Online travel provider joins IAC
By Wang Yu (China Business Weekly)
Updated: 2004-08-11 13:57

Everybody has his/her way of doing business, and eLong believes the road it has chosen will lead to business success.

Taking a different route than arch-rival Ctrip.com, eLong, one of China's leading online travel agents, recently decided to boost its business by selling part of itself to IAC/InterActiveCorp, the world's leading multibrand interactive commerce company.

Justin Tang, eLong's chairman and chief executive officer

The companies recently hammered out adeal, under which InterActiveCorp (IAC) will spend US$60 million for a 30-per-cent interest in eLong.

ELong is a privately owned online travel provider. The firm is based in Beijing, and it operates eLong.com and eLong.net.

"By relying solely on our own strength, it is possible for us to achieve further development and a bigger market share," Justin Tang, eLong's chairman and chief executive officer, said.

"But by co-operating with stronger overseas counterparts, such as ICA, ... we will be able to accelerate our growth.

"Also, we will obtain from IAC more advanced technologies. Technology is critically important to online travel portals. And, more important, the co-operation will help eLong further tap the international business travel market."

Virtually all of eLong's business has been based in China. Overseas-bound travellers account for 10-20 per cent of the firm's overall turnover.

So why did IAC pick China and, in particular, eLong, as its investment destination?

Erik Blachford, IAC Travel's president and chief executive officer

"Asia-Pacific is an area of enormous growth potential. China, alone, represents a US$87-billion travel and tourism market opportunity, and it is forecast to grow to more than US$300 billion by 2014," Erik Blachford, IAC Travel's president and chief executive officer, said.

"We think the combination of eLong's extensive knowledge of the travel market in China and our own travel industry expertise will result in robust growth for IAC Travel in China."

In addition, IAC announced the creation of IAC Travel Asia-Pacific, and named Barney Harford the subsidiary's president.

IAC's investment in eLong will be managed by IAC Travel, which operates IAC's other travel assets, including Expedia, Hotels.com and Hotwire.

Previously, Harford was a senior vice-president at Expedia, Inc. Prior to that, he was responsible for the firm's strategic planning.

"China is the most exciting and dynamic travel market in the world," Harford said.

"We know success in entering the Chinese travel market is heavily dependent on having the right local partner. Given the early success of eLong and its management team, led by Tang, we're confident that together, eLong and IAC Travel Asia-Pacific have the opportunity to play a pivotal role in the transformation of the Chinese travel industry."

Under the deal, IAC also acquired warrants, which, if exercised, will increase IAC's ownership of eLong to 51 per cent.

IAC refused to say if it will exercise that warrant.

ELong will continue operating as an independent firm, and will retain its current management structure and employees.

IAC Travel will work closely with eLong to increase the company's position in the market, expand its customer and supplier relationships and build a strong business for domestic travel and, eventually, for outbound travel.

Tang declined comment when asked to compare eLong's business decision with arch-rival Ctrip's decision to list overseas.

"Whether we list or not, after today's deal with IAC, we have no comment now," Tang said.

He did not rule out a listing, or the possibility eLong will seek other means of financing.

"For eLong, money is not a problem. But we will not close our eyes to other funding possibilities, if there are any," Tang said.

Ctrip, China's other large online travel service, listed, late last year, on the tech-laden NASDAQ in the United States.

The initial public offering (IPO) was worth US$75.6 million.

Ctrip was China's first website to list overseas since 2000, when the dotcom bubble burst.

Ctrip had the highest one-day debut in New York in three years. Its shares rallied more than 108 per cent before closing at US$33.94, a gain of 88.56 per cent from their IPO price.

That strong debut reflected a broader bullishness for China-based stocks, and a confidence in Ctrip's prospects in one of the world's fastest-growing tourism markets.

China's tourism sector was worth an estimated 388 billion yuan (US$47 billion) in 2002. It has grown an average 12 per cent annually over the last five years.

An official in Ctrip's marketing and communications department, on condition of anonymity, said, given the growing uncertainties associated with overseas listings, eLong made a reasonable decision to partner with IAC.

"ELong has chosen its own way of boosting business. So did we. In fact, China's business travel market is so large and so dynamic, no one can dominate the market," the official said.

"We will identify other ways to fund ourselves, and to seek further development, along with our competitors."

Wei Xiao'an, an expert with the Chinese Academy of Social Science's Tourism Research Centre, is upbeat about eLong and Ctrip's business prospects.

"I suppose they will lead the future tourism market in China, since the two firms represent new business models within the industry, and provide customers with more flexible service alternatives," Wei said.

By combining and promoting the products of various tourism agencies, hotels and airlines, eLong and Ctrip become "tourism product supermarkets," Wei said.

"The 'supermarket' features of low costs, extensive networks and ample products, better caters to customers' varied demands and offers them with more alternatives," Wei added.

As a result, there is no easy way for traditional travel agencies to compete with either eLong or Ctrip, even though many have established websites, Wei continued.

"Most travel agencies' websites are designed to promote their images and products. They ... are not about products and services, but more about branding," Wei said.

"But brand building is not so important for tourism agencies compared with other businesses. Services and products are important.

"Travel agents cannot provide customers with the same services and products for the same costs as eLong and Ctrip. That is their core competitiveness."

As their businesses grow, eLong and Ctrip will have to get more involved in businesses traditional monopolized by travel agencies, Wei suggested.

"ELong should have more chances to further enhance its business. Owning a travel agent is one way to do that."

That, of course, would apply greater pressure on traditional travel agents, but it would also push them to adjust their business strategies, in accordance with the new market environment, Wei said.

As for listing or finding partners, Wei said both options are OK, as long as the capital is there.

ELong, co-founded in 1999 by Tang, is one of China's leading independent travel service companies.

Headquartered in Beijing, the company has a national presence. ELong provides consumers with access to reservations, at a discount, at more than 2,000 hotels across China. The company also provides airline ticketing services.

IAC is the world's leading multibrand interactive commerce company.

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