CTRP Ctrip Com International Ltd

By Drew FitzGerald 

When Uber Technologies Inc. traded its fledgling Chinese business for a stake in homegrown rival Didi Chuxing Technology Co., the choice looked all too familiar to veterans of the online travel business.

Rather than market their own brands in China, Expedia Inc. and Priceline Group Inc. have spent years trying to crack the market by taking stakes in local rivals. But a fierce price war by Chinese players led to widening losses and failed to dent the dominance of market leader Ctrip.com International Ltd., which was started in 1999.

The homegrown travel giant, which is similar to Expedia and is often used by business travelers, has a third of the nearly $80 billion Chinese market for online travel intermediaries, according to Euromonitor. Ctrip now sports a market capitalization of nearly $20 billion, which is bigger than Expedia's roughly $18 billion.

Expedia tried to challenge Ctrip, but ultimately decided to join with it. Expedia "spent hundreds of millions of dollars trying to undermine us," said Shiwei Zhou, Ctrip's head of investor relations. "But it turns out it's harder than they think."

Expedia in 2011 took a majority stake in domestic travel site eLong Inc., which now has about 3% of the Chinese market. But after racking up years of losses, Expedia sold its stake last year to a group of buyers including Ctrip.

The U.S. company regrouped and is now planning to target Chinese citizens traveling abroad. Expedia.com launched in China last year, and the company is working on an arrangement to offer Expedia and eLong listings on Ctrip's websites to build its brands.

"We weren't looking to get out, but the competition in China became price destructive," Expedia CEO Dara Khosrowshahi said during an industry conference last year. "When you're sitting in a room and looking at your product versus a competitor product and feeling like they know more about the market than you do because they're locals, that's not a good sign. That's not a comfortable place to be."

Priceline Group took a different approach. Its business in the world's most populous country expanded in 2012 when it agreed to give Ctrip access to hundreds of thousands of hotels listed on the American company's Booking.com website. Two years later, Priceline Group invested $500 million in Ctrip.

The Norwalk, Conn., company invested another $500 million in December and now has the right to hold up to 15% of Ctrip's American depositary shares.

Priceline Chairman and Chief Executive Jeffery Boyd said the company chose to work with Ctrip because it appeared to be the market leader. "What most impressed me was their ingenuity," he said in an interview, such as creating ways to secure payments before most Chinese had credit cards.

Priceline has also begun to market Booking.com on its own in China as the broader travel market stabilizes and to target a rising middle class that is spending more on trips.

Maggie Rauch, an analyst at travel research firm Phocuswright, said the wait-and-see approach proved wiser than the way other web companies, including Uber, tried to attack the market.

"Caution has definitely been Priceline's approach," Ms. Rauch said. "They at least sat out the money-bleeding years in that market." Most web companies "tend to go into China with a lot of hubris," she added.

Fritz Demopoulos, co-founder of Chinese travel-booking site Qunar Cayman Islands Ltd., said Priceline's relative health in China was "a testament to the Priceline Group being extremely disciplined about how they enter a market."

Mr. Demopoulos, now an investor at Queens Road Capital, said some of the "winner-takes-all" mentality in the market stemmed from the number of Chinese web users who access the internet on mobile phones. Users are less likely to switch brands once they've downloaded an app to their device, making winning market share an even more tempting goal.

As winning share became the industry's priority, Travel sites began offering deeper discounts to lure hotel guests. Coupons in some cases offered a deeper discount than the commissions websites received in return, pulling the entire sector into the red.

Conor Yang, finance chief for leisure travel service Tuniu, said homegrown Chinese travel companies have outpaced foreign rivals because their investors, largely Chinese fund managers and company founders, will tolerate large losses in exchange for market share. But that patience began to wane last year as the country flirted with a recession.

"This year is different," Mr. Yang said. "The Chinese economy is slowing down. We recognize that."

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

(END) Dow Jones Newswires

August 02, 2016 18:21 ET (22:21 GMT)

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