TRAVEL: China Southern Joins Airlines Boycotting Qunar

Bottom line: China Southern’s removal of its air tickets from Qunar represents the latest boycott by a major supplier, and will further deprive Qunar of a key revenue source, causing its losses to further widen.

China Southern dumps Qunar

The bumpy ride for China’s online travel services sector continues this week, with word that leading airline China Southern (HKEx: 1055; Shanghai: 600029) is withdrawing all of its tickets from Qunar (Nasdaq: QUNR) due to a high volume of customer complaints. China Southern is just the latest airline to make such a move on Qunar’s site, following in the path of rivals Air China (HKEx: 753; Shanghai: 601111) and Hainan Airlines (Shanghai: 600221).

This particular series of boycotts marks the latest flare-up in an increasingly tense relationship between online travel sites and the airlines and hotels that are their biggest suppliers. Just last month China Southern reportedly decided to withhold its cheapest tickets from all travel agents. And major hotel operators last year formed a group to counter the increasing clout of Qunar and Ctrip (Nasdaq: CTRP), the industry’s top 2 players that are now allies after forming a major equity tie-up last year.

Among China’s major travel sites, Qunar is particularly vulnerable to customer complaints due to a business model that sees it operate an online platform that brings together travelers and third-party travel agents. That means that agents can post whatever they want on Qunar’s site, including air ticket and hotel room rates that are higher than the actual prices. The agents can then pocket the difference as some additional profit.

In response to that kind of cheating, some airlines have taken the unusual step of printing out ticket prices on boarding passes when fliers check in at the airport. That allows customers to see how much their ticket actually cost, and to catch any discrepancies between that figure and what they paid to a travel agent like the ones on Qunar.

Complaints arising from such discrepancies were apparently a major factor behind China Southern’s latest request, which asked that all of its tickets be removed from Qunar’s site by March 15. (Chinese article) The airline took its action after receiving 79 complaints about tickets booked on Qunar in the first 2 months of this year alone. China Southern had threatened such a move as early as January (previous post), and is the ninth major airline to recently ban its tickets from sale on Qunar.

Getting Squeezed

I do find the timing of this flurry of bans a bit puzzling, since Qunar’s business model hasn’t changed since the company’s founding. But one thing that is rapidly changing is the squeeze that many independent travel agents are feeling, which may be causing more to engage in this kind of deceptive behavior. Those agents are getting squeezed by the airlines, hotels, and online platforms like Qunar, which are all lowering the commission fees they pay due to stiff competition. 

Qunar is under intense pressure to improve its bottom line, after years of posting losses that only seem to be getting bigger each year. That pressure ultimately drove Qunar to form its strategic alliance with Ctrip last year, in a landmark deal that saw the companies form an equity tie-up and end their years of bitter rivalry. Before the tie-up Qunar’s losses were still widening steadily, and in its latest reporting quarter its loss widened by 30 percent to 735 million yuan ($113 million).

Qunar will report its latest quarterly results later this week, and all eyes will be looking to see if it can finally start to reduce its losses. An executive in charge of its airline ticket sales was quoted in the media telling employees his company was partly to blame for the latest clash and needs to communicate better with the airlines. (Chinese article) That seems like a big understatement, as Qunar rapidly loses access to air tickets that are one of its largest revenue sources.

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