10 December 2018
A new generation of upwardly mobile Chinese business and leisure travelers has raised demand for hotels
A new generation of upwardly mobile Chinese business and leisure travelers has raised demand for hotels

Cashed-up TongCheng armed for online travel dogfight

Reports of major new funding for online travel site TongCheng are putting the spotlight on a sudden rise in competition for the sector, which for years was dominated by industry leaders Ctrip (Nasdaq: CTRP) and eLong (Nasdaq: LONG). The trend looks a bit worrisome, hinting at a looming round of price wars and potentially some consolidation. Ctrip could well become a leader of such consolidation if it occurs, since the company now has a huge cash pile of nearly US$2 billion following its raising of US$800 million through a highly popular convertible bond offer last fall.

But, let’s look at TongCheng, which has just received 500 million yuan in new funding, equating to about US$85 million. Investors behind the new financing include internet heavyweight Tencent (HKEx: 700), as well as Chinese investment firms Boyu Capital and Oriza Holdings. The latest reports cite TongCheng executives saying the company’s longer-term plan is to remain independent and eventually launch an IPO.

This latest fund raising adds yet another major player to China’s increasingly crowded online travel services space. Ctrip has been the undisputed leader since its founding more than a decade ago and New York listing in 2003, but faced competition from eLong, a rival backed by US online travel giant Expedia (Nasdaq: EXPE). The pair feasted on rapidly growing demand for hotels, air tickets and vacation packages from a new generation of upwardly mobile Chinese business and leisure travelers.

Sensing that huge opportunity, major new players have piled into the market over the last five years. One of the earliest new arrivals was Qunar (Nasdaq: QUNR), which attracted a US$300 million investment from online search leader Baidu (Nasdaq: BIDU) in 2011. Qunar went on to raise US$167 million in a highly successful New York IPO late last year, and its shares have nearly doubled since then. The offering’s huge success was even more remarkable since the company is still losing money, following a series of price wars and heavy spending on its own aggressive expansion.

Also last year, leading e-commerce firm Alibaba made headlines when it made an unspecified strategic investment in another travel site,, as it looks to build up service offerings on its popular e-commerce platforms. China’s second-largest e-commerce firm, which is preparing to make a New York IPO, also launched its own online travel services site in 2012. This latest news means that China’s three leading internet sites — Alibaba, Baidu and now Tencent — have all made major investments in travel services firms.

All three of those companies have very deep pockets, and have collectively spent billions of dollars on new acquisitions over the past year in an unprecedented wave of consolidation for China’s overheated internet space. The recent investments mean that many of these younger travel services companies can probably count on new funding from their cash-rich older patrons to fuel their future growth, which could trigger a new price war in the months ahead as everyone tries to gain market share.

Such competition is quite typical for China, though I do expect we will ultimately see some consolidation as the growing field of players and their wealthy backers realize that partnerships are needed to ensure long-term viability.

Ctrip looks like the most likely to lead such consolidation, and I could envision its acquisition of either Qyer, TongCheng or perhaps another smaller player in the next year. Qunar could also make a purchase with help from Baidu, although the company is unlikely to target rivals backed by another major Chinese internet firm. In the meantime, look for margins to come under pressure for all of the players, as we head into a new round of travel price wars.

Bottom line: A new round of price wars is likely in the year ahead for online travel agents, fueled by aggressive expansion of a new group of players backed by China’s top internet companies.


A commentator on China company news and associate professor in the journalism department of Fudan University in Shanghai. Follow him on his blog at

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