Click & cruise

In a country which claims the largest number of netizens and a fast growing tourism industry, Ctrip.com International Ltd has firmly secured its position as China's foremost online travel booking service provider.

It is also giving its US rivals a run for their money. The Shanghai-based company's over 50 percent of the domestic market share is well ahead of eLong Inc, which is the world's leading online travel company and Expedia's China unit. Its market value of about $3.5 billion as of August 16 is also nearly 20 times larger than eLong's.

Behind such phenomenal growth lies one man's longstanding ambition to build Ctrip into one of the world's largest online travel firms. Fan Min, CEO and one of the four co-founders of the company, says the firm is well on track to cash in on China's fast developing tourism industry which is expected to rank as the biggest in the world by 2020, or earlier.

Ctrip's most valuable asset is China's most diversified travel services including hotel reservations, airline ticketing, packaged tours and corporate travel management. For clients making travel arrangements solutions are just a few clicks away.

Despite the disruption to China's tourism industry this year in the wake of the enormous snowstorm in large parts of South China, and the devastating Sichuan earthquake, Ctrip has maintained solid revenue and earnings growth against the backdrop of slowing economic growth.

The NASDAQ-listed company posted net revenues of 375 million yuan for the second quarter of 2008, up 30 percent from a year earlier. Ctrip predicts a 35 percent increase in sales for the whole year, thanks to the strong growth in hotel reservations, flight bookings and package tours. The company's profit for 2007 rose 66 percent from 2006 to $55 million.

In sharp contrast to his high-profile company, Fan has always maintained an unassuming, or even self-effacing stance that belies his burning ambition and aggressive tactics. These attributes have catapulted Ctrip to the forefront of the highly competitive travel industry in less than 10 years of its founding.

Success story

Fan is a veteran of the travel business sector. After obtaining his Bachelor and Master's degrees in management from Shanghai Jiao Tong University, he served from 1990 to 1997 as the Deputy General Manager at Shanghai New Asia Hotel Management Company, which was one of the leading hotel management companies in China. After that, from 1997 to 2000, he was the CEO of Shanghai Travel Service Company, a leading travel agency in China.

Backed by 10 years of experience, Fan became well aware of the bottleneck of China's tourism industry, as the growing needs for business and leisure tours among individual travelers in China had long outgrown the capacity of traditional travel agencies whose access to resources was very limited.

From the time when Ctrip was conceived in 1999, Fan says the idea was to transform the traditional travel mode with the help of Internet resources. The new business model proved to be a breakthrough, enabling thousands of tourists to enjoy convenient and efficient travel plans, Fan says.

That was why in 2003, Ctrip became the first Internet company in China to launch its IPO in NASDAQ after the dotcom bust in 2000, and its share price received a nearly 90 percent increase within the first trading day. Its success was soon followed by other homegrown Internet companies including online gaming operator Shanda Interactive, outdoor advertising companyFocusMedia, search engine Baidu.com and e-commerce giant Alibaba.com.

"Successes as such have demonstrated the fact that the integration of Internet resources has changed the way businesses were conducted in the past," says Fan, adding that tourism in particular has received an obvious boost with Ctrip's more efficient operation and management.

Meanwhile, Fan knows clearly the value Ctrip has brought to individual travelers by aggregating information on hotels and flights, enabling them to make informed and cost-effective hotel and flight bookings.

"Ctrip targets primarily business and leisure travelers in China who do not travel in groups. These travelers form a traditionally under-served yet fast-growing segment of the travel industry in China," Fan says.

Though originally learning from its western counterparts like Expedia, Ctrip from the very beginning knew that a unique China model would be essential to its success in the home market.

The company's office building on Shanghai's Fuquan Road today has an impressive 4,000-seat-or-so call center that receives more than 120,000 booking calls a day on average. It is presently the largest of its kind in Asia.

For Fan, this is one of the reasons for Ctrip's remarkable growth in China.

"At present 70 percent of our booking orders come from the call center, while the remaining 30 percent consumers book their flights and hotels online. This means the majority of Chinese customers still prefer making phone calls to online transactions, which is different from the west. Chinese people obviously regard talking and explaining as much more reliable and comfortable."

Despite the general concern over the sustainability of the call center that demands huge management costs, Fan remains confident in the prospect of offline service as an indispensable complement to online service. With the continual growth of phone calls, Ctrip is now planning for the construction of its second call center in the city of Nantong in Jiangsu province.

Investing in future

For 43-year-old Fan, innovation in the business model is always the key to success. After developing the company into China's leading hotel and airline ticket consolidator - Ctrip now is the largest consolidator of hotel accommodations with a network of 28 thousand member hotels in 134 countries - Fan is now relentlessly exploring new "blue oceans" to refuel Ctrip's growth in the increasingly competitive online travel market.

"Single hotel reservations and airline ticketing are not enough to make Ctrip a world class travel service company," says Fan. "We are continuously looking for ways to innovate our product line in the best way to address the needs of a growing number of Chinese travelers."

Despite the steady growth rate of hotel accommodation and airline ticketing as reported in Ctrip's financial results, industry insiders have in general voiced doubt over the sustainability of traditional online travel services like hotel reservations and ticket bookings, especially when many competitors are doing the same and an increasing number of hotels and airlines in China are beginning to do the sales and marketing on their own.

Fan, though, has a different interpretation.

"It means bigger companies like Ctrip would have a better chance of gaining market share as those small and unqualified agencies may face a major restructuring," says the CEO at a conference call after the company released its second-quarter financial results, adding that Ctrip's strong hotel and airline network would be a major credit to add to its competitiveness.

But the company is indeed poised to take the lead in other product lines with bigger profit margins. In March 2006, Ctrip launched its corporate travel management service, the profit margin of which is estimated at some 20 to 30 percent. In only two years' time, Ctrip's corporate clients have now exceeded 300, including such international big names like Schneider Electric and China's State-owned Baosteel Group Corporation.

"Corporate travel service can bring more efficiency and productivity to companies by streamlining and cutting their travel spending by 10 to 30 percent," Fan says.

Chinese enterprises, though, still lag behind in their initiative to cut travel spending, Fan says. Of the market value of corporate travel management in China, estimated at 200 billion yuan a year, only five percent has been tapped. Even the US leading travel company American Express has reportedly has very limited market share in China.

Although there are no specific earnings from the corporate travel line, Fan says Ctrip's corporate clients are growing "very healthily," at a remarkable growth rate of 100 percent year-on-year.

In another gesture trying to increase the company's profile and build on its present hotel network, Ctrip announced in July this year the establishment of Starway Hotels, which is a trans-regional alliance of domestic low-star, unaffiliated hotels.

By selecting individual hotels with prime locations and good basic facilities, Starway Hotels assist in improving their brand awareness and service quality. But those hotels are allowed to have individual features different from the unanimity usually seen in chain hotels, a feature which will offer travelers more diversity.

"In China about 90 percent of the hotels are unaffiliated hotels, many of which are considered inferior with no recognized service standards," says Fan. The idea, he adds, is therefore to standardize and hopefully promote the development of China's hotel industry through such an alliance.

At present, Starway Hotels has about 20 hotels located in Shanghai, Beijing, Hangzhou, Suzhou, Qingdao, Dalian, Chongqing, and Chengdu.

(China Daily 09/01/2008 page12)