The recent opening up of the most profitable outbound tourism to foreign travel agencies in China hasn't brought the expected challenge to local companies. Major domestic giants such as China International Travel Service (CITS) and China Youth Travel Service (CYTS) have shrugged off their foreign-funded competitors as nothing more than a remote threat.

"I don't think they can compete with us at the current stage," said Zhang Lijun, chief executive officer of CYTS. "No matter whether they're a foreign-owned or a joint-venture travel agency, they need more time to settle down in China.

"Actually, more than time, they also need relevant business licenses and registrations, human resources, network resources and to build local brand loyalty. They might be famous abroad, but I don't think many Chinese are familiar with them."

The fact that China's tourism industry is a highly decentralized market also explains responses from major local companies.

According to CEO Chen Rong, CITS only shared two percent of the industry's total turnover in 2009, despite being one of the top three Chinese travel agencies.

Chen said the total revenue of the domestic tourism industry reached 180 billion yuan ($27 billion) last year with the Big Three - CITS, CYTS and China Travel Service - accounting for just 6 percent of that figure.

"In that sense, I see foreign competitors as nothing more than another supplier. Since there are already too many fish in the pond, I don't mind a few more," Chen said. "On top of that, they haven't shown better competitive capabilities. At least our business hasn't been affected so far."

Up until 2005, there were only 18 foreign travel agencies in China (including wholly foreign-owned, foreign takeovers and joint-venture enterprises) and none of them were profitable.

"As far as I know, it's the third year that the American travel agency, ATI, has been operating in China, and for the first two years, they've lost money," Paul V. Sherburne from Explore Minnesota Tourism told China Daily at the China International Travel Mart 2010 in Shanghai.

Desperate foreign players are hoping looser policies will help them gain greater market share in the future, especially in the segment of outbound tourism, where profit is about six to eight times greater than that from inbound tourism.

On Sept 6, the National Tourism Administration and the Ministry of Commerce issued Interim Regulations for Joint Venture Travel Agencies to Operate Outbound Tourism. This allowed joint ventures to compete for domestic outbound tourism business as the market gradually opened to wholly foreign-owned travel agencies.

Peter Danford and his Beijing Freedom Travel Agency underwent the process. Danford had owned a travel consultancy in China for several years, but recently, he developed it into a dedicated travel agency.

"Now we are a fully operational travel agency and are able to deliver complete travel services the same as any Chinese-owned travel agency," Danford told PR Newswire-Asia. "Additionally we are allowed to hire foreigners, which brings a big boost to quality and service."

As for Chinese travelers, competition brings benefits. "Service is my biggest complaint about domestic travel agencies. They usually make my travel schedule tight and force me to shop," said Wang Jia, a 30-year-old from Shanghai who spends more than 20,000 yuan on traveling with his wife every year.

"I have heard good things about foreign travel agencies, such as extended duty-free shops' opening hours for tour groups. I wouldn't mind giving them a try, even though I would pay about 10 percent more than with local travel agencies," said Wang.

Current policy excludes many small foreign travel agencies. However, they have shown a willingness to enter the Chinese market, given the continuous stream of visitors traveling abroad.

"Now we can only work with China's local travel agencies, but I believe that in about three to five years' time, we will open branches in the country," said Louis Lee from the European Tourism Planning Agency, a private foreign-funded tour operator focusing on European tourism.

Barbara Logan, vice-president of the US Travel Association, agreed with Lee, "I think there's something for everyone out there. Certainly, there are going to be large organizations gaining an advantage from having been established first, but small travel agencies will also be able to identify niches that will work for them in next five years."

(China Daily November 30, 2010)