ChinaTravelNews, Charlie Li – Although the merger of Ctrip and Qunar may seem a bit sudden it is an inevitable outcome of a protracted war between both OTAs and doesn’t come as a surprise to anyone in the industry.
Qunar: the final peice for Ctrip?
Qunar’s announcement that it had sold a record 500,000 room-nights on a single day on October 1, only meant its business model of making one yuan profit by spending two would eventually lead to record losses, even in the peak booking period of Q3.
With Qunar’s losses spinning out of control, its major shareholder Baidu was forced to act quickly to rid itself of the OTA that was bleeding cash, especially given the new threat by the merger of Meituan and Dianping on October 8.
Ctrip and Baidu’s management and legal teams have arranged the transaction to avoid the merged Ctrip and Qunar’s market share being classified as a monopoly and Ctrip’s holding of only 45% voting rights in Qunar could help dodge government anti-trust investigation.
Though Ctrip only takes four seats in Qunar’s nine-seat board, with the other seats held by Baidu’s CEO Robin Li, Qunar’s CEO CC Zhuang and three independent directors, there is no denying that Ctrip will have absolute control over Qunar’s operations, at the behest of Baidu, to lead the ailing OTA’s development and arrest its runaway losses.
The fate of Qunar’s CEO CC Zhuang and his management team was not mentioned in the transaction announcement but Mr. Zhuang’s departure would seem an agreeable conclusion for Ctrip’s takeover.
How can Ctrip turnaround a floundering Qunar?
Over the last two years, James Liang has taken the helm of a battered Ctrip and led the OTA to its current uncontested position in an amazing comeback. He led Ctrip in its investments in the smaller OTAs LY.com and Tuniu, followed up by the acquisitions of its main rival OTAs eLong and Qunar.
He also accepted investment by global giant Priceline. His epic battle with fellow Shanghai native and nemesis CC Zhuang has captured the attention of those in China’s online travel industry.
As the new master of Qunar, Ctrip must first tackle the former rival’s colossal losses that have ballooned at the rate of RMB800 million per quarter. It is the biggest challenge Ctrip has ever faced in all of its investments and acquisitions.
Practically, it would be far easier for Ctrip to cut Qunar’s direct sales service for hotels and replace it with its own products and technology than to try to restructure Qunar’s hotel direct sales and destinations ground service teams that have thousands of staff members.
A wake-up call for OTA-reliant airline and hotel industries
Ctrip’s acquisition of eLong five months ago caused a stir in the hotel industry, and the two OTAs proceeded to use hotel operations as the key battleground to corner Qunar. Now that Ctrip has acquired Qunar, there are even fewer players in China’s OTA segment. Hotels now find themselves negotiating with only one major OTA instead of enjoying even distribution between three major channels as in the past.
Airlines are also in dire straits as Ctrip and Qunar together control 50% of air ticket distribution channels, be it on airlines official websites, distribution channels or B2B distribution platforms.
It is certain that Ctrip will have a strong leverage on price negotiations with hotel suppliers, though it’s hard to say to what degree, as there are still new contenders with deep pockets like Alitrip and the newly merged Meituan-Dianping quietly waiting for their chance to pounce.
The bar is raised for startups
The Ctrip-Qunar merger isn’t good news at all for startups, as this only means the strong becomes stronger and there is one fewer potential investor for them. Their only chance to try to score a home-run by raising their game high above the competition.
Ctrip’s trouncing of Qunar also serves as a lesson to startups that even with the backing of “well-heeled patron” with deep pockets and heavy traffic feed from, the tactic of throwing away cashbacks and subsidies doesn’t help build core competitiveness and sustainable growth. Instead, the key to success or failure lies in building up a comprehensive and effective product procurement system and strong offline management.
As the final chapter of the bitter rivalry between Ctrip and Qunar ends, the next question to consider is: Who will be the next challenger to an all-powerful Ctrip?(Translation by David)
