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News Analysis: Chinese online travel agency market tightens through consolidation

Xinhua, October 27, 2015 Adjust font size:

China's online travel agency (OTA) market is consolidating as companies grow wary of burning cash while the economy slows and investors tighten their purse strings.

China's two largest online travel agents, Ctrip.com and Baidu-backed Qunar, announced a deal on Monday to effectively form a partnership after a share swap.

Internet giant Baidu will own 25 percent of Ctrip, while Ctrip will have a 45-percent stake in Qunar.

Qunar is the country's leading seller of airline tickets, while Ctrip has an edge in hotel bookings.

Online travel agencies have been mired in cut-throat price wars that risk pulling them deeper into the red. In an effort to attract and retain customers, they have launched campaigns offering everything from discount airfares to tourist attraction tickets.

Qunar reported a loss of 816 million yuan (129 million U.S. dollars) in the second quarter of the year, nearly doubling that of the same period last year. Ctrip made a profit of 143 million yuan in Q2, but it had a loss of 126 million yuan in Q1.

Other OTA players were in bad shape as well in the second quarter. Tuniu lost 356 million yuan while eLong had a deficit of 292 million yuan.

Fierce and seemingly never-ending spending has rattled investors. Caution has become the order of the day for investors as China's economy slowed to a six-year low of 6.9 percent in the July-September quarter. The Chinese market has lost a bit of its shine due to an expected U.S. rate hike and an IPO moratorium in effect since the radical stock market adjustment this summer.

The partnership between Qunar and Ctrip will benefit both since it will cut costs and better equip them to face O2O (offline to online) challenges from rivals such as Meituan and Dianping, according to Liu Zhaohui, CEO of Tripvivid.com. The group-buying and restaurant-review websites announced a merger this month.

Jian Yi, a partner at Windsor Capital, said the partnership between Qunar and Ctrip is an important step for Baidu in its O2O endeavors to gain an edge over rivals Alibaba and Tencent as the tourism industry "holds enormous potential for high-speed growth over a long period of time.".

China has a booming tourism market. Last year, 3.6 billion domestic trips and 116 million foreign trips were made, up 11.4 percent and 18.2 percent respectively.

Chinese authorities are rooting for OTA market growth. According to a government plan issued last month, China aims to make OTA investment account for 15 percent of investment in the general tourism market by 2020, while spending in the OTA market is expected to account for 20 percent of tourism spending. Endi