Market Research Report : Online Travel Market in China 2012

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Online Travel Market in China
March 2012

Executive Summary
 China’s online travel industry has exhibited a rapid growth and development over the past years
Market  Estimated worth USDx bn in 20‐‐, growing at a CAGR of y% from USDz in 20‐‐
 Online travel booking user base has grown by p% CAGR over 20‐‐‐20‐‐

Drivers: Challenges:

‐ Increasing Internet Usage ‐ Increasing Competition

LE
‐ Rising Middle Class and Increasing Income ‐ Lack of Automation
‐ Regulations on Foreign‐Invested Travel Agency

P
Drivers & ‐ Rise in Number of Credit Card Holders
Challenges ‐ Growth in Tourism

SAM
‐ Loosened Visa Restrictions on Chinese Travelers
‐ Changing Consumer Lifestyles
‐ Untapped Market Potential

Government
 The New Travel Agency Regulations
Initiatives
 Players are Widening their Services Offerings
 Players are Coordinating with Online Communities
Trends
 Growing Investments

Major Players
Competition Company 1 Company 2 Company 3 Company 4 Company 5

ONLINE TRAVEL MARKET IN CHINA 2012.PPT 2

•Market Overview
•Drivers & Challenges
LE
P
•Government Initiatives
M
SA
•Trends
•Mergers & Acquisitions
•Competition
•Key Takeaways


China is expected to record z bn trips by 20‐‐, providing
tremendous growth opportunity to its online travel market
Asia Market – Overview Impact on the Asia Travel Industry 20‐‐*
• Online travel sales in Asia is expected to witness 0 10 20 30 40 50 60 70
rapid growth of y% during 20‐‐ ‐20‐‐, with country 1, %
country 2, country 3, country 4 and country 5 being
Online travel growth a1
the key markets
 In 20‐‐, online travel growth is expected to be a1% being

LE
the most important driver affecting the Asian travel
market, followed by the fuel price fluctuation (a2%) and
the Asian economy (a3%)
Fuel price fluctuation a2

MP
 The consumer base of Asian online travel market primarily
comprises first time travellers, who have chosen online
travel booking channels for their first travel experience
Asian economy a3

S A
Domestic Market – Overview (1/2)
• China’s online travel market is estimated to grow at a
CAGR of x% reaching USDb4 bn during 20‐‐ ‐ 20‐‐
Online Travel Market Size and Growth
USD bn
15
 China has the world’s largest internet population, x% b4
representing p% of the word’s total internet users, which 10 b3
provides a strong consumer base for the growing online b2
5 b1
travel industry
• z bn trips are expected by 20‐‐ in China, providing 0
trade opportunities for the country’s online travel 20‐‐ 20‐‐ 20‐‐e 20‐‐e
market


With less than merely x% of the user base, online travel
market offers significant opportunity of further penetration
Domestic Market – Overview (2/2) Online Travel Booking – User Base
• As of Jun 20‐‐, no. of people using travel booking No. of Users Utilization ratio
services reached a3 mn, growing at a CAGR of x%
from 20‐‐
No. of users x% Utilization Ratio
• Utilization ratio refers to the share of no. of people mn %
a1 a2

using travel booking services amongst the total 40 a3 8

LE
internet users in China 30 b3 6
b1 b2
 As of Jun 20‐‐, b3% of the total internet users indulged in

P
20 4
online travel booking services
10 2

M
 The remaining b4% of the total internet population can be
0 0

A
viewed as the potential consumer base indicating the huge
20‐‐ 20‐‐ Jan‐Jun 20‐‐

S
scope of growth for the online travel market in China

Share of Total Population in China Online Travel Booking Activities (20‐‐)
x1% Activity 1
x2% Activity 2
x3% Activity 3
x4% Activity 4


Online travel companies coordinates with travel service
SAMPLE
providers and global distribution system
Online Travel Companies
Air Carriers

Global Distribution Systems

• Finding 1
• Finding 2 • Finding 4

Tour Operators

Hotels

Customer

Advertisers • Finding 3
• Finding 5


Novel business models driving the online travel industry
in China
Business Models
SAMPLE Commission Charged
Indicative

Description Players • OTAs operate on a commission basis
• Travel service providers pay a percentage of the
flight and hotel room bookings
Includes
• Service description 1 player1, player
Before
2, player 3

• Airlines pay x% commission
on the domestic flight ticket
Includes player
booking
4, player 5,
Service description 2 player 6
After July, 20‐‐

• Airlines pay x% commission on
domestic flight ticket bookings
• Service description 3 player 7 • Airlines have cut y% points of
the commission paid on foreign
flight bookings
Includes player
• Service description 4 8, player 9,
player 10 Some players also charge a service fee over and
above the commission received


Drivers & Challenges – Summary

Drivers

Increasing Internet Usage
SAMPLE
Rising Middle Class and Increasing
Income Challenges

Rise in Number of Credit Card Holders Increasing Competition

Growth in Tourism Lack of Automation

Loosened Visa Restrictions on Chinese Regulations on Foreign‐Invested
Travelers Travel Agency

Changing Consumer Lifestyles

Untapped Market Potential


Growing number of internet users in China coupled with
rising penetration…
Increasing Internet Usage (1/2) Impact
•Finding 1
 Sub‐finding 1

SAMPLE
•Finding 2
 Sub‐finding 2
•Finding 3
 Sub‐finding 3

Rising Internet Population Internet Penetration – Rural and Urban

No. of users No. of users Penetration Penetration Urban Rural
mn % % z%
800 a6 60
x% 100 y%
600 a4 a5 c5
a3 b6 40
a2 c3 c4
400 b5 50 c2 d5
a1 b4 20 c1
200 b3 d2 d3 d4
b1 b2 d1
0 0 0
20‐‐ 20‐‐ 20‐‐ 20‐‐ 20‐‐ 20‐‐e 20‐‐ 20‐‐ 20‐‐ 20‐‐ Jun 20‐‐e


…creates business opportunities for the online travel market
in China
Increasing Internet Usage (2/2)
SAMPLE
•Finding 1
x1% x2% x3%

Survey in 20‐‐ Purchase Purchase Make online Result 1
online flight online train hotel room
tickets tickets reservations

•Finding 2
 Sub‐finding 2

Growth in Mobile Internet Users Usage of Mobile Internet for Travel Booking

Equivalent to
mn ~y% of the total
400 x% a4 population %
a3
300 a2
200 a1 Jan – Jun
Result 2 x4
100 20‐‐
0
20‐‐ 20‐‐ 20‐‐ 20‐‐
Finding 3


Rising urban middle class population coupled with
increasing income corresponding to greater …
Rising Middle Class and Increasing Income (1/2)
SAMPLE Impact
• Finding 1

% Share of Chinese Urban Households
120
100 d1 c1 e1 e2 d2
d3 e3 Global Affluent
80 b1 c2
Mass Affluent • Finding 2
60 c3 Upper Middle Class
b2 • Finding 3
40 a1 Lower Middle Class
20 b3 Poor
a2
0 a3
20‐‐ 20‐‐e 20‐‐e
20‐‐ 20‐‐e Preferred Leisure Activities of Millionaires
Income Bracket CAGR %
Class Share Size Share Size (20‐‐‐20‐
(USD) ‐)
( %) (mn) ( %) (mn)
g5%
Poor Below x1 ‐ ‐ ‐ ‐ ‐ Travel
g4% g1% Reading
Lower middle class x1 – x2 ‐ ‐ ‐ ‐ ‐
Tea tasting
Upper middle class x3 – x4 ‐ ‐ ‐ ‐ ‐
Driving
x4 – x5
g3%
Mass affluent ‐ ‐ ‐ ‐ ‐ Family activities
g2%
Global affluent Above x5 ‐ ‐ ‐ ‐ ‐

Improved Decline


…spending on non‐essential items such as travel and
recreation, driving growth in the online travel market
Rising Middle Class and Increasing Income (2/2)
•Finding 1
 Sub‐finding 1
•Finding 2
 Sub‐finding 2
•Finding 3
 Sub‐finding 3
SAMPLE
Urban Consumer Spending* Urban Disposable Income* Share of Spending

USD bn USD bn Basic Spending Discretionary Spending
a6
6,000 20,000 100%
a3 y%
x% b2
15,000 b1
4,000 a5
10,000 50% z%
a2
2,000 a4 c2
a1 5,000 c1
0 0 0%
20‐‐ 20‐‐e 20‐‐e 20‐‐ 20‐‐e 20‐‐e 20‐‐ 20‐‐e

Result 1

Result 2


Increasing usage of plastic money is poised to drive the
online travel market in China
Rise in Number of Credit Card Holders Impact
•Finding 1
 Sub‐finding 1
•Finding 2
 Sub‐finding 2
•Finding 3
 Sub‐finding 3
SAMPLE
Growth in Credit Card Holders Rise in Consumer Credit Card Spending

no. in mn USD bn
x% y% a5
300 a3 400
a2
250 a1 a4
300
200
150 200
100
100
50
0 0
Jun 20‐‐ Mar 20‐‐ Jun 20‐‐ 20‐‐ 20‐‐


Growing tourism boosts the potential consumer base of the
online travel market
Growth in Tourism Impact
•Finding 1
 Sub‐finding 1
•Finding 2
 Sub‐finding 2
•Finding 3
 Sub‐finding 3
SAMPLE
Rise in Outbound Tourism Rise in Inbound Tourism

No. of outbound tourists Outbound tourism expenditure No. of inbound tourists
No. of tourists Expenditure
y%
mn x% USD bn mn
100 100 150 c1 c2 c3
a3
a2
a1 100
50 b3 50
b2
b1 50
0 0 0
20‐‐ 20‐‐ 20‐‐e 20‐‐ 20‐‐ 20‐‐e

Result 1


Liberalized visa protocols for Chinese tourists will encourage

SAMPLE
foreign trips, offering growth prospects for OTAs
Reduced Visa Restrictions on Chinese Travelers Impact
Recently many countries have reduced visa restrictions for Chinese tourists

• Findings

Result 1

Result 2

Result 3


Holidays and vacations inducing people to travel far

Changing Consumer Lifestyles
SAMPLE
distances, driving the online travel market in China
Impact
• Finding 1

Cause Effect

• Finding 2
 Sub‐finding 2

Untapped Market Potential Impact
• Finding 3
 Sub‐finding 3

Share of Internet Population using Online Travel Booking Services (20‐‐)

%
100 Finding 4
a1
50
a2
0
Country 1 Country 2


Players are facing trouble in enhancing their market share

Increasing Competition
SAMPLE
due to increasing competition and lack of automation
Impact
•Finding 1
 Sub‐finding 1

New Domestic Market Entrants

• Findings

International
Result 1
players

• Finding 2

Lack of Automation Impact
•Finding 1
 Sub‐finding 1
•Finding 2
 Sub‐finding 2
•Finding 3
 Sub‐finding 3


High entry barriers challenge foreign players pursuing to
explore the Chinese online travel market
Regulations on Foreign‐Invested Travel Agency Impact
•Finding 1
 Sub‐finding 1
•Finding 2
 Sub‐finding 2
•Finding 3
SAMPLE
 Sub‐finding 3

Entry Barriers

State Administration for Industry China National Tourism Ministry of Commerce
and Commerce (SAIC) Administration (CNTA) (MOFCOM)
Investor needs to submit certain
required documents to CNTA for
Step 1 attaining the permission opinion
Step 2 Step 3
letter regarding foreign investment
in travel agency business

Step 5 Step 4


Government aims to protect the rights of tourists and travel
agencies and promote the healthy development of tourism
The new ‘Travel Agency Regulations’ was adopted by the Chinese government in May 20‐‐ for encouraging more
travel agency service providers in order to meet the growing demand for travel both domestically and globally

Benefits for Foreign Players

• Finding 1
• Sub‐finding 1
• Finding 2 SAMPLE
• Regulation 1

Regulations and • Regulation 2
Penalties for
Misconduct
• Regulation 3

• Regulation 4


Summary – Trends

Players are Widening
their Services Offerings

SAMPLE
Trends

Players are Coordinating
Growing Investments with Online
Communities


Players are adopting new strategies to tackle the increasing

SAMPLE
competition in the online travel sector
Players are Widening their Services Offerings
Value‐added
Finding 1 services are being
offered by the
players

Player Description

Player 1 •Description 1




Online travel companies are collaborating with online

SAMPLE
communities in a bid to expand their consumer base
Players are Coordinating with Online Communities
•Finding 1 OTAs and online
communities are
integrating their
services

Player Description





Players are investing in order to strengthen their base and
foothold in the market
Growing Investments
SAMPLE
•Finding 1 Increasing
investments to
•Finding 2 capitalize on the
growth potential

Date Investment Description

Jun 20‐‐ USDx mn • Description 1

May 20‐‐ USDy mn •Description 2

Jan 20‐‐ USD z‐w mn •Description 3


Mergers & Acquisitions (M&A) (1/2)
SAMPLE Size
Announced Date Closed Date Target Buyer/Investors Sellers
(USD mn)
‐ ‐ ‐ ‐ ‐ ‐

‐ ‐ ‐ ‐ ‐ ‐

‐ ‐ ‐ ‐ ‐ ‐

‐ ‐ ‐ ‐ ‐ ‐

‐ ‐ ‐ ‐ ‐ ‐

‐ ‐ ‐ ‐ ‐ ‐

‐ ‐ ‐ ‐ ‐ ‐

‐ ‐ ‐ ‐ ‐ ‐


Major Domestic Public Companies – Summary (1/2)
Net Profit
3,000
Size of the Bubble represents Market
2,500 Capitalization in USD mn x1

2,000

1,500 SAM
1,000

P LE

500 x3

0 x2
x4

‐500

‐1,000 Total Income
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Company 1 Company 2 Company 3 Company 4


Major Domestic Public Companies – Summary (2/2)

Total Income and Profit for Major Domestic Companies ‐ 2010
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
USD mn

a1
Company 1
b1

Company 2
a2

LE
b2

MP
A
a3

S
Company 2
b3

a4
Company 3 Total Income
b4 Net Profit


Domestic Company – Company 1
Company Information SAMPLE Locations – China

Corporate Address ‐

Tel No. ‐
Fax No. ‐
Website ‐
Year of Incorporation ‐
Ticker Symbol ‐
Stock Exchange ‐

Products and Services Headquarters
Other Offices
Category Products/Services

Key People
Category 1 Service 1, service 2, service 3
Name Designation

Category 2 Service 4, service 5, service 6, service 7 Person 1 Vice Chairman and CEO
Person 2 President and Director

Category 3 Service 8, service 9 Person 3 Chief Financial Officer
Person 4 Vice President


Financial Snapshot

Total Income Total Income
SAMPLE Profit
Key Ratios
Particulars
y‐o‐y change
(2010‐09)
2010 2009 2008 2007
USD mn
Profit / Loss
USD mn Profitability Ratios
1,000 a3 a4 60 Operating Margin ‐ ‐ ‐ ‐ ‐

a1 a2 Net Margin ‐ ‐ ‐ ‐ ‐
40 Profit Before Tax Margin ‐ ‐ ‐ ‐ ‐
500
20 Return on Equity ‐ ‐ ‐ ‐ ‐
Return on Capital Employed ‐ ‐ ‐ ‐ ‐
0 0 Return on Working Capital ‐ ‐ ‐ ‐ ‐
20‐‐ 20‐‐ 20‐‐ 20‐‐ Return on Assets ‐ ‐ ‐ ‐ ‐
Return on Fixed Assets ‐ ‐ ‐ ‐ ‐
Financial Summary
Cost Ratios
• The company earned a net profit of USDb4 mn in FY 20‐‐, as Operating costs (% of Sales) ‐ ‐ ‐ ‐ ‐
compared to a net profit of USDb3 mn in FY 20‐‐ Administration costs (% of
‐ ‐ ‐ ‐ ‐
Sales)
• The company reported total Income of USDa4 mn in FY 20‐‐,
Interest costs (% of Sales) ‐ ‐ ‐ ‐ ‐
registering an increase of x% over FY 20‐‐
Liquidity Ratios
• The company reported an operating margin of c1% in FY 20‐‐ a Current Ratio ‐ ‐ ‐ ‐ ‐
decrease of y percentage points over FY 20‐‐ Cash Ratio ‐ ‐ ‐ ‐ ‐
• The company reported debt to equity ratio of d1 in FY 20‐‐, an Leverage Ratios
increase of z% over FY 20‐‐ Debt to Equity Ratio ‐ ‐ ‐ ‐ ‐
Debt to Capital Ratio ‐ ‐ ‐ ‐ ‐
Financial Summary Interest Coverage Ratio ‐ ‐ ‐ ‐ ‐
Indicators Value (20/03/2012) Efficiency Ratios
Market Capitalization (USD) g1 Fixed Asset Turnover ‐ ‐ ‐ ‐ ‐
Asset Turnover ‐ ‐ ‐ ‐ ‐
Total Enterprise Value (USD) g2
Current Asset Turnover ‐ ‐ ‐ ‐ ‐
EPS (USD) g3 Working Capital Turnover ‐ ‐ ‐ ‐ ‐
PE Ratio (Abs) (21/03/2012) g4 Capital Employed Turnover ‐ ‐ ‐ ‐ ‐

Improved Decline


Key Business Segments
Segment 1 Segment 4 Segment 7
SAMPLE Key Geographic Segments

Country 1 Other Area Country 4
Segment 2 Segment 5 Segment 8
Segment 3 Segment 6 Country 2 Country 3

100% w1 w2
100%
h1 h2 h3 z1
d1 g3 d2 g2 d3 g1
c1 s1 s2
80% c3 y1
b1 c2 x3
60% b2
50% x2
b3
40% x1
a1 a2
20% a3
0%
0%
20‐‐ 20‐‐ 20‐‐ 2007 2008 2009

Key Recent Developments

Description News
• Company 1 functions as a tour operator in China
 Company operates website1.com, a travel website that provides various travel services and products to travelers who
Overview
visit China
 Website 2 is an online travel website owned by the company

• In Dec 20‐‐, company 1 along with company 2., and other investors had plans of investing x mn in
Private Placements company 3
• In Nov 20‐‐, company1 along with other investors had funded USDy mn to company 4

• In Oct 20‐‐, company 1 collaborated with company 5 for establishing a tourism service centre under the
Business Expansion
brand name brand 1


Company Information SAMPLE Locations – China

Corporate Address ‐

Tel No. ‐
Fax No. ‐
Website ‐
Year of Incorporation ‐

Products and Services Headquarters
Category Products/Services

Key People
Category 1 Service 1, service 2, service 3
Name Designation

Category 2 Service 4, service 5, service 6, service 7 Person 1 Co‐Founder and CEO
Person 2 Co‐Founder

Category 3 Service 8, service 9 Person 3 Co‐Founder


Key Recent Developments
Description
SAMPLE News
• Company 2 is a travel search portal in China
• It enables the consumers to compare real‐time positions of air tickets, hotels, car rentals, and tour
Overview packages
• Their information has a coverage of x1 air routes and x2 hotels worldwide
• They also offer more than z1 tour packages in z2 Chinese cities
• In Jun 20‐‐, company 3 had invested USDx mn in company 2, making it the majority shareholder of the
company
 Company 2 plans to use this fund for the development of technical talent, hotel search and mobile services and
Private Placements acquisitions
 They have plans of expanding their cooperation with company 3’s other services
• In early 20‐‐, company had raised USDy mn in funding from investors, including investors, including
company 4, company 5, company 6, company 7 and company 8

Business Plan • In Jan 20‐‐, company had plans of considering an initial public offering in the country 1


Online travel market is expected to grow at a CAGR of x% to
reach USDa4 bn by 20‐‐
SAMPLE
Online travel industry is largely driven by the world’s largest online consumer base in China

Opportunities in the Market Size Government
Market USD bn
Initiatives
12
a4 Government has
Increasing internet usage 10 x%
a3 adopted certain policies
coupled with growing mobile 8
a2 and regulations
6
internet users act as a major a1 associated with the
4
driver for the online travel Chinese tourism sector,
2
industry in China 0 which are also applicable
20‐‐ 20‐‐ 20‐‐e 20‐‐e for the online travel
Rising middle class, growing agents
credit card usage and growth
Government is taking
in tourism provides initiatives for supporting
opportunity for growth in the Challenges the sustainable
online travel sector development of the
online travel industry,
Reduced visa restrictions, strengthen the
changing consumer lifestyle • Increasing Competition protection of rights and
and untapped market • Lack of Automation interests of tourists and
potential facilitates further travel agencies and
growth of online travel • Regulations on Foreign‐Invested Travel Agency stabilize the overall
market tourism sector


Thank you for the attention
Online Travel Market in China report is a part of Netscribes’ Business Services Industry Series.
For more detailed information or customized research requirements please contact:

Jitendra Punjabi
Phone: +91 33 4064 6215
E‐Mail: jitendra.punjabi@netscribes.com

About Netscribes
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Disclaimer: This report is published for general information only. Although high standards have been used the preparation, Research on India,
Netscribes (India) Pvt. Ltd. or “Netscribes” is not responsible for any loss or damage arising from use of this document. This document is the
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