Business / Companies

Tuniu seeks a cut in outbound travel above rivals

(Xinhua) Updated: 2016-04-14 17:38

BEIJING - China's online travel firm Tuniu is seeking to increase its outbound travel offerings to carve out a place of its own following the merger of bigger rivals Ctrip and Qunar last year.

While a partnership between industry leaders Ctrip and Qunar has put a bitter pricing war to end and raises prospects for improved margins going forward, smaller players like Tuniu have been ramping up investment, especially in outbound travel offerings, to distinguish itself from its bigger rivals.

Despite seeing its shares, listed on the NASDAQ, halved from its all-time-high of $24 since late 2014, the company, which is based in the eastern Chinese city Nanjing, has made aggressive investments in expanding overseas travel offerings and improving on-the-ground services at destinations popular with Chinese.

Such investment has pushed Tuniu's gross margin down further to 4.8 percent in 2015 from 6.4 a year earlier, compared with 72 percent for Ctrip and 65 percent for Qunar during the same period.

The company's chief operating officer and co-founder Alex Yan said such investment is necessary to prepare the firm to capitalize on China's 120 million outbound travelers, the world's largest, and also the biggest spenders overseas.

"As per capita GDP continues to grow in China, the outbound travel boom will be a rewarding business worthy of our investment." Yan said this week on the sidelines of a travel expo in Beijing.

He added that such expenditures are expected to be capped below last year's level and become more efficient.

Investors have so far appeared to be willing to throw in more capital into China's online tourism market. According to research agency Analysys, the travel industry tends to see rapid growth after per capita GDP reaches $6,000.

China hit that target in 2013 and growth of its online travel market has since accelerated to 40 to 50 percent each year. Per capita GDP rose to $8,016 in 2015 for the whole country and has shot up over $10,000 in top-tier cities, leading to increasingly diversified demands for travel services beyond organized tours, and hotel and transportation bookings.

Though Ctrip and Qunar hold a roughly 75 percent combined share of China's hotel and air ticket online booking market, Tuniu seeks to cut through their dominance by beefing up outbound leisure travel services that range from trip itineraries, car rentals to attraction tickets and restaurants reservations.

Such a strategy has seen the company increase procurement from travel wholesalers, buying travel agencies to expand market share, working with car rental firms, attractions and other service providers, and building up service centers both in China and popular foreign destinations.

Investors ranging from China's HNA Tourism Group, e-commerce giant to overseas funds DCM, Temasek and Sequoia Capital have committed to a fresh round of funding totalling $1 billion for Tuniu over the past year to support such business expansion.

When it comes to outbound travel, Yan said, China has a rich, varied market. People from the top-tier cities are transitioning from sightseeing to leisure travel.

"They've gone past the stage of hustling through famous tourism sites and now they want to slow down and dig a little deeper, maybe one destination at a time. Second-tier cities are quickly catching up and other lower-tier cities are seeing more first-time travel." he said.

Outbound travel products sold online exceeded domestic long-distance travel products as the largest product offerings in China by transaction volume for the first time in 2014. As of the third quarter of 2015, it accounts for 51.4 percent of the transaction value of all travel products sold online, statistics compiled by Analysys show.

Islands in southeast Asia, the United States and Europe are destinations most likely to see strong increases in tourist visits from China going forward, as travelers venture beyond Hong Kong, Macao and Taiwan and east Asian neighbors Japan and Republic of Korea, Yan said.

Europe could emerge as an equally popular destination for Chinese, "as long as people's concern over safety can be taken care of." Yan said. "Some of the recent incidents in Europe have hurt sentiment among Chinese travelers a little bit."

Wherever they go, Chinese tourists' demands will become more diverse and this, Yan said, will drive companies to compete on two fronts -- providing standardized products to average travellers and offering a buffet of services from which the more sophisticated can customize a trip truly of their own.

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