Only 2% of travel in China is booked online today - and Ctrip has 50% of that market". Worth a read. Always worth remembering that online travel in China has a different meaning that elsewhere.

Rakuten looking to Taiwan and Korea for expansion

Looks like it is Japan week here are the blog. Not sure if it is because the market is entering a new phase or because I am planning a trip there for next week and am spotting more stories. Earlier in the week it was some general market statistics from iMedia Asia. Yesterday Japan's number one online travel company Rakuten caught TechCrunch's attention. Today we have another story about Rakuten - this time on their international expansion plans. Here is a link to a Google translated Japanese language story on Rakuten called "Rakuten Travel, the second half will focus on international expansion - increase in overseas bases, and strengthen customer inbound transportation"

Couple of highlights:

• This year's expansion push will be Beijing, Hong Kong, Korea and Taiwan;
• In Taiwan will be selling inventory through Taiwanese player Eztravel. [BOOT note - EzTravel is part owned by Ctrip - who in turn used to be, but are no longer, part owned by Rakuten. But back in 2007 Rakuten sold out of Ctrip and in 2008 announced further plans for pushing into China ; and
  
• To enter the US market through setting up an office in Hawaii "next month". [BOOT note - we presume this is for inbound only].

The Google translation of the article makes for challenging reading but Rakuten is making their intentions clear and are making expansion a priority.

Ctrip and Qunar go to war over $150

Just last week I was sharing my thoughts with you about the China market - specifically that while it Ctrip that dominates travel sales in China it is arguable that Qunar is the biggest travel site if you measure by online traffic and share of voice.

In a (clearly) unrelated move, news out today that Ctrip is suing Qunar. In a story that looks like the recent battles between RyanAir and the meta-search players, the fight is over Ctrip's allegation that Qunar is screen scraping Ctrip and that such a thing is illegal.

The compensation being sort - a paltry RMB 1,000 ($146) according to the media reports.

Very few details out their in Web land about this legal action. My guess is (with no knowledge of the Chinese legal market) is that RMB 1,000 is the nominal damages amount in Chinese courts. Really what Ctrip is looking for is an injunction to stop Qunar from scraping to either force Qunar pay for access or to hurt the Qunar business and shut down a competitor.

Thanks to Martin from Wego who was first to send me the story (Siew Hoon at Transit Cafe was just seconds behind Martin)

Ctrip may rule China - but that's not stopping Rakuten from trying

I posted last week on the Chinese market, particularly the dominance of Ctrip in "online" travel sales. A complementary story appeared this week in Hotelmarketing.com (add to your RSS feed immediately if not already there) on Rakuten Travel's plans for China.

Rakuten Travel is the number one online travel company in Japan. This makes them a big player globally. With gross bookings in excess of $1 billion in hotels, Rakuten is easily a top ten online hotel company, maybe even sneaks in as number 5 behind the "big four" of Expedia, Orbitz, Travelocity and Priceline (in terms of hotel sales online).

China is big play for Rakuten as it is the natural largest next market for them. It is also a market they have a lot of knowledge about. Up until August last year Rakuten was one of Ctrip's largest shareholders, owning some 20% of the company. At the time Rakuten disposed of their Ctrip stake I said that there was probably two reasons for the sale: the profit on the sale; and to free up Rakuten to take on the Chinese market all by themselves.

There is a lot more background in the Hotelmarketing article which I suggest you read. If you are sitting in Europe dismissing this as another Asia story by Tim I urge you to reconsider and keep a little eye on Rakuten and the number two Japanese palyer Jalan/Recruit. Why? Because both are billion dollar plus players that are looking outside of Japan for places to expand and grow.

WebInTravel: Ctrip has more than 50% of the Chinese online travel market. But is Qunar the bigger online business?

At the WebInTravel conference last week Siew Hoon hosted a panel with ctrip Director of Biz Dev Alfred Chang and meta-search company Qunar's CEO Fritz Demopoulos.

Chang of ctrip dropped some very impressive numbers into his presentation including:

• 8,000 employees (4,000 in call centres)
• 28,000 hotels in 134 countries
• 6,000 hotels direct contracted (90% of volume)
• 1mm room nights monthly, 1mm air reservations monthly, 30,000 passenger trips in packages monthly; and
  
• (most impressively) 54% market share of online in China (see pie chart below copied from his slide

But (and this is a comment I have made before), online in the China market does not have the same definition as we would use elsewhere. Online should mean "no touch". Where the transaction is completed without the interaction between the customer and the intermediary at a people level. In the case of ctrip - 80% of there transactions are conducted purely through the call centre. This is not even web referred (ie search online but complete by phone). This pure offline call centre stuff - where the consumer dials ctrip and completes the whole transaction via the phone. There is nothing wrong with this, ctrip is a highly profitable and growing company. It is just important to know what it means to be online in China.

Next to ctrip's Chang was Fritz Demopoulos of Qunar. They are Chinese largest travel meta-search and content company- claiming more than 20 million montly users. The qustion I posed and we dont have a clear answer for is "if Qunar is 100% online and ctrip is only 20% online, then doesn't that make Qunar the largest online travel player in China?". We don't have an answer because clearly ctrip is a bigger company and Qunar is in the less mature business of online media. But it again highlights the interesting nature of the online/offline travel market in China. The bigger website (Qunar) is the smaller business.

New York Times: Interview with Ctrip CFO Jane Jie Sun

Just spotted over at the New Times website - an interview with Ctrip CFO Jane Jie Sun. Another indication of Ctrip's strong desire to expand their customer base outside of China. Claims 50% of the online market and tha tthe online market is 1-2% of the overall travel market. In addition they have another 2-3 % of the overall travel market through call centres. Claim total Chinese travel market is $150billion (Chinese domestic plus foreign inbound). That would put the online travel market at $1.5-3 billion confirming other numbers we have seen.

Airline Industry - Singapore Airlines cancels deal to buy a slice of China Eastern - parable for online travel in China

A little bit off the online track but I enjoyed reading a recent Wharton Article called "Turbulence in the Skies: The Ongoing Saga of China Eastern Airline, Air China and Singapore Airlines". Very quickly - SIA was going to buy 24% of China Eastern for HK$7.16 billion (US$918 million). Everything was announced and ready to go. But at the last minute the deal is off (see update below). Air China and a related company (China National Aviation Corporation or CNAC) swooped in and took the deal away from SIA.

What I particularly found interesting about the story was that it is a parable for a lot of online travel and investment activities in China.

The "once great" Cendant Corporation entered China online though a joint venture with government owned CYTS to form AoYou (English site China Travel Depot). Descendants of Cendant had to pull out.

Expedia jumped into China and jumped up and down about its investment in the permanently Ctrip chasing eLong. Fours CEOs (include one interim), untold number of secondees from Seattle and a lot of red ink later and this business is still losing ground to Ctrip. I am sure descendants of that deal wish they could pull out also.

China is tough. Culture and developing market issues aside. Online in China is more offline than online with more than 70% of the so called online volume going through enormous call centres. Regulatory environments mean it almost requires a different ticketing licence from each regional governments. Not to mention the security issues around famil trips.

If you want to keep more of a track of the online travel market in China I suggest you subscribe to Roy Gaff's China travel industry blog.

UPDATE - an informed reader tells me that an investment by SIA into China Eastern is not deal it is just very complicated and will take a lot of time.

China heading to $1billion online travel revenues (well sort of and I think it already did)

Thanks to China Industry Travel Blog and Seeking Alpha I came across some online travel numbers for the China market.

The Data Center of the China Internet (DCCI) released its 2008 China Internet Survey including the following commentary on online travel.

Revenue of China's online travel and hotel reservation services climbed 65.4 percent year-on-year to RMB 2.25 billion ($309.1 million). Revenue of the sector is expected to hit RMB 3.84 billion ($527.5 million) in 2008 and RMB 7.32 billion ($1 billion) in 2009, driven by the Olympics and the further opening of China's tourism market.

Ctrip remains the leader in China's online travel and hotel reservation market, followed by Elong, Auyou and MangoCity.

Important point is as I have said before most of what is online in China is actually offline.

Also PhoCusWright are already reporting China at above the $1billion mark.

China News - eLong down, Ctrip up and Qunar in the money

Round of news coming out of the online travel scene in China tells and interesting story:

1. Number 2 player eLong posted its Q3 results. Good news started and ended with an reported increase in revenue. Bad news was that revenue was only up 12% and losses have widened from RMB2.7mm (USD365k) in Q3 06 to RMB 7.4mm (USD1mm) in Q3 07. Stock is almost half it was a year ago. New CEO Cui Guangfu has a big job ahead of them to catch up with...
2. Ctrip posted a great result this quarter - beating expectations - announcing an almost doubling of profits to USD15mm for the quarter on revenues of $46mm. In a clear dig at eLong, Ctrip attributed a lot of the credit for the results to rising travel demand. Shares are similarly moving the opposite direction to eLong. But any possible conflict in signals about the market from the different results between number one and number two in China did not dissuade...
3. Lehman Brothers Private Equity Partners dropped $10mm into local meta search player Qunar.com. It was Qunar's second round of funding. First round was in the $2-3mm range with Mayfield leading that round. UPDATE - here is the alarm:clock story including information that Qunar founders Douglas Khoo, CC Zhuang, and Fritz Demopoulos had previously founded and sold the CSEEK search engine to News Corporation and founded and sold the Shawei.com portal to The Tom Group.

Busy days in China.

The turning point for eLong

Business blog Seeking Alpha's Shane Farley is convinced that the hiring of Chinese born Guangufu Cui as the new CEO is just what eLong need to reinvigorate its campaign to take on Ctrip and to bolster its comparatively flagging share price. Farely provides some interesting financial analysis of eLong particularly pointing out that while eLong has not been matching Ctrip's profitability growth it is sitting on a cash pile of $156mm and no debt. That plus a new boss, Farely argues, should be enough to help be competitive again. More of the article here.

401 not out

Time for my "not out series" - a regular summary of the last 100 posts that I first started with 101 not out and continued with 201 and 301.

Without a doubt this recent period of posts on the BOOT have been dominated by consolidation and deals:

• Lonely Planet admitted that it could not meet the challenges of the Internet on its own and sold out a majority stake to the enterprise division of the BBC;
• Opodo shed Karavel with the story being broken by an blogger from the inside;
• TUI made a bad decision in buying asiarooms and once again search traffic predicted a deal;
• the battle for Travel.com.au (who now own the lastminute.com brand outright in AU/NZ) is not yet over with Webjet and Wotif at each others throats and AOT sitting not so quietly on the sidelines;
  
• Rakuten made some healthy profits and set itself for further expansion by selling out of Ctrip;
• the Flight Centre privatisation fell in a heap in an embarrassing way for the Flighties board;
  
• rumours flew that Priceline want Travelzoo and the comments section filled up with a debate on the merits of this idea; and
  
• we have the as yet to be confirmed rumour that TravelCLICK are about to be bought.
  

In other general news

• every media outlet there is ran a story about how bad the US air industry is prompting me to run my own series of the Airline Industry brought to you by BusinessWeek, the Legal Fraternity, Wharton, NPR, the Economist and Pizza Hut. Conclusions were that the US air traveller is stuffed and no-one is taking responsibility. In fact Marion Blakely quit as head of the Federal Aviation Authority to join the peak airline lobby group the Aerospace Industries Association;
• the T-List is soon to be a book. The BOOT submitted three stories:
• UGC vs Editorial. What's better? What's the balance? What's more 2.0?;
• Helping Airlines Stay on top; and
• the fourth phase of online travel - "too much information"; and
• it looks like Dead Herring for Red Herring.
  

and in quirky news

• one muppet shouted at two others;
  
• a lion, a crocodile and a buffalo tried to sort out their differences the old fashioned way; and
• the BOOT saved the world by defusing a jar of olives.

I hope you're enjoying reading because I am enjoying writing.

Rakuten and Ctrip part company and commence battle

Japanese online powerhouse Rakuten Travel has announced that it is selling its 20.3% stake in Chinese powerhouse Ctrip for $575mm - pocketing more than $470mm in profits in three years (Reuters). Good deal. Rakuten was the largest single shareholder. Profit is not the only motive. Rakuten has been pushing its own brand in China for a at least three years. The natural expansion plans for Rakuten given its inventory and regional location has been into Korea and China. It was only a matter of time before that Chinese expansion saw Rakuten (the brand) battling head to head with Ctrip. The challenge of course in China is the one I discuss often - the fact that "online travel" really means "call centre travel" meaning that it is not a clean and easy expansion of the current Rakuten model. Not a simple matter of more hotels in China and more translated pages. But with $470mm in profits in the bank you can buy a lot of seats in a Chinese call centre.

BusinessWeek on online travel in Asia (with a China bias)

Nice read from BusinessWeek called "Asian Tourists Love to Click and Go". Interesting fact that I took from it was.

In China...Ctrip and eLong enjoy a combined market share of 72%...

We all suspected as much. Of course the article does not talk about how most of what is online in China is actually offline but still interesting.

Ctrip opens a physical store - not as revolutionary as you think

Picked up some news from the Hotel Marketing blog that Chinese market leader Ctrip.com intends to launch a physical shop front in its number one market - Beijing. Might sound strange to the casual observer that an online travel company with more than US$100mm in revenues, 50% year on year growth, stock up 50% in 6 months and years of operation would turn to offline for growth. Well the reason is buried in the definition of "online travel" in China.

In truth Ctrip has always been an offline business as defined in other markets. The online travel business in China is all about call centre sales. According to Investor's Business Daily - Ctrip has 2,000 plus people in their call centre processing customer requests and bookings at hotels and nearly 70% of all customers make a reservation by phone. This does not mean that Ctrip are a bunch of technology Luddites, in fact the contrary. They have some of the best call centre technology and customer phone tracking systems that they are. Doing all they can to build up relationships with customers to make repeat bookings easy and to track the hell out of the activities of the sales staff to make them as efficient as possible. This is not a criticism as this is what is best for growth and sales in China. But it does mean that while we can get excited about the growth of Ctrip and the potential for online travel, we have to always note that the transaction engine is drive by people and calls, not bits and boxes with flashing lights.

UPDATE - Hotelmarketing is reporting that ctrip has announced plans to open an enormous call centre (reportedly the largest in Asia) - with more than 2,400 seats (capacity of up to 5,000).