AI
Tuesday, May 17, 2011 10:48:45 AM
CTRP / LONG: online travel industry in China
China's online distribution lags other markets: HotelNewsNow.com
April 29th, 2011
REPORT FROM CHINA—While the Chinese government lures international 5-star hotel brands, the lower-tier hotel market is expanding into secondary and tertiary cities throughout China to meet the demand needs of a new, domestic traveler. Simultaneously, the online distribution space is adapting to connect that emerging consumer with increasing hotel supply.
For the most part, the Chinese traveler uses the Web to search for travel but calls a reservation center to book. China has a service-oriented culture, which lends itself to communicating over the phone to make purchases. But the penetration rate of online transactions is growing very quickly, at about 50% per year, according to Fritz Demopoulos, CEO of Qunar.com, a travel metasearch company similar to Kayak.
“It is estimated that about 12% to 15% of tickets and rooms are booked online in China,” he said. Of that online market, approximately 70% to 80% of transactions are done through third-party intermediaries versus supplier direct, he said.
To capitalize on that growth, hotels are ensuring they have the right online infrastructure in place. Best Western International, which licenses 31 hotels in China and has another 41 in the pipeline, emphasizes distribution service and support to its licensees. The company has regional service managers who work with the hotels daily to manage the available channels, said William Dong, Best Western China president and CEO.
China’s online travel market during the first quarter this year exceeded US$2 billion in revenue from third-party online travel agents, up 4.7% compared to the fourth quarter of 2010, according to China Internet Watch. CTrip remains the No. 1 OTA in China, capturing 47% of online bookings in the first quarter. The next closest is Elong.com, owned by Expedia, which captured 8% of the online booking market.
“CTrip stands out above all other OTAs,” Demopoulos said. “Emerging players include Alibaba’s Taobao and Expedia's Elong. Booking.com and Agoda are making headwinds, albeit slowly. Other good but small domestic players include Etpass and Mangocity.”
There are other travel-related websites for overall travel search (Qunar) and packaged deals (Tuniu, Uzai). There is no market yet for vacation rentals, Demopoulos said.
OTA model in China
The economics of OTAs are slightly different than in the U.S. in that most OTAs operate on a simpler commission-based model that is more cost-effective for hotels, said Ken Greene, president and managing director, APAC region, Wyndham Hotel Group, which had 301 hotels in China at the end of 2010. Wyndham has outsourced its in-country call center to Elong and representatives at the OTA are trained to answer as representatives of the Wyndham brands.
“There are ways to work with the third parties that hasn’t been done in the U.S.,” Greene said of China.
Both Wyndham and Best Western reported having strong relationships with domestic OTAs, although Greene is slightly concerned Ctrip seems to be taking steps toward creating its own brand. Although BestWestern.com is slowly losing its share of traffic to the third-party channels in China, Dong said technological roadblocks remain in the way rates and availability are communicated.
“They don’t have a proper channel to communicate with the hotel,” he said. “The feeder system isn’t quite up and running, so we have experienced some difficulty.”
Demopoulos said the success of the hotel-OTA relationship in China depends on whom you ask. On one hand, the larger chains are frustrated at the lack of flexibility and limited negotiation power, he said. On the other hand, independent hotels, which make up approximately 65% of the Chinese landscape, like the volume provided by the high quality OTAs.
“Exceptions to that include the emergence of budget chains, such as (Home Inns & Hotel Management), (7 Days Group Holdings Limited) and (China Lodging Group), which sell a significant portion of their inventory directly,” he said. “The big international guys are also gaining leverage. Over time, we'll see more leverage as direct channels gain traction.”
“The agency distribution space is dominated by Ctrip even more so than Expedia in the U.S., and hotels are incredibly thankful,” added Brett Henry, online distribution analyst and VP of marketing for Abacus, a form of GDS in China owned in a joint venture by Sabre. “I would say the tension is not quite like it is in the U.S. While people are concerned, no one’s trying to take action. Any time someone has control over so much of your market you’re going to be concerned.”
Third-party intermediaries
Outside of selling rooms, Chinese hoteliers are not as active on the Internet as in other markets. Nearly every OTA and metasearch player has a substantial peer review service, but there is no dominant player like TripAdvisor in the U.S.
Most social networking is regulated by the Chinese government; Facebook is not accessible. Very few of the Western brands with a presence in China have invested enough in social media to begin leveraging it, but some of the smaller domestic China properties are using it very effectively, Henry said.
“In terms of how many hotel brands are leveraging social media to drive bookings in China, it is very, very low,” he said. “Jin Jiang and Home Inns—yeah they’re all over it.”
Wyndham is beginning to strategize around specific social media sites in China, Greene said, but it remains difficult because the traditional global networks are unavailable.
“There are some domestic social websites and those we’re trying to exploit,” he said. “Quite frankly, those are big markets. There’s a big site where people aggregate purchasing power and are doing volume buys on merchandise. It’s a pretty big avenue for us to market; we just haven’t done it yet.”
Dong said Best Westerns in China uses a property-management system that collects comments, but, because of several disconnects, most hotel managers don’t know how to handle them properly.
The use of mobile technology to search and book travel still has a low penetration rate in China, Demopoulos said. Ctrip and Qunar have had success with their mobile sites, he said, but during a recent earnings call, Ctrip said the channel is “immaterial at this point.”
“This actually has not started looking positive in China yet because the system owner is the government,” Dong said.
Mobile spam is more prevalent in China than in the U.S., Dong said, and on any given day he’ll receive more than 100 spam text messages. Therefore, Best Western avoids contacting consumers via the mobile device, because it could give the wrong perception and damage the brand’s credibility, he said.
China's online distribution lags other markets: HotelNewsNow.com
April 29th, 2011
REPORT FROM CHINA—While the Chinese government lures international 5-star hotel brands, the lower-tier hotel market is expanding into secondary and tertiary cities throughout China to meet the demand needs of a new, domestic traveler. Simultaneously, the online distribution space is adapting to connect that emerging consumer with increasing hotel supply.
For the most part, the Chinese traveler uses the Web to search for travel but calls a reservation center to book. China has a service-oriented culture, which lends itself to communicating over the phone to make purchases. But the penetration rate of online transactions is growing very quickly, at about 50% per year, according to Fritz Demopoulos, CEO of Qunar.com, a travel metasearch company similar to Kayak.
“It is estimated that about 12% to 15% of tickets and rooms are booked online in China,” he said. Of that online market, approximately 70% to 80% of transactions are done through third-party intermediaries versus supplier direct, he said.
To capitalize on that growth, hotels are ensuring they have the right online infrastructure in place. Best Western International, which licenses 31 hotels in China and has another 41 in the pipeline, emphasizes distribution service and support to its licensees. The company has regional service managers who work with the hotels daily to manage the available channels, said William Dong, Best Western China president and CEO.
China’s online travel market during the first quarter this year exceeded US$2 billion in revenue from third-party online travel agents, up 4.7% compared to the fourth quarter of 2010, according to China Internet Watch. CTrip remains the No. 1 OTA in China, capturing 47% of online bookings in the first quarter. The next closest is Elong.com, owned by Expedia, which captured 8% of the online booking market.
“CTrip stands out above all other OTAs,” Demopoulos said. “Emerging players include Alibaba’s Taobao and Expedia's Elong. Booking.com and Agoda are making headwinds, albeit slowly. Other good but small domestic players include Etpass and Mangocity.”
There are other travel-related websites for overall travel search (Qunar) and packaged deals (Tuniu, Uzai). There is no market yet for vacation rentals, Demopoulos said.
OTA model in China
The economics of OTAs are slightly different than in the U.S. in that most OTAs operate on a simpler commission-based model that is more cost-effective for hotels, said Ken Greene, president and managing director, APAC region, Wyndham Hotel Group, which had 301 hotels in China at the end of 2010. Wyndham has outsourced its in-country call center to Elong and representatives at the OTA are trained to answer as representatives of the Wyndham brands.
“There are ways to work with the third parties that hasn’t been done in the U.S.,” Greene said of China.
Both Wyndham and Best Western reported having strong relationships with domestic OTAs, although Greene is slightly concerned Ctrip seems to be taking steps toward creating its own brand. Although BestWestern.com is slowly losing its share of traffic to the third-party channels in China, Dong said technological roadblocks remain in the way rates and availability are communicated.
“They don’t have a proper channel to communicate with the hotel,” he said. “The feeder system isn’t quite up and running, so we have experienced some difficulty.”
Demopoulos said the success of the hotel-OTA relationship in China depends on whom you ask. On one hand, the larger chains are frustrated at the lack of flexibility and limited negotiation power, he said. On the other hand, independent hotels, which make up approximately 65% of the Chinese landscape, like the volume provided by the high quality OTAs.
“Exceptions to that include the emergence of budget chains, such as (Home Inns & Hotel Management), (7 Days Group Holdings Limited) and (China Lodging Group), which sell a significant portion of their inventory directly,” he said. “The big international guys are also gaining leverage. Over time, we'll see more leverage as direct channels gain traction.”
“The agency distribution space is dominated by Ctrip even more so than Expedia in the U.S., and hotels are incredibly thankful,” added Brett Henry, online distribution analyst and VP of marketing for Abacus, a form of GDS in China owned in a joint venture by Sabre. “I would say the tension is not quite like it is in the U.S. While people are concerned, no one’s trying to take action. Any time someone has control over so much of your market you’re going to be concerned.”
Third-party intermediaries
Outside of selling rooms, Chinese hoteliers are not as active on the Internet as in other markets. Nearly every OTA and metasearch player has a substantial peer review service, but there is no dominant player like TripAdvisor in the U.S.
Most social networking is regulated by the Chinese government; Facebook is not accessible. Very few of the Western brands with a presence in China have invested enough in social media to begin leveraging it, but some of the smaller domestic China properties are using it very effectively, Henry said.
“In terms of how many hotel brands are leveraging social media to drive bookings in China, it is very, very low,” he said. “Jin Jiang and Home Inns—yeah they’re all over it.”
Wyndham is beginning to strategize around specific social media sites in China, Greene said, but it remains difficult because the traditional global networks are unavailable.
“There are some domestic social websites and those we’re trying to exploit,” he said. “Quite frankly, those are big markets. There’s a big site where people aggregate purchasing power and are doing volume buys on merchandise. It’s a pretty big avenue for us to market; we just haven’t done it yet.”
Dong said Best Westerns in China uses a property-management system that collects comments, but, because of several disconnects, most hotel managers don’t know how to handle them properly.
The use of mobile technology to search and book travel still has a low penetration rate in China, Demopoulos said. Ctrip and Qunar have had success with their mobile sites, he said, but during a recent earnings call, Ctrip said the channel is “immaterial at this point.”
“This actually has not started looking positive in China yet because the system owner is the government,” Dong said.
Mobile spam is more prevalent in China than in the U.S., Dong said, and on any given day he’ll receive more than 100 spam text messages. Therefore, Best Western avoids contacting consumers via the mobile device, because it could give the wrong perception and damage the brand’s credibility, he said.
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