A shake-up is brewing in China’s online travel agency sector with Baidu Inc. (BIDU.US) reportedly planning to acquire a controlling stake in Ctrip.com (CTRIP.US) and merge it with Qunar.com (QUNR.US), which has been under Baidu’s control since 2011.
If the speculation becomes a reality, Baidu will control two US-listed Chinese online travel agents with a combined market capitalization of more than US$10 billion, propelling the search giant to the top of the nation’s online travel market.
Right now, Ctrip is leading the market in terms of revenue, customers and service offerings. According to iResearch, the firm holds a 50 percent market share with a gross merchandise value of 220 billion yuan (US$35.53 billion).
It is followed by eLong (LONG.US), which is partly owned by Tencent Holdings (00700.HK), and Baidu’s Qunar, which is still losing money.
Baidu has granted a US$300 million loan to Qunar for platform development, especially in the mobile field, but it is clearly not satisfied with Qunar’s performance, and this is probably why it has set its sights on market leader Ctrip.
For its part, Ctrip could be interested in a tie-up amid the rising competition in the market, especially with players backed by internet titans like Baidu and Tencent.
Last year’s bruising price war between Ctrip and eLong only served to slow revenue growth in the sector as the two leading players granted massive cash rebates and other incentives to clients to increase market share.
Ctrip was also placed at a disadvantage in online search promotions as Baidu naturally gave preferential treatment to Qunar — another reason for Ctrip to join the Baidu family.
A tie-up between Qunar and Ctrip may not be a bad thing for the current market leader. Qunar does not offer tour services; it merely provides a platform for travelers to compare prices in the market. Ctrip, on the other hand, offers its own tour packages and has offline tour operations in Hong Kong, Taiwan and North America. As such, the two players could complement each other in the business, and grab market share from smaller players.
Such a team could also expand their business under the new tourism law, which favors operators with high price transparency and product diversity. As more tourists turn to the internet to look for offers that meet their demands, leading travel agents are bound to snatch more business from traditional tour operators.
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