Tuniu a winning package
By Sherman So

HONG KONG - The giants of China's online travel agencies, eLong and Ctrip, have a new challenger in the battle to profit from the country's fast-growing travel business. Tuniu, founded in late 2006, has found a winning niche by already becoming the leading online package and group tour company in China.

Tuniu tripled gross revenue last year and forecasts a further doubling of sales this year, according to chief executive (Donald) Yu Dunde told Asia Times Online. The Nanjing-based company, whose chief operating officer Yan Haifeng is a co-founder, took in revenues of 1.2 billion yuan (US$188 million) in 2011, providing packaged tours, group travel, do-it-yourself tours, and combined air ticket and hotel booking packages. The company covers Chinese domestic and international travel.

"Compared with others in the industry, we concentrate on

 

package and group tours. Some competitors offer package tours, but the bigger ones mostly focus on booking hotels and air tickets. Meanwhile, eLong does not offer package tours at all, instead focusing on hotels and airfares," said Yu, who previously worked for a blogging site then a parenting site.

Ctrip and eLong dominate the online travel industry in China. Both are listed on Nasdaq and focus on providing hotels and air ticket booking services for business travelers.

Ctrip, China's largest online travel company, increased total revenue 21% last year to 3.72 billion yuan. Of that, hotel reservation and air-ticketing took in about 40% each, and packaged tours contributed 14%, or 534 million yuan. Net profit grew at a less impressive 2.6% to 1.07 billion yuan.

Close rival eLong, whose total revenue jumped a similar 22% last year to 650 million yuan, garnered 72% of its sales from hotel booking and 20% from air-ticketing. Net profit in 2011 surged 90% to 39 million yuan.

The shares of both companies, however, have tanked over the past 12 months, hit by the global financial crisis and a downturn in the domestic economy. Ctrip has tumbled 65% from a year ago to US$15.48 on July 10 and eLong has declined 52% to US$11.43. The shares were also hit by a reaction against Chinese listed companies in the United States after Muddy Waters LLC, a short-selling firm, last  June accused Sino-Forest Corp., a timber company that traded on the Toronto exchange, of exaggerating its assets.

"There's this sort of stigma on Chinese listed companies," according to Phil Groves, president of Hong Kong-based DAC Financial Management China Ltd, Bloomberg reported on Wednesday.

Tuniu is attracting optimistic comment on its future growth prospects.

"I like their direction," Don Jiang of Gobi Partners, an early stage venture capital firm in China, said when asked why he invested in Tuniu in 2008. "The business travelers are well-serviced by Ctrip and eLong. On the other hand, there is room for a player concentrated at leisure travelers. I also like the management team. They are young and they learn fast."

The numbers and income of China's white-collar workers are also growing fast, and as with their Western counterparts, traveling has become one of their favorite pastimes. Package tours are still strongly preferred, especially for new destinations and overseas travel, said Jiang. "Also, the total cost is cheaper than booking your own tickets and hotels," he said.

The travel industry in China will continue its steady and fast growth, Shao Qiwei, head of China National Tourism Administration, said at an industrial conference in Guangzhou, recently. In spite of dark clouds over both the local and global economies, the government expects a 10% increase in total domestic journeys this year to 2.9 billion, with domestic tourism income rising 15% to 2.22 trillion yuan. Total tourism income (including both domestic and foreign travelers) is forecast to jump 14% to 2.57 trillion yuan.

Industry specialists are even more bullish on the online travel-related business, predicting 30% growth annually - a rate of expansion that Tuniu is more than familiar with. After starting with only five staff members, it had 50 a year later, in 2007, when offices were established in Beijing and Shanghai. By the end of 2009, the company had 270 employees and now has 1,500. They help to provide tours leaving from 20 cities in China and sell 20,000 different travel products. So far, Tuniu has booked more than 1 million tours.

To drive the process and conduct database analysis, Tuniu also developed its own business operation support system, which allows it to understand trends in the Chinese travel market quickly and effectively.

"We make the booking process simple, and we provide better prices for our customers. That is why we are the market leader for package and group tours," said Yu.

The company has raised about US$60 million in total investment so far through three rounds of fund raising - with Gobi in 2008, and Gobi and Silicon Valley-based DCM in 2009. Three other investors joined DCM, which manages more than US$2 billion, in the third round of investment last year.

Not everyone is optimistic about Tuniu. "In the long term, the future of online travel is not package tours, but travelers booking their hotels and air tickets directly. That is the direction of Ctrip and elong," said one hedge fund manager. "Also, Tuniu does not develop its own travel product. It just acts as a reseller of those who arrange package tours. I believe the value they create is not large enough to fence off competitors in the long term."

Tuniu, however, may have the requisited organizational edge, according to Richard Chen, a former chief technical office with eLong. He believes that although Tuniu is acting as a reseller, its work is not easy for a competitor to imitate. "ELong put a stop to the packaged tour business in 2007 to focus on core businesses. Part of the reason was the company wanted to focus on hotel booking, but another part of the reason was that it takes a sophisticated system to arrange package tours online," he said.

"Say, a group of 10 people is traveling together and if a change happened with one part of the package (such as the flight), all the rest (hotel booking, tour guide booking) have to change. How to change everything across different suppliers is a challenge, " he said.

And while some people prefer to arrange their travel plans themselves, package holidays and tours will not be phased out for a long time. "It is China. People have different preferences. Some people like the freedom of planning their own travel. Some prefer the convenience of package tours."

Sherman So is a Hong Kong-based correspondent and co-author of Red Wired: China's Internet Revolution.

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