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When it comes to online travel， Chinese tourists， by and large prefer to travel in groups with carefully-planned itineraries and Chinese-speaking tour guides every step of the way. China’s online travel marketplaces have grown to accommodate this. Where western online travel agents（OTA） mostly offer deals on flights and hotels， their Chinese counterparts offer deals on full tour-guide-led trips.
But of course， this means that instead of just working with airlines and hotels， China’s OTAs also need to work with other agencies that coordinate and operate those group trips. That means in a price war， things can get ugly， and that’s apparently what’s happening now.
In the past few weeks， the battle between China’s OTAs has upgraded itself to a TV drama version. Plot thickens day by day. First we saw international online specialists LY.com and Tuniu.com fought over their suppliers. Apparently， Tuniu demanded all of its suppliers gave it lower prices than they gave to LY or stop working with LY altogether. LY’s CEO then fired back to Tuniu by issuing an internal memo saying “LY.com will take twelve months to completely surpass you professionally”. It is said that many suppliers have been told to choose a side and that they couldn’t provide tour services for both sides. Then Tuniu announced a followon offering plan to raise fund.
On December 4， Ctrip， China’s biggest OTA in terms of market value who had been remaining silent in the wrestling of Tuniu and LY， unexpectedly announced its plan to invest 1 billion yuan （$16.2 million） in 2015 to take on the competition. The company also launched a huge promotion laced with special discount on December 12 which is another Chinese shopping festival other than 11.11. In the same month， Lvmama.com， another fast-growing OTA of China， announced its plan to build an one-stop O2O travel service platform and the fact that it had already raised 10 billion yuan （$162.03 million） credit granted by three banks.
As the investor behind Tuniu and LY， Ctrip issued an announcement on December 4 saying that it refuses any unfair competition that will undermine the environment of the online travel marketplace.
Analysts point out that all the fights and harsh words may suggest an excessive supply of the online tourism business， and the war of OTAs definitely will continue to hot up in 2015.
Cash Burning and Blood Transfusion
On December 3， Ctrip CEO Liang Jianzhang announced the company’s big move on the one-stop booking service platform and sales plans for the shopping season. Most notably， the online travel giant is going to full blast to promote its price comparison search engine service， which seems to be a targeted action against Qunar， considering the long rivalry between the two and the fact that price comparison is a core business of the latter.
However， Liang Jianzhang also denies that Ctrip has any direct competitors given that it brings in larger revenues than similar companies， including Qunar.
“We don’t think of Qunar as a competitor. Our target is to strengthen our customer service. I believe you have already read about our loss forecast of 400-500 million yuan for Q4 2014. It is because we are going to push a longterm low price strategy in the following period and offer 10 million zero-profit products； therefore we have to set aside sufficient marketing expense. As a matter of fact， Ctrip will put in 1 billion yuan to support the price war in 2015. The loss forecast makes perfect sense，”said Liang Jianzhang.
The online travel magnate with a deep pocket seems not worrying about the heavy spending at all. “We are flush with cash. We have raised nearly 1 billion US dollars and the key is to im- prove the efficiency of investment. For the next 1-2 years the first item on our agenda is to gain more market share， which will inevitably cost a lot in marketing. We have seen our competitors burning cash to grab market share. We will spend too， but with a bottom line. For example， we definitely won’t offer long term sub-zero profit products just to attract more customers.” Liang Jianzhang added.
Compared with Ctrip’s boldness， Tuniu and Lvmama are not as confident. On December 3， Tuniu launched a follow-on offering aiming to raise$100 million dollars. On the next day， Lvmama， which in the battle between LY and Tuniu chose to take the latter’s side， declared that China Construction Bank， the Bank of Communications and Shanghai Pudong Development Bank had signed strategic cooperation agreements separately with Shanghai Joyu， owner of Lvmama.com. According to the agreements， the three banks will respectively grant 5 billion， 3 billion and 2 billion yuan of loans to Joyu in the next three years. The fund will be mainly used to construct the O2O one-stop service system of Joyu and improve Lvmama’s business chain. The construction of mobile internet platform， products innovation， member services， finance services， integration of online and offline travel services and tent resorts investment are some of the tasks on Lvmama’s to-do list. LY to Challenge Tuniu and Ctrip Takes a Stand
OTAs to increase marketing expense and speed up supplementary financing suggest that their fight over market shares and suppliers is getting rowdy.
When Ctrip and Lvmama play in the capital market， LY and Tuniu are continuing with their own game. Lvmama has made it clear that it will ally with Tuniu， but LY is not intimated by that. On December 4， Liu Qing， CEO of LY’s outbound travel division， issued an internal memo to declare war on Tuniu：
“In view of Tuniu’s arrogance and monopolistic practices in its international travel services， I， LY CEO Liu Qing， represent LY.com and all its partners in issuing Tuniu a challenge： LY.com will take twelve months to completely surpass you professionally. We will serve more than one million people in 2015， all while spending less than Tuniu in the process.”
“LY has been going all out to promote outbound travel service since last June. Last May we got about 4000 outbound travel orders and the number decupled to 40000 by November. Before that， the size of our client base was no bigger than one tenth of Tuniu’s， and by November the number had reached upwards to the equivalent of 60% of Tuniu’s. We expect to surpass Tuniu in terms of total customer volume by next June. Tuniu is more focused on tourism and vacation products， while LY covers more ground that extends to booking services of tickets and hotels as well as tourism products. It means Tuniu is a site with single entrance which will considerably fetter the expansion of their customer base，” said Liu Qing.
“Tuniu is more of a platform for price and service comparison， a portal for visitors to access to various suppliers. In contrast， LY buys out resources directly from suppliers through partnership. It allows us to avoid unnecessary intermediate links and generate a lot of cost saving. Small and medium sized suppliers on Tuniu， instead， usually cannot afford to provide resources at such low prices given their relatively weak financing and distribution capacity，” Liu Qing added.
Tuniu is not planning to swallow the harsh words of LY. The company claims that no matter how low the prices are on other online travel sites， Tuniu will offer lower with better services.
Ctrip， as an investor of both parties and leader of China’s online travel market， had been mute on the friction until December 4. “Ctrip， Tuniu and LY are the top 3 specialists of China‘s online travel service market. The industry of China is still booming and there are places for all of us. Internet platforms should put more energy in product innovation and service improvement. Ctrip refuses any activity that is contrary to the principal of openness and fair competition， refuses to block the development of peers and exploit our supplies for quick success，” says the announcement of Ctrip.
As for future partnership with Tuniu or LY， Ctrip CEO Liang Jianzhang says that it depends on the state of operation.
It’s unclear what the long-term effects of a price war would be on both companies， but in the short term things certainly look good for consumers. With China’s domestic and international online travel giants all dedicated to fighting each other， prices are likely to be driven down to new lows， and thrifty travelers should be able to find some great deals while these companies are busy beating on each other.
But of course， this means that instead of just working with airlines and hotels， China’s OTAs also need to work with other agencies that coordinate and operate those group trips. That means in a price war， things can get ugly， and that’s apparently what’s happening now.
In the past few weeks， the battle between China’s OTAs has upgraded itself to a TV drama version. Plot thickens day by day. First we saw international online specialists LY.com and Tuniu.com fought over their suppliers. Apparently， Tuniu demanded all of its suppliers gave it lower prices than they gave to LY or stop working with LY altogether. LY’s CEO then fired back to Tuniu by issuing an internal memo saying “LY.com will take twelve months to completely surpass you professionally”. It is said that many suppliers have been told to choose a side and that they couldn’t provide tour services for both sides. Then Tuniu announced a followon offering plan to raise fund.
On December 4， Ctrip， China’s biggest OTA in terms of market value who had been remaining silent in the wrestling of Tuniu and LY， unexpectedly announced its plan to invest 1 billion yuan （$16.2 million） in 2015 to take on the competition. The company also launched a huge promotion laced with special discount on December 12 which is another Chinese shopping festival other than 11.11. In the same month， Lvmama.com， another fast-growing OTA of China， announced its plan to build an one-stop O2O travel service platform and the fact that it had already raised 10 billion yuan （$162.03 million） credit granted by three banks.
As the investor behind Tuniu and LY， Ctrip issued an announcement on December 4 saying that it refuses any unfair competition that will undermine the environment of the online travel marketplace.
Analysts point out that all the fights and harsh words may suggest an excessive supply of the online tourism business， and the war of OTAs definitely will continue to hot up in 2015.
Cash Burning and Blood Transfusion
On December 3， Ctrip CEO Liang Jianzhang announced the company’s big move on the one-stop booking service platform and sales plans for the shopping season. Most notably， the online travel giant is going to full blast to promote its price comparison search engine service， which seems to be a targeted action against Qunar， considering the long rivalry between the two and the fact that price comparison is a core business of the latter.
However， Liang Jianzhang also denies that Ctrip has any direct competitors given that it brings in larger revenues than similar companies， including Qunar.
“We don’t think of Qunar as a competitor. Our target is to strengthen our customer service. I believe you have already read about our loss forecast of 400-500 million yuan for Q4 2014. It is because we are going to push a longterm low price strategy in the following period and offer 10 million zero-profit products； therefore we have to set aside sufficient marketing expense. As a matter of fact， Ctrip will put in 1 billion yuan to support the price war in 2015. The loss forecast makes perfect sense，”said Liang Jianzhang.
The online travel magnate with a deep pocket seems not worrying about the heavy spending at all. “We are flush with cash. We have raised nearly 1 billion US dollars and the key is to im- prove the efficiency of investment. For the next 1-2 years the first item on our agenda is to gain more market share， which will inevitably cost a lot in marketing. We have seen our competitors burning cash to grab market share. We will spend too， but with a bottom line. For example， we definitely won’t offer long term sub-zero profit products just to attract more customers.” Liang Jianzhang added.
Compared with Ctrip’s boldness， Tuniu and Lvmama are not as confident. On December 3， Tuniu launched a follow-on offering aiming to raise$100 million dollars. On the next day， Lvmama， which in the battle between LY and Tuniu chose to take the latter’s side， declared that China Construction Bank， the Bank of Communications and Shanghai Pudong Development Bank had signed strategic cooperation agreements separately with Shanghai Joyu， owner of Lvmama.com. According to the agreements， the three banks will respectively grant 5 billion， 3 billion and 2 billion yuan of loans to Joyu in the next three years. The fund will be mainly used to construct the O2O one-stop service system of Joyu and improve Lvmama’s business chain. The construction of mobile internet platform， products innovation， member services， finance services， integration of online and offline travel services and tent resorts investment are some of the tasks on Lvmama’s to-do list. LY to Challenge Tuniu and Ctrip Takes a Stand
OTAs to increase marketing expense and speed up supplementary financing suggest that their fight over market shares and suppliers is getting rowdy.
When Ctrip and Lvmama play in the capital market， LY and Tuniu are continuing with their own game. Lvmama has made it clear that it will ally with Tuniu， but LY is not intimated by that. On December 4， Liu Qing， CEO of LY’s outbound travel division， issued an internal memo to declare war on Tuniu：
“In view of Tuniu’s arrogance and monopolistic practices in its international travel services， I， LY CEO Liu Qing， represent LY.com and all its partners in issuing Tuniu a challenge： LY.com will take twelve months to completely surpass you professionally. We will serve more than one million people in 2015， all while spending less than Tuniu in the process.”
“LY has been going all out to promote outbound travel service since last June. Last May we got about 4000 outbound travel orders and the number decupled to 40000 by November. Before that， the size of our client base was no bigger than one tenth of Tuniu’s， and by November the number had reached upwards to the equivalent of 60% of Tuniu’s. We expect to surpass Tuniu in terms of total customer volume by next June. Tuniu is more focused on tourism and vacation products， while LY covers more ground that extends to booking services of tickets and hotels as well as tourism products. It means Tuniu is a site with single entrance which will considerably fetter the expansion of their customer base，” said Liu Qing.
“Tuniu is more of a platform for price and service comparison， a portal for visitors to access to various suppliers. In contrast， LY buys out resources directly from suppliers through partnership. It allows us to avoid unnecessary intermediate links and generate a lot of cost saving. Small and medium sized suppliers on Tuniu， instead， usually cannot afford to provide resources at such low prices given their relatively weak financing and distribution capacity，” Liu Qing added.
Tuniu is not planning to swallow the harsh words of LY. The company claims that no matter how low the prices are on other online travel sites， Tuniu will offer lower with better services.
Ctrip， as an investor of both parties and leader of China’s online travel market， had been mute on the friction until December 4. “Ctrip， Tuniu and LY are the top 3 specialists of China‘s online travel service market. The industry of China is still booming and there are places for all of us. Internet platforms should put more energy in product innovation and service improvement. Ctrip refuses any activity that is contrary to the principal of openness and fair competition， refuses to block the development of peers and exploit our supplies for quick success，” says the announcement of Ctrip.
As for future partnership with Tuniu or LY， Ctrip CEO Liang Jianzhang says that it depends on the state of operation.
It’s unclear what the long-term effects of a price war would be on both companies， but in the short term things certainly look good for consumers. With China’s domestic and international online travel giants all dedicated to fighting each other， prices are likely to be driven down to new lows， and thrifty travelers should be able to find some great deals while these companies are busy beating on each other.