China’s largest online travel group Ctrip recently made headlines when it increased its ownership in Indian online travel company MakeMyTrip to 49 per cent, paving the exit for early investor South Africa-based media group Naspers Limited.
“We are going through the startup phase for the third time,” Jane Jie Sun, CEO at Ctrip, told DEALSTREETASIA in an interaction. “The first was when we started Ctrip as a company. The second was during the mobile revolution. Today, it is the third – Ctrip is going global,” she added.
Ctrip is increasingly adopting the inorganic route to stave off competition and expand its operations globally.
The company has added names such as UK travel search site Skyscanner (acquired for $1.7 billion in 2016) and US travel discovery app Trip.com (acquired in 2017 for an undisclosed amount) in the international market. Back home, it announced a tie-up with rival Qunar Cayman Islands Ltd in 2015 to tap the rising number of Chinese travelers heading overseas.
Going forward, the company is open to partnerships and collaborations in Southeast Asia, said Sun. This is even as she cautioned that valuations in the region are skyrocketing.
“Valuations in Southeast Asia are very high, especially in the private market,” said Sun. “I think because of the interest in emerging markets, VCs and PEs are valuing startups much higher than our benchmarks…It’s a money losing market when valuations are way ahead of their operations.”
Ctrip typically targets leading travel companies – in different markets – riding on reasonable valuations.
“It’s not easy to find such companies,” said Sun, adding: “You need to be very patient, disciplined and do very careful analysis about your position before going in.” Timing, she cautioned, is extremely important. “The investment we made in Skyscanner for example, was closed within one month – very quick.”
Sun also highlighted that it is important to look beyond total population figures when assessing market capability. Indonesia, for instance, has a sizeable population of 270 million but its GDP per capita is still less than half of China. According to IMF statistics, China’s GDP per capita is at $10,150, while Indonesia is at $4,120.
“(It’s only) when GDP per capita reaches 60,000 RMB ($8,676) per person, that it becomes a market worth getting into. It’s when you reach that level when people start to travel,” said Sun.
She, however, added that the company also looks at flight frequency, the number and types of hotels in its target market before choosing to enter or invest in it.“The business model (today) has certainly evolved quite a bit. At Ctrip, we’ve never used investor money. It was always self-generating revenue,” said Sun.
In the first quarter of 2019, as much as 35 per cent of Ctrip’s group revenue came in from its international business. Going forward, over the next 5-10 years, the company expects to figure to go up to 50 per cent.
Today, Ctrip is the largest online travel agency in China, second largest in the world after the US-based Booking Holdings. Last year, the company generated over $105 billion in annual gross merchandise value (GMV), to make up over 60 per cent of the marketshare in the country.
The company has come a long way since its inception in 1999. Founded by James Liang, Neil Shen and Min Fan, Ctrip began as a travel comparison site serving inbound and outbound travelers from mainland China. It started with hotel bookings and later branched into flights, tour packages, bus and train tinckets.
However, it’s not time yet for the company to be complacent as the breakthrough in technology and high-speed internet over the past years has increasingly changed the contours of travelling, thereby opening up several business opportunities for corporates.
While Chinese tech giant Meituan Dianping is now offering hotel room listings, in addition to rides and food delivery, on its superapp, Alibaba’s online travel agency platform Fliggy provides plane tickets, hotel booking services, tour guide services, visa application service, among others. The latter recently launched an e-commerce portal to make the shopping experience of Chinese tourists seamless.
Smaller players, too, have begun to take a fancy to the booming travel and tourism sector. Last month, Chinese travel site Mafengwo announced a $250 million capital raise, led by Tencent, to expand into the online travel market.
All in all, it’s becoming a problem of plenty in the travel and tourism sector where too many players are mushrooming, and those who can be the game changer will eventually rule the market.