ChinaTravelNews——LY.com (Tongcheng Lvyou) is a leading Chinese online travel platform that specializes in weekend getaways and local sightseeing tickets. In April 2014, LY received a $200 million investment from Chinese OTA giant Ctrip, boosting the company’s profile and allowing it to expand into the much sought-after outbound travel market.
LY is led by CEO Any Wu, who started the company in 2004 and has since grown it into one of China’s top online travel sites. LY now boasts a registered capital of over CNY 114 million (USD 18.2 million) and the distinction of being named one of China’s top 20 travel sites three years running.
ChinaTravelNews’s Aaron Stewart sat down with Wu recently, who shared his views and insights into LY’s recent spat with rival Tuniu, the OTA price war, his outlook for 2015, and more.
Rivalry revisited
Back in December, Chinese travel booking site Tuniu stirred up the online travel industry by issuing an ultimatum of sorts to its suppliers: give us lower prices, or stop working with rival LY.com altogether.
According to LY.com CEO Any Wu, the effect on his company was noticeable – but temporary.
“When the decree first came out, it had a definite effect on us,” Wu told ChinaTravelNews. “But after improving our outbound business, the overall effect really went down. That’s because there are a lot of wholesalers and suppliers [in the market], so looking at the whole picture, it’s very difficult for one company to monopolize the market.”
At the time, LY vowed internally to surpass Tuniu in total customers served while spending less, all within 12 months’ time. That timeframe turned out to be ultra-conservative: LY has already at least tripled Tuniu’s business in the vacation cruise sector. The remarkable turnaround was made possible in part by the CNY 120 million (USD 19.3 million) that LY invested in its outbound tour and cruise ship services in 2014.
The other key to the quick turnaround? LY’s “weekend getaway” packages, which are shorter one- to two-day trips focused on local sightseeing. LY sold over 30 million such trips in 2014.
“And weekend getaway customers also have overseas needs,” Wu added. “So the acquired cost for our customers is far, far lower than Tuniu’s … Our weekend getaway customers are quickly becoming overseas customers.”
And LY has no plans of slowing down. According to Wu, the company is currently working with around one thousand different suppliers, a figure that doubled over the last quarter of 2014. Apparently Tuniu’s “ultimatum” didn’t produce the desired results.
As more and more players enter China’s online travel market, the competition is as fierce as ever. But CEO Wu is ready to put his company’s rivalry with Tuniu behind them.
“We’ve actually always thought, even though we’re competing with Tuniu, that they are a great company, with a lot of strengths,” he said. “We learn from them. We ourselves are always looking to learn and improve. Actually for us, if it wasn’t for Tuniu’s ultimatum, we wouldn’t want this kind of public battle to take shape.”
Paying it forward
The bad news for Wu, though, is that battles are shaping up all over the online travel landscape, wanted or not. With intra-industry investment and new competition entering the fray seemingly every week, LY has had to stay on its toes – at times with a little help from the competition.
In April 2014, LY received a $200 million investment from online travel giant Ctrip, one of the two or three biggest players in the market. The deal allows LY to tap into Ctrip’s vast hotel inventory, while LY provides its benefactor with its sightseeing ticket platform.
Now nearly a full year into the deal, Wu says the investment has been instrumental in helping LY expand and stay competitive.
“After the investment, the competition for sightseeing business between us and C-trip was eliminated,” he shared. “There was more cooperation, and that gave us more room to breathe, and we were able to make more breakthroughs. That’s because after the investment, our price war was eliminated, and we were able to go research consumers’ demands. So we believe the C-trip investment was very, very important for LY.”
Dollar deal dandy
The other big boost for LY in 2014 came from their “Dollar Deals” campaign, which offers tickets to sightseeing hotspots around the country for just one yuan (about 16 cents). The deals, though, require the use of LY’s mobile app, which has since reached a staggering 100 million downloads.
“Before our Dollar Deals in 2014, our performance in the wireless arena was really bad,” Wu said. “But with the Dollar Deals, our app downloads were flying, it increased the influence of the company, and it stimulated consumers’ demands for weekends and trips.”
Not to mention it increased cross-over sales. 50% of LY’s total outbound travel sales for the year 2014 was contributed by their 30 million weekend getaway customers.
“We found that customers who choose the relatively inexpensive weekend getaways are not without buying power, but rather … when they have a relatively long vacation, they have enough buying power to travel abroad,” Wu revealed. “Likewise, overseas travelers also choose weekend getaways on the weekends.”
Price war rages on
Those vacations abroad have quickly become a focal point of the entire OTA industry. With Chinese travelers taking an unmatched 120 million overseas trips in 2014, OTAs are eager to claim their own piece of the pie.
For Wu, that starts with taking care of their own strengths first.
“Really if we just take care of our own overseas product, and then take the next step with our weekend getaway customers, then we should be able to realize growth in the overseas travel market.”
Easier said than done. With so many power players in the market – Ctrip, Alitrip, Qunar, Tuniu, and eLong, to name just a handful – competition has devolved into a one-dimensional price war to see who can offer the lowest rates. And Wu doesn’t see it slowing down any time soon.
“We see Ctrip and Qunar having a price war in the hotel sector. Us and Tuniu will have a more intense rivalry in overseas travel,” Wu predicted. “We’ll also see some new competition like Meituan continually monitoring and entering the market. So I feel like we’ll see even more intense competition in the whole OTA market in 2015.”
Of course, competition is not always a bad thing.
“We feel like this kind of competition can help us maintain a faster pace, maintain a sharper market image,” Wu added. “It also raises the team’s fighting spirit. We feel like it’s a very good thing.”
As for LY’s role in the current price war into 2015 and beyond, Wu would rather be engaged in something a little more productive – and potentially profitable.
“We won’t get involved in a malicious price competition, but we would get involved in a ‘creative business model’ price war,” he surmised. “If we discover an opportunity to use creative methods to realize our growth, like the Dollar Deals, then we would do something like that.”
2015 and beyond
So while Dollar Deals were the hot commodity in 2014, what will emerge as the winning trend in 2015?
Wu believes the answer lies in third-party partners, such as banks, that could offer deals or discounts for consumers who use their products (in this case, payment methods) while booking or enjoying travel.
“Everyone’s going to try third-parties, like banks, that could offer reimbursements or discounts,” Wu said. “Using this method to reduce consumers’ costs, I think there will be more of that in 2015. Besides banks, there will be other third-parties brought into a new price war by OTAs. I believe we’ll focus more on that aspect.”
LY’s principal focus, however, at least for now, remains on retaining its own customers.
“We will explore the key internet-based route from sightseeing tickets to weekend getaways to overseas travel, to maximize the cross-sales between customers,” he said.
That might be easier said than done. The competition for outbound travel is as fierce as it’s ever been, and even market leader Ctrip admitted it likely incurred losses in the final quarter of 2014. That prospect makes it seem even more unlikely for an upstart like LY to turn a profit, but Wu is not deterred.
“Every area is very competitive, [but] less than 10% of China’s online travel [market] is occupied, so there are still enough opportunities and space in the market,” he said.
Despite the challenges that lie ahead, Wu and LY are determined to forge onward, and with the market ripe for more growth, who can blame them.
“Our goal for 2015 still hasn’t changed,” Wu said. “We’ve already confirmed our strength in outbound travel. We realized our influence and share in 2014. From weekend leisure to holiday getaways, we’re going to cover everything.”(Report By Aaron Stewart)
