Bottom line: Qunar’s new airline investment is unlikely to offset its shrinking access to tickets from major airlines, while Ctrip’s new purchase of a strategic stake in Uzai.com extends its strategy to eliminate competitors through such tie-ups.
China’s rapidly consolidating travel services sector is taking an interesting new twist onto the runway, with word that number-two website Qunar (Nasdaq: QUNR) is joining a group launching a new airline. At the same time, separate media reports are saying that industry industry leader Ctrip (Nasdaq: CTRP) has just neutered another rival using its recent approach of buying a strategic stake in the company.
Both of these stories point to the growing clout of Ctrip and Qunar, which were once bitter rivals but became a de facto single company last year after a landmark equity tie-up. I have long called for consolidation in China’s highly fragmented travel services sector, but now sense that Ctrip is looking increasingly like a monopoly after its recent buying spree that has seen it buy up strategic stakes in most of its major rivals.
We’ll return to Ctrip shortly, but let’s begin this travel round-up with Qunar, which is the more interesting of these 2 new stories. The reports say that Qunar is one of several investors in a new airline that would be based in the southern boomtown of Shenzhen. Qunar would also provide technology to offer the new carriers tickets via its popular online platforms. (Chinese article)
One report implies the most likely target of Qunar’s investment would be Qianhai, an airline now being set up by the local Baoneng Group. There’s no additional comment on the new airline, but presumably it would become the latest of a recent flurry of new budget carriers being launched in China as Beijing opens up the aviation sector to more private investment.
This particular investment comes as China’s big state-run airlines are becoming increasingly stingy with the third-party agents who sell their tickets. In the latest step in that trend, media reported last week that China Southern (HKEx: 1055; Shanghai: 600029), the nation’s largest carrier, was withholding all of its lowest-cost tickets from third-party agents and would offer such deals only on its own website. (previous post)
Thus some are interpreting Qunar’s move as the agents’ response to the big airlines, in a bid to gain exclusive access to tickets from an airline they control. I certainly welcome the entry of more airlines to break the lock on the market held by the big state-run carriers. But that said, I doubt this new airline alone will pose much threat, nor will it provide much new business for Ctrip and Qunar to offset access they’re losing to the big airlines.
Global Travel Specialist
Next there’s the news that has seen Ctrip just complete its purchase of a strategic stake in Uzai.com, a website that specializes in services for Chinese traveling abroad. (Chinese article) Ctrip made the investment through a third party, though there’s no specifics on the amount or what stake it will now hold in Uzai.com.
The same reports point out that Uzai is just the latest investment in a rival by Ctrip. The company is already an investor in most of the industry’s major players, including not only Qunar, but also Tongcheng, New York-listed Tuniu (Nasdaq: TOUR), and the privatizing eLong (Nasdaq: LONG). Ctrip has also invested in the cruise business, and would also become a de facto shareholder in the new airline being backed by Qunar.
From a shareholder’s perspective, all these developments certainly look good for Ctrip. Before its recent string of tie-ups, the sector was a constant state of price wars that hurt everyone’s bottom line and even pushed Qunar deeply into the red. With that competition now rapidly disappearing, we could see Ctrip’s profits start to accelerate, even though there’s always the small possibility the anti-monopoly regulator could take action to stop the company from becoming too dominant.
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