Attending the Phocuswright conference in Los Angeles during November 2016 provided a fascinating insight on the strategic intentions of the Chinese travel giant C-Trip.
The Chinese market is entirely mobile focused, with smart phone penetration at 80% and the desktop market being bypassed as prosperity has exploded in the last 10 years. Countless research reports emphasise that although customers may download hundreds of Apps, they quickly focus down to using only 5-6 Apps daily, meaning that for their travel needs they expect a “one stop shop” service, with their every need being provided by the brand they choose to remain loyal to.
This degree of coverage and brand loyalty may seem odd to online Western customers, who have grown up with the range and diversity of specialist products, available with one click via a Google search on your laptop or desktop computer. However, as the Western world goes through its own mobile revolution, we are already seeing Facebook, due to its high mobile utilization, explode as a remarketing tool and one stop shops like Amazon take center stage for our shopping needs.
Just two years ago the Chinese market was a profit graveyard, that scared off even the deep pocketed USA travel giants like Expedia, as the dash for the dominance of the app market, in the mobile centric Chinese market reached its zenith.
However, two years later and the Chinese travel market is virtually unrecognizable, having become highly profitable on the back of a complete market consolidation by the giant C-Trip, taking majority stakes in its nearest rivals E-Long and Tunnar. This profitability, access to capital and ability to take a long-term view of profitability, suddenly provides serious competition to the global expansion ambitions of the USA giants Priceline and Expedia.
The first demonstration of this was C-Trip’s $180m investment into MakeMyTrip as the entry point to Indian Travel market. Like China this market requires a much longer term view of profitability and a massive investment to consolidate the currently heavily loss marking travel sector. C-Trip has experience of both the requirements and the benefit of this type of consolidation, which enables them to play the strategic long term game.
The publically quoted USA giants, seemingly must play by different rules, with every acquisition needing to be profit enhancing in a much shorter time frame. Hence, their acquisition strategies are more focused on adding products that they can market to their existing client base or globalizing the demand of e.g. Priceline’s acquisition of Rental Cars, Expedia’s purchase of HomeAway and Trip Advisors deal to take Viator.
At Phocuswright, C-Trip declared that their eyes are now set on the European market and immediately followed the conference with an eye watering £1.4 billion purchase of the UK’s Skyscanner.net. This is clearly just an entry point, providing a large volume of customer eyeballs and an essential building block of any European travel App e.g. a comprehensive market view of flight prices across the world. However, logic dictates that this will be followed by acquisitions in the online accommodation sector, ground transportation and potentially Dynamic packaging OTA area.
Don’t be shocked if we see a future shopping list including the likes of online hotel specialist Hotelopia (Ex TUI owned Hotel Beds), Bla Bla Cars or country specific OTA leaders like On the Beach in the UK. At the same time C-Trip will also be looking to hoover up popular app utilities like the National Rail app. There may even be opportunistic acquisitions like the specialist division of TUI, Travelopia which is currently on the market.
Major deals of this nature, will also herald a major upturn in the Venture Capital interest in the travel sector, as VC’s look to consolidate undervalued individual companies, which are too small to attract C-Trip’s attention, into a consolidated proposition that looks more attractive.
Therefore, for the first time since the spending sprees of the major integrated tour operators, the mid-term future could be looking good for travel owners, despite the current headwinds we are facing due to geopolitical unrest and the adverse head winds provided by Brexit.