Ctrip, Qunar banding may end travel price wars

The coming together of Ctrip.com International Ltd and Qunar Cayman Islands Ltd, two of China's leading online travel companies, is expected to end the rampant price war in the sector, analysts said on Tuesday.

On Monday, Ctrip said it would acquire a 45 percent stake and form a partnership with Qunar, a company controlled by Baidu Inc.

Although executives from both Ctrip and Qunar confirmed that the two companies will continue to operate independently of each other, industry experts said that the banding will help end price wars and incentives being offered to customers by individual agencies.

"Qunar will develop independently and we will negotiate with Ctrip on cooperation and competition later," Zhuang Chenchao, CEO of Qunar, said in an internal e-mail.

Liang Jianzhang, chairman and CEO of Ctrip, said: "Qunar and Ctrip will provide different products and values to travelers."

Zhang Shuai, an analyst at Sinolink Securities Co Ltd, said: "The two companies will monopolize the online hotel and air ticket booking markets and will no longer need to offer sops to gain market share. The price war in the online travel industry is unsustainable and the two companies could pursue profit rather than just market share, once they come together," Zhang said.

An immediate outcome of the move is a possible growth in net profit for travel agencies, he said.

Price wars among Chinese online travel agencies started in June 2012 and during the past three years, companies have been rolling out huge chunks of money to gain customers.

Ctrip's sales and marketing expenses in 2014 increased by 74 percent to 2.2 billion yuan ($346 million) from 2013, and accounted for 29 percent of its net revenue, which was 23 percent in 2013, according to its annual reports.

Last year, sales and marketing expenses accounted for 59 percent of the net revenue of eLong Inc, Ctrip's former main rival.

When Ctrip purchased 37.6 percent share of eLong and became its largest shareholder in May, the price battle started to weaken.

The banding will, however, have an unfortunate fallout. The two companies may face anti-monopoly investigations, as Ctrip would be near invincible in China's online travel market, once the transaction is completed.

Statistics from Analysys International, an Internet industry consultancy, show that Ctrip and Qunar together have a 58.5 percent share of China's online travel market.

Wei Changren, general manager of Ctcnn.com Inc, a consultancy focusing on the online tourism sector, said: "The market share of Ctrip and Qunar is too big and the two companies' integration could be difficult if they face anti-monopoly investigations."

But only when the acquisition hinders competition in the industry will it constitute a monopoly, said some experts. However, the future still remains hazy for Ctrip, they said.