Analysis: Online travel firms to see turning point

While competition is intense in the Chinese online travel industry, the relatively low penetration rate compared with Western peers indicates there may be much room for growth for Chinese market players.

According to UBS Investment Research, the penetration rate of online travel agencies was about 10 percent in 2015, while the number in the United States was more than 40 percent, and in Europe nearly 50 percent.

Regarding the low penetration rate and the increasing enthusiasm among Chinese tourists for domestic and overseas travel, Xu Ming, an analyst at UBS, predicts this year will be a turning point for online travel agencies.

Those that have not made a profit yet will start to turn in satisfactory balance sheets, and those that are already profitable will seek even faster growth, he says, adding that travel agencies that offer nonstandard products will perform extremely well.

Yu Dunde, CEO of Tuniu Group, an online outbound travel agency based in Nanjing, agrees that growth opportunities abound, as consumer demand has become more diverse.

"Travel agencies used to classify their products simply according to tourists' consumption levels. But as people travel more frequently, products should have different characteristics," he says. "We now have products such as family trips, cruises and trips tailor-made for the elderly."

Tuniu introduced family packages in late December targeting households with children in three age groups: 2 to 5 years, 6 to 11 and 12 to 15. The idea is to avoid homogenized competition, Yu says.

Enhanced service quality is one of Tuniu's priorities, he says, explaining that the company has raised the number of its offline service centers from 15 in 2014 to 150 and plans to set up its first centers overseas this year.

"By 2017, we'll have 1,000 offline service centers in China and more than 100 overseas," the CEO says. "Apart from providing services at destinations, we'll start our services at the departure stage, which consumers value a lot."

Increased efficiency in the supply chain is another Tuniu priority. In the past, the company was not aware of consumer needs in real time, as there were too many intermediaries, Yu says. Now, Tuniu will work directly with suppliers - and by extension consumers - through its own communications system. The goal is to ensure the output of one Tuniu team member is twice the industry average, he says.

"It's true some Chinese Internet companies are undervalued in the US. But the most important thing is not seeking short-term profit in the capital market. What we should really do is to seize the unprecedented chance in the Chinese online travel market right now," Yu adds.

shijing@chinadaily.com.cn

(China Daily European Weekly 01/29/2016 page30)