Bottom line: Qunar’s management overhaul marks the start of a new chapter as a partner of former arch-rival Ctrip, while its dispute with 2 major airlines reflects challenges it will face due to its open platform business model.
Online travel giant Qunar (Nasdaq: QUNR) is experiencing a turbulent new year, announcing a major overhaul that will see 3 of its top managers depart. The shake-up is the first big fallout following a landmark tie-up with former arch-rival Ctrip (Nasdaq: CTRP) last year, and looks aimed at stripping Qunar of its independence as it gets set to work more closely with its former foe.
Meantime, Qunar is also feeling some turbulence due to a dispute with 2 of China’s largest airlines. That spat has China Southern (HKEx: 1055; Shanghai: 601766) and Hainan Airlines (Shanghai: 600221) both reportedly blocking their tickets from being sold on Qunar’s websites. The airlines’ noise is the latest in a growing chorus of discontent from companies whose travel products and services are sold by Qunar and its rivals.
News of the management shake-up and airline dispute spooked investors when markets reopened after the New Year’s weekend, with Qunar shares tumbling nearly 17 percent when markets reopened after the holiday. The bigger backstory behind both of these tales is the sudden rapid consolidation in China’s online travel services sector. That has seen Ctrip, the sector’s oldest and largest player, acquire strategic stakes in most of its former major rivals, in a buying spree that culminated with its landmark equity tie-up with Qunar last October. (previous post)
Following the consolidation, Ctrip has begun installing its own choices in the top positions of former rivals, and the rampant price wars that used to characterize the sector have eased sharply. That sudden disappearance of competition has alarmed travelers, who are seeing prices rise. Also worried are product providers, who are seeing their own profits dwindle as Ctrip and its new allies act in unison and demand more concessions.
The shake-up in Qunar’s top management and in its board room is the direct result of the Ctrip tie-up last year, and has Qunar announcing the installation of new executives in the positions of CEO, CFO and COO. (company announcement; Chinese article) Among the many changes announced, the most significant are the departure of Qunar’s co-founder and CEO Zhuang Chenchao, and the installation of Ctrip’s founder and chief James Liang to Qunar’s board.
I should point out that all 3 of the newly named top managers were promoted within Qunar and aren’t outsiders, meaning this isn’t an outright takeover of Qunar’s executive offices by Ctrip. But the departure of the company’s 3 top executives and Liang’s installation on Qunar’s board certainly signals a “new beginning” for the company, which will now work closely with Ctrip as a partner rather than rival.
Next there’s the news that saw China Southern and Hainan Airlines both refuse to allow their tickets to be sold on Qunar shortly before the New Year. (Chinese article) News reports called the move temporary, and a check of Qunar today shows that tickets from both carriers are now for sale again on the site.
The reports cited the airlines’ unhappiness about a growing number of complaints from customers who purchased their tickets on Qunar. A number of other airlines joined in later with similar actions. (Chinese article) Unlike many traditional travel sites, Qunar doesn’t directly sell air tickets to travelers but operates a platform where independent agents can offer such tickets. Thus these kinds of disputes can happen more easily, since Qunar has relatively little control over the products being sold on its site.
This particular dispute comes 2 months after several major hotel operators banded together to protest what they saw as increasingly unreasonable demands from the increasingly powerful Ctrip. (previous post) This kind of protest against Ctrip, Qunar and other Ctrip-invested companies like Tongcheng are likely to increase in the year ahead, reflecting growing concerns about the loss of competition in a market that is looking more and more like a monopoly.
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