A threat to Chinese online travel companies CTRP and LONG?

Includes: CTRP, LONG
by: David Jackson

From Ezra Marbach at The China Stock Blog: Consumers have a new tool to navigate China's fragmented online travel market. Founded in early 2005, Qunar
(Mandarin for "where are you going") recently launched one of Asia's
first travel price comparison web sites. Here is an e-mail I received
from the company today explaining their model:

....our information is from over 100 travel web sites,
and our web site provide users the real time compared price from more
than 20 airline companies and 10,000 hotels, thus users can more easily
make their travel plans.

As one of the travel search engines, we do not provide any flight or
hotel booking service; instead, we help users rapidly find the price
from all the travel web sites, and then redirect the user to the
booking site and the user book the product on the travel site.

We use the most advanced intelligent data-extract technology,
analyze the travel product booking sites, extract their data, and
reorganize the data as a structured format in real time. And finally,
our users can easily and quickly find the products fit their needs from
hundreds of web sites through Qunar.com.

Comment: Qunar allows consumers to compare available prices not only for air tickets and hotels, but also for car rentals and
tour packages. The company plans to complete beta testing of its
English, Japanese and Korean sites this summer.

Stock implications: While Ctrip (ticker: CTRP) and eLong
(ticker: LONG) own a small percentage of the Chinese online travel
market, the introduction of Qunar gives more travel companies the
opportunity to compete. But China's travel market is huge -- analysts
predict that it will grow 40%-50% year-over-year for the next couple of
years - so investors need not be concerned.

What might concern investors in CTRP, LONG and Qunar? In initiating coverage of CTRP and LONG in early June, Deutsche Bank's William Bao Bean cited five issues facing Chinese online travel companies:

  • building
    their own hotel networks.
  • the lack of transparency in the travel
    market with numerous players.
  • little familiarity with making
    bookings and purchases over the phone and/or the Internet.
  • little
    education among consumers as to the benefits of going to a
    consolidator versus just walking into a hotel, using an agent or
    booking at an airline office.
  • surmounting regulatory hurdles
    such as local and national licensing requirements.

Final note about Qunar: The founders of Qunar are the same group that developed and sold the CSEEK search engine to News
Corporation (ticker: NWS) and founded and sold the Shawei.com portal to
Hutchison Whampoa-affiliate The Tom Group. Here are quick bios of the group:

Fritz Demopoulos
Prior to co-founding Qunar, Fritz was an
advisor to Chinese and international media companies including
InterActive Corp (ticker: IACI). Previously, Fritz was also head of
business development at Netease.com (ticker: NTES). In 1999 Fritz
co-founded and became CEO of Shawei.com. Backed by Intel Capital,
Softbank and IDG, Shawei grew to become one of China’s leading internet
portals. Shawei was subsequently acquired by The TOM Group in 2000.
Fritz began his career in China in 1997 as Business Development Manager
for The News Corporation (ticker: NWS). He was actively involved in a
range of initiatives with various News Corp-affiliated companies
including ChinaByte.com, STAR TV, NDS and Twentieth Century Fox.

CC Zhuang
Zhuang Chenchao “CC