Date
23 October 2017
Chinese trip-booking sites have benefited from a boom in overseas travel, but profits have been squeezed by price competition. Photo: Bloomberg
Chinese trip-booking sites have benefited from a boom in overseas travel, but profits have been squeezed by price competition. Photo: Bloomberg

Ctrip, Qunar merge as biggest online travel service in China

Shares of Ctrip.com International Ltd. and Qunar Cayman Islands Ltd. jumped in US trading after the companies agreed to a merger.

The union created the dominant online travel service in China in a deal that may ease price competition that has crimped profits, Bloomberg News reported.

Ctrip rallied 22 percent to a record close of US$90.78 in New York on Monday. Qunar advanced 7.9 percent to US$42.65, the highest since Aug. 10 on trading volume that was nearly 17 times the three-month average.

Goldman Sachs Group Inc. upgraded both companies to buy. A Bloomberg gauge of US-traded Chinese stocks rallied 2.1 percent.

While Chinese trip-booking sites have benefited from a boom in overseas travel, profits have been squeezed as the industry becomes increasingly competitive.

Under the terms of a share swap deal announced on Monday, Ctrip and Qunar will combine products and services and control 70 to 80 percent of the hotel and air ticket markets, Summit Research analyst Henry Guo wrote in a research note.

“After this deal, these two companies will own the majority of the market share in China,” Guo said. “They can coordinate a strategy in such a way that they can continue to grow market share, but meanwhile profitability and the bottom line should remain in good shape, which meets investors’ expectations and is good for both companies.”

Baidu Inc., which controls Qunar, will own 25 percent of Ctrip, and the companies will combine products and services. Ctrip will have a 45 percent voting interest in Qunar.

The deal comes about five months after Qunar rejected a buyout offer from Ctrip.com amid fierce competition for online bookings in China.

The country is the largest source of tourists in the world as Chinese travelers made 100 million outbound trips in 2014, according to iResearch, citing data from the National Tourism Administration.

China’s online travel market will more than triple to US$200 billion by 2020, Goldman Sachs analysts led by David Jin wrote in a note.

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