Home > > Despite headwind, Qunar triples its mobile revenue, bets on merchant model

Despite headwind, Qunar triples its mobile revenue, bets on merchant model

08/26/2015| 8:51:34 AM|

Qunar has said that it is “closing the gap” with market leader Ctrip and that leisure travel in China is “immune” to the recent slowdown in the country’s growth.

Tnooz, Martin Cowen - China’s second biggest OTA Qunar has said that it is “closing the gap” with market leader Ctrip and that leisure travel in China is “immune” to the recent slowdown in the country’s growth.

Qunar's app

The OTA’s Q2s came in ahead of expectations, with bosses highlighting some operational successes alongside a financial performance which means Qunar is now the fourth largest e-commerce business in China after Alibaba, JD.com and Ctrip.

One highlight of the quarter was the success of an offline marketing campaign. CEO Chenchao Zhuang said the campaign helped Qunar to attract more new users in the first six months of this year than it did during the whole of 2014.

CFO Yilu Zhao added that, in the past three months, 13 million people used Qunar for the first time.

Mobile revenues for the quarter were RMB600.1 million (US$96.8 million). This is more than 300% higher than the same period last year, with mobile accounting for 68% of total revenues, compared with 36% before. Mobile accounted for more than half of its flight revenues and 85% of hotels.

Zhao told analysts on the earnings call that the new users who came to Qunar via its offline campaign were higher-spending and more valuable to the business than those it acquired via online channels. It is looking to add products and services to increase user frequency.

Working with third parties is also part of this plan to increase engagement with existing users. Zhuang mentioned its revamped relationship with its majority shareholder Baidu. Specifically, Qunar’s hotel inventory is now integrated into Baidu maps.

Baidu will also help Qunar capture business from the offline-to-online (O2O) shift taking place in China.

And there still remains room within the core business to grow.

Zhao explained that his company was looking at increasing the average number of room nights it can generate for its hotels on its direct network. In the past quarter it averaged 49 room nights per hotel, triple the number in the same quarter last year but “relatively low compared with our global peers who are averaging 200 rooms per hotels per quarter”.

Qunar also said that it will introduce the merchant model into its hotel line-up.

This piqued the interest of the analysts on the call, despite Zhuang and Zhao insisting that it would be a very small part of its overall hotel business. Taking inventory risk on the properties will impact some financial metrics but the aim for Qunar is to increase the range of high end hotels on its books, with “exclusive pricing, exclusive inventory.”

“We have a comprehensive model to measure the risk-reward for merchant model hotels and we will approach it in as a selective and strategic way,” said Zhao.

When asked about the competitive landscape in China, Zhuang said that, if anything, Ctrip’s link-up with eLong would benefit Qunar, with the emphasis again on upmarket properties

“We’re actually seeing more hotels come to us post Ctrip/Elong because they see us as the largest alternative distribution channel. Our four and five star hotel business grew rapidly in the second quarter and we are  closing the gap very quickly. The [Ctrip/eLong] deal wont make us change our course.”

Similarly, Qunar is unphased the slowdown in China’s economy. Zhuang said that when this happened in 2008/9 Qunar was able to record a “super-hyper-growth rates” as a result.

Of the current situation,” he said:

“Leisure travel has not been affected that much. When household incomes reach $8,000 you hit the sweet spot for leisure travel and demands seems to be inelastic. We have a reputation for the best value product so that will also be a benefit.”

Similarly, the devaluation of the Chinese currency might work in its favour.

Zhao explained:

“International is growing at triple-digit rates every quarter but it’s still  only a small part of our business. The majority of outbound travel is to other countries in Asia, and depreciation of other currencies in Asia is steeper, so we may actually benefit from the global currency situation.”

Finally, in terms of its M&A strategy, she said:

“We evaluate opportunities in the market very actively an ROI driven manner, be it an investment or for organic growth. There are no material opportunities in the market now nor are we in any active discussion that we should disclose to the market.”

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TAGS: Qunar | CC Zhuang | Yilu Zhao | mobile
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