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Taiwan, Japan, Singapore, Thailand and South Korea were popular short-haul destinations for
the people of Hong Kong. Low-cost carriers (“LCC”), such as Hong Kong Express and Hong
Kong Airlines, had been aggressively marketing new routes to secondary Japanese cities, such
as Hiroshima, Miyazaki and Kumamoto, in addition to all-time favorites like Tokyo, Osaka and
Sapporo. Other regional LCCs also participated by offering more regional short-haul
destinations to lure Hong Kong travelers. Cross-border travel to Shenzhen or southern China
was a regular weekend activity for many in the Hong Kong working class. With the opening of
Kai Tak Cruise Terminal in 2013, cruise travel was developing momentum.
Industry analyst Euromonitor estimated the Hong Kong travel-intermediaries market at a value
of slightly more than US$12 billion, of which the 70% lion’s share went to package holidays
[see Exhibit 2].5
Local travelers were familiar with independent excursions, but package
holidays were by far the most popular mode of travel. Traditional tour operators dominated this
market segment, and they worked hard to keep up with travelers’ changing preferences and
interests. Destination weddings, wellness holidays, gourmet tours and adventure holidays were
just a few of the choices.
Hong Kong residents were mobile-savvy and spent a lot of time interacting with their
smartphones: reading news, sharing information with friends and browsing Facebook. When
they planned their holidays, they relied on local travel media such as U Magazine and Weekend
Weekly and their websites for information, and other global travel platforms, such as
TripAdvisor, and travelers’ blogs for endorsements and reviews. In recent years, the penetration
of data-enabled smartphones gave travel suppliers the opportunity to feed last-minute deals and
limited-time offers to mobile users, which boosted online sales. Although the segment
represented only 8% of the total market in 2014, the online sector had recorded much stronger
growth than its offline counterparts, citing a 16.74% compound annual growth rate beginning
in 2010, double that of bricks-and-mortar tour operators.6
Key Players
The US$12 billion local travel-intermediaries market was fragmented.7
The largest market
leader captured slightly more than 5% of the total market. The top 10 players together accounted
for less than 20% of total sales.8
For a market of seven million people, there was intense
competition.
Hong Tai Travel (康泰旅遊), Wing On Travel (永安旅遊), Travel Expert (專業旅遊), EGL
Tours (東瀛遊), China Travel Service (中旅), Morning Star Travel (星晨旅遊) and Sunflower
Travel (新華旅遊) were the traditional tour operators who had operated in Hong Kong for
decades. All of them relied on a network of branches and in-shop consultants who answered
customer inquiries face-to-face or over the phone. They also invested heavily in advertising,
from daily full-page print ads to sponsored TV travel series.
Among them, Hong Tai was the largest, with double the sales of its closest competition year
after year [see Exhibit 3]. Euromonitor estimated the market leader’s annual sales at US$637.7
million in 2014, posting close to 20% year-on-year growth.
5 Euromonitor International (20 October 2015) “Intermediaries in Hong Kong, China”, Global Market Information Database,
http://www.portal.euromonitor.com.eproxy2.lib.hku.hk/portal/analysis/tab, (accessed 26 January, 2016).
6 Euromonitor International (20 October 2015) “Intermediaries in Hong Kong, China”, Global Market Information Database,
http://www.portal.euromonitor.com.eproxy2.lib.hku.hk/portal/analysis/tab, (accessed 26 January, 2016)
7
According to government statistics, Hong Kong had 1,743 registered travel agents in 2014. See: Travel Agents Registry,
http://www.tar.gov.hk/eng/statistics/index.html#1, (accessed 1 April 2016)
8 Euromonitor International (20 October 2015) “Intermediaries in Hong Kong, China”, Global Market Information Database,
http://www.portal.euromonitor.com.eproxy2.lib.hku.hk/portal/analysis/tab, (accessed 26 January, 2016).
3. 16/577C Zuji: Finding a Winning Strategy
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Established in 1966, the name Hong Tai Travel was synonymous with “packaged tour” in Hong
Kong. According to the company’s website, the agency had retained its position serving the
largest number of Hong Kong residents for 14 consecutive years.9
It earned a reputation for
innovative packaged tours. Recently, it was actively marketing high-end gourmet tours, “Le
Tour de Delicatesse,” led by famous chefs and food critics, to Beijing, China and Osaka/Kyoto,
Japan. It had maintained a network of 19 retail outlets throughout the territory, where the bulk
of sales was transacted. Fifty years into operation, it was striving to catch up with the wave of
technology. Although the company’s website included a small online booking section, “Easy
Buy Easy Go,” its performance was far from interactive and real-time. Overall, the website was
only an information-rich platform for customer research, and telephone booking was as far as
technology went for the market leader.
Developments had taken a slightly different spin at Wing On Travel, a rival as old as Hong Tai
Travel. In 2010, Wing On Travel Holdings Limited (HKEx 1189) sold the business to China’s
leading online travel portal, Ctrip.com.10
The new ownership allowed Wing On Travel to
leverage Ctrip’s technology backbone and access content resources to implement an online
booking system. Wingontravel.com, a one-stop online booking platform for airline, hotel and
frequent independent traveler (FIT) packages was launched in 2012. Two years later, a mobile
app became available, offering the consumer real-time airline and hotel reservations via
smartphones. Wing On claimed that consumers could now access over 400,000 hotels and 200
flights to hot destinations, including budget flights, and could book ferry tickets to Macau in
real time 45 minutes before departure, all via the mobile app.11
To maximize its mobile
investments and drive engagement, Wing On Travel introduced a 2.25x member bonus-points
offer for reservations made via the mobile app.
In 2014, Wing On Travel maintained a solid second position in the market, leading Zuji by half
a percentage point [see Exhibit 3]. Both Hong Tai Travel and Wing On Travel were able to
lead the market with their competitive pricing, diversified package products, brand recognition
and established retail network.
Relative to Hong Tai Travel and Wing On Travel, fourth-place Travel Expert was a latecomer,
having opened for business in 1986. According to the company’s website, it first started as a
family business selling airline tickets and hotel rooms. 12
From there, it developed into a
specialist serving FITs. Today, Travel Expert had the most extensive network of 60 retail
branches and kiosks distributed at convenient locations, including MTR stations. It had
introduced three new brands, Premium Holidays (尊賞假期), Tailor Made Holidays (度新假
期) and Take My Hand (緣動), under the corporate franchise. Premium Holidays focused on
high-end, long-haul guided tours that would appeal to baby-boomer generation travelers. Tailor
Made Holidays was designed to target retail FIT travelers, while Take My Hand positioned
itself as a wedding specialist, allowing the FIT expert to diversify into the destination-wedding
market. In 2015, Pack2fly.com was launched to provide a cost-effective online sales channel to
enhance its competitiveness.
9 For details, see Hong Tai Travel website: http://www.hongthai.com/tc/AboutHongThai/CompanyInfo.html.
10 For details, see Wing On Travel (Holdings) Limited Company Announcement (3 March 2010), available online at
http://www.hkexnews.hk/listedco/listconews/SEHK/2010/0303/LTN201003031034.pdf, (accessed 27 January 2016).
11 For details, see Wing On Travel website, ”卓越網上旅遊平台” (27 January 2016)
http://www.wingontravel.com/AboutUs/WhatsNews/Home.html, (accessed 28 January 2016).
12 For details, see Travel Expert website, www.travelexpert.com.hk/en/, (accessed 16 February 2016)
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Online Travel: Global Dynamics and Local Players
Microsoft founded Expedia.com almost two decades ago, and Priceline.com launched the
“Name Your Own Price” service about the same time. Since then, the online travel market had
undergone significant development. Much of the online industry’s success was underpinned by
a surge in demand for independent travel around the world. Travel and hospitality research firm
PhocusWright estimated approximately 60% of US leisure, unmanaged and corporate travel
expenditures occurred online, compared with approximately 50% in Europe, and a relatively
smaller 20-25% in Asia Pacific.13
With online booking recording much stronger momentum,
key players were scaling their operations through mergers and acquisitions, and the global
marketplace had consolidated into a duopoly between Expedia, Inc. (NASDAQ: EXPE) and
Priceline.com (NASDAQ: PCLN) [see Exhibit 4]. In 2015 alone, Expedia spent over US$6
billion in strategic acquisitions which included Travelocity, a majority stake in AirAsia, and
minority investments in Decolar, Orbitz Worldwide and, most recently, HomeAway.
Established in 1996, Expedia had since developed a global portfolio of over 200 travel-booking
sites in over 70 countries and 150 mobile websites in nearly 70 countries, taking up over 45%
of international revenue. Gross bookings in 2015 were US$59.7 billion and total revenue
reached US$6.6 billion.14
Neck-to-neck competitor Priceline went through a similar trajectory. The Priceline Group
included a number of independently managed and operated brands: Booking.com, KAYAK,
agoda.com, rentalcars.com and OpenTable. The company reported US$55.5 billion in gross
bookings and total revenue of US$9.224 billion in 2015.15
Global Dynamics
Online travel players were subject to competition on multiple fronts: online and offline travel
agents, meta-search travel websites, search engines, social media apps, online group buying,
ecommerce websites and direct travel suppliers. Meta-search websites such as Trivago and
Kayak controlled an OTA’s participation in their aggregated search results, and lured
consumers to utilize their websites for bookings. Both Expedia and Priceline had complemented
their brand portfolio with meta-search websites to protect their business, as well as to compete
for a share of the advertising revenue generated by such meta-search engines. Expedia owned
Trivago, while Priceline owned Kayak.
TripAdvisor, the world’s largest travel site,16
enabled travelers to plan and book their trips by
offering peer-review advice from millions of travelers, and links to booking tools that scout for
the best hotel prices. Like the other two travel gurus, TripAdvisor had strengthened its core
offering – peer reviews – with a portfolio of specialized review websites such as
cruisecritic.com, familyvacationcritic.com and airfarewatchdog.com, and complemented its
scope of service with powerful booking tools for air fare, hotels, packages and in-destination
dining services. In 2014, TripAdvisor acquired Tripbod (tripbod.com), an online community of
local experts recruited to provide travelers with authentic and intimate local knowledge on
demand.
13 Expedia, Inc. Annual Report 2014, available online at
http://files.shareholder.com/downloads/EXPE/2118687396x0x825553/98E10137-84AD-40B1-B0B9-
16BC689D74D9/2014_Annual_Report_bkmk_.pdf, (accessed 6 February, 2016)
14 Expedia, Inc.(February 10, 2016), Investor Presentation, available online at
http://files.shareholder.com/downloads/EXPE/2118687396x0x874409/7670D75F-2D43-4B6E-BFE9-
A8E4B7008D9C/Expedia_Inc_Q4_2015_Investor_Presentation_FINAL.pdf, (accessed 14 February 2016)
15
Priceline Group (17 February 2016), “The Priceline Group Reports Financial Results for 4th Quarter and Full-Year 2015”,
http://files.shareholder.com/downloads/PCLN/1557187731x0x875439/25035ce7-7600-4dcd-85b6-
d005d1757ea1/PCLN_Group_Earnings_Release_Q415.pdf, (accessed 19 February 2016).
16
See TripAdvisor’s website, https://www.tripadvisor.com/PressCenter-c6-About_Us.html, (accessed 1 April 2016).
5. 16/577C Zuji: Finding a Winning Strategy
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In 2011, Google made inroads into the online travel market with the acquisition of ITA
Software, Inc., a flight-information software company, and Hotel Finder, a meta-search hotel
booking service owned by ITA. More recently, Google was reported to have licensed hotel-
booking software Room 77 to help drive user experience in travel searches.17
Search engine
analysts have observed that Google was “quietly revamp[ing] the mobile user interface for
travel-related searches,” leading consumers to a new mobile travel-search experience that
“makes it harder to view web-based search results.”18
The change meant that the entire search
experience would now funnel through the Google-defined travel engine.
Apart from being directly competitive, search engines posed a prevailing risk to OTAs in terms
of the way traffic was directed. Traffic from search engines came through a few options, such
as pay-per-click ads or ranking in results displays; hence, any change to the search algorithms
would affect an OTA’s customer-acquisition costs.
The growing prospects of the OTA market continued to attract new market participants, each
trying to craft their own niche. Hotwire, for instance, was an online booking service that
matched price-sensitive travelers to suppliers with excess capacity. The strategy Hotwire used
was to present deals as partially “opaque,” not revealing exact information like brand names
and property locations, in return for substantial discounts. Through Hotwire’s engine, property
owners were able to generate discounted revenue from their inventory without compromising
their brand image and price position in the market.
Around the world, smartphones were increasingly perceived as an essential travel companion.
Launching a fast, innovative, and feature-rich mobile app responsive to traveler needs became
more a matter of necessity than convenience.19
Industry analysts anticipated that the OTA
market would be migrating to the mobile environment as smartphones and tablets took over as
the primary device for online access.
In the final analysis, an OTA relied heavily on its relationship with its suppliers. If airlines and
hotels withdrew their inventory from the OTA’s channel, their business would be affected. The
immediate challenge for an OTA came from suppliers’ direct websites, where rate parity,
availability and promotional offers were differentiating strategies protecting their share of the
market. In recent years, emergence of “pay at hotel” or “pay at booking” transaction models
had impacted OTAs’ bottom lines in terms of margin per hotel room per night booked. “Pay at
booking” translated into what was called the merchant model, while “pay at hotel” would see
the OTA returned to its role as agent working under a commission system. Until recently, OTAs
such as Expedia included a rate parity clause in their contracts with hotel suppliers, restricting
the hotel owner from undercutting them online. However, in June 2015, the French National
Assembly had moved to cancel rate parity clauses in contracts between hotels and OTAs, and
this set a precedent for other countries to follow.20
Leading international hotel chains were implementing their own online booking platforms with
aggressive loyalty rewards to encourage travelers to book direct. For instance, the Marriott
17 Bloomberg Business (7 April 2014) “Google Licenses Room 77 Software in Mobile Travel-Booking Push,”
http://www.bloomberg.com/news/articles/2014-04-07/google-licenses-room-77-software-in-mobile-travel-booking-push,
(accessed 14 February 2016).
18 Schwartz, B (4 February, 2016),“Google Revamps Mobile Travel Search Results, Almost Making Web Results Irrelevant”,
Search Engine Land, http://searchengineland.com/google-revamps-travel-search-queries-almost-making-web-results-
irrelevant-241784 (accessed 14 February, 2016)
19 Expedia, Inc. (13 January 2016) “Expedia/Egencia Mobile Index Study of Global Travelers Reveals That They Now Consider
the Smartphone to Be Their "Most Indispensable" Travel Companion”,
http://www.expediainc.com/newsrelease/?aid=123289&fid=99?fid=99&yy=2016, (accessed 10 February 2016)
20 Tnooz.com (19 June 2015), “French parliament kills rate parity, and Booking predicts hotel price war”,
http://www.tnooz.com/article/french-parliament-kills-rate-parity-and-booking-predicts-hotel-price-war/, (accessed 16
February 2016).
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hotels offered “best rate guaranteed, free wifi and pay when you stay” as rewards for booking
direct. Others, such as Starwood Hotels, which represented some 11 hotel brands, including
Sheraton, Westin and W Hotels, offered a Starwood Preferred Guest (SPG) loyalty program,
which rewarded travelers with “earn free nights” when they booked direct.
Online Travel Booking in Hong Kong
As of the end of 2014, Zuji Hong Kong and Priceline Hong Kong were the two leading brands
that had captured close to half of the US$989 million in OTA sales in Hong Kong. 21
Wingontravel.com, a latecomer, was catching up and posing as a strong contender, operating
in both the online and offline modes.
Zuji was first inaugurated in 2001 as a joint venture of 11 major Asian Pacific airlines and the
US travel website Travelocity. It was founded by the consortium of national carriers to “boost
their own online sales efforts in competition with those low-fare carriers and Web-based travel
agencies such as Expedia Inc., Priceline.com Inc. and Travelocity.com Inc.”22
Zuji.com.hk
came online in November 2002, after a series of postponements.
Priceline Hong Kong, a 65:35 per cent joint venture between local conglomerate Hutchison
Whampoa and Priceline.com, shared a similar fate during start-up. It was delayed more than a
year when it was finally launched in March 2002, eight months ahead of Zuji Hong Kong.
While Zuji's pitch was the convenience of buying travel online, Priceline launched its “Name
Your Own Price” market proposition to lure deal seekers. However, less than a year after its
launch, Priceline announced it would now switch to a published price business model in a
change of strategy. The strategy switch was endorsed by market research firm AC Nielsen, who
said “many consumers in Asia were still reluctant to try the online bidding model.”23
Both Zuji and Priceline got off to poor starts. The outbound market had shrunk by 11% in 2003,
largely due to the outbreak of SARS (severe acute respiratory syndrome) in Hong Kong [see
Exhibit 2]. Although there was a rebound in 2004, it barely made up what had been lost in
2003. Between 2004 and 2008, the outbound market stabilized, with moderate growth until the
financial crisis hit in 2009.
Indeed, Hong Kong had enjoyed the unique position of being “unaffected” while global markets
struggled to survive the financial crisis. Figures showed that, other than the immediate dip in
2009, the local market soon rebounded and had been posting solid double-digit growth ever
since. This US$12 billion market had almost doubled in size between 2009 and 2011.
As the industry’s growth-driver, online booking in Hong Kong continued to post strong
performance in spite of market ups and downs. It grew by 38% in 2003 and 29% in 2009, even
during market dips. Following that, year-on-year growth was promising, at 60% in 2004, 42%
in 2005 and 37% in 2006. However, the online share of sales was low, at roughly 8% in 2014.
The figure was far from satisfactory compared to the industry estimate of 20-25% for Asia
Pacific. For many years, Hong Kong travelers maintained the habit of researching and finding
deals online, but would go to brick-and-mortar travel agents to book. Ecommerce security was
said to be one of the barriers to online booking. Others included preference for face-to-face
discussions and a general lack of trust in the virtual environment.
In 2012, Hong Kong’s de facto airline, Cathay Pacific, launched a marketing campaign that
gave local travelers’ confidence in online travel booking a boost. The airline launched a weekly
21 Euromonitor International (20 October 2015) “Intermediaries in Hong Kong, China”, Global Market Information Database,
http://www.portal.euromonitor.com.eproxy2.lib.hku.hk/portal/analysis/tab, (accessed 26 January, 2016).
22 Coleman, Z. (16 August 2001) “Airline Venture Unveils Plans For Zuji, a Web Travel Site”, The Asian Wall Street Journal.
23 Li, S. (17 January 2003) “Hutchison-Priceline shifts strategy”, South China Morning Post.
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promotion of discounted airfare to selective destinations, for a limited time period with a quota.
“FanFare” was launched in October and met with enthusiasm from local frequent leisure
travelers. The campaign was a phenomenal marketing success, creating new demand for short
breaks, which locals were already fond of.
In July 2013, Expedia finally landed in Hong Kong and launched a local site, promising a
guaranteed best price. When asked how the company differentiated itself from Zuji, Expedia
Asia’s chief executive said, “We are a true tech company. All of our engineering is done in-
house. If you don't have that, you're just a marketing company.”24
A year after its launch,
Expedia Hong Kong claimed to have “8% market share,” a figure that was perhaps short of the
global giant’s expectations.25
Expedia attributed the lackluster development to the absence of a
thriving budget airline market in Hong Kong. This echoed the company’s earlier announcement
of a joint venture with AirAsia in 2011, enabling both partners to complete their offers of value
flights, hotels and holiday packages.26
As a result of recent ownership restructuring, Priceline Hong Kong was rebranded as
Hutchgo.com. In June 2015, Cheung Kong Holdings Limited, a major shareholder and operator
of Priceline Hong Kong, acquired full control of local operations and parted with the Priceline
Group. Under the new structure, CK Hutchison Holdings Limited introduced two new travel
brands: an online travel agency, Hutchgo.com, and a corporate travel division called Hutchison
Corporate Travel.
Zuji: Path of a Pioneer in Online Travel
Zuji.com was backed by 16 major airlines, including All Nippon Airways, Cathay Pacific
Airways, China Airlines, EVA Airways, Garuda Indonesia, Hong Kong Dragon Airlines, Japan
Air System, Japan Airlines, Malaysia Airlines, Northwest Airlines, Philippine Airlines, Qantas
Airways, Royal Brunei Airlines, Silk Air, Singapore Airlines and United Airlines. US travel
website Travelocity.com was a significant shareholder and strategic partner, providing the OTA
with its technology platform for fare-search and booking engines.
Zuji.com was launched in August 2001. At the time, it was primarily an informational website.
The plan was to test-run services to registered users, paving the way for a booking service to
come online at the end of 2001. Yet the company announced in December 2011 that it was
delaying the launch as a result of the 9/11 events in the USA.
In September 2012, a booking service for Singapore and Australia finally came online. Two
months later, on November 27, 2002, Zuji Hong Kong was officially launched. Offering online
booking for car rentals, travel packages, hotels, flights and travel insurance, it targeted an
expansion to “10 Asia Pacific countries,” according to Pascal Bordat, chief executive at the
time. 27
Bordat also projected Zuji.com would be profitable in three to four years.
Shortly after launch, Zuji forged an alliance with Yahoo! Hong Kong, in the hope that it would
give the online travel agent immediate access to 75% of the local internet population. However,
24 Ap, T. (15 July 2013) “US online travel agent marks opening of HK site with fare guarantee and 99pc discount offer”, South
China Morning Post.
25 Ma, A. (24 November 2014) “Expedia to add 400 hotel partners in HK push”, EJ Insight, http://www.ejinsight.com/20141124-
expedia-to-add-400-hotel-partners-in-hk-push/, (accessed 16 February 2016).
26 PRNewswire (29 March 2011) “Joint Venture of AirAsia and Expedia to Power Online Travel Revolution in Asia”,
http://www.prnewswire.com/news-releases/joint-venture-of-airasia-and-expedia-to-power-online-travel-revolution-in-asia-
118877729.html, (accessed 16 February 2016)
27
Ong, C. (16 August, 2001) “Airlines' travel-site venture maintains hope in regional online market despite failure of peer”,
South China Morning Post.
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8
the partnership did not make Zuji fly as anticipated. It was said to be “registering double digit
growth,” but the actual number of transactions “remained small.”28
In 2004, Zuji made a strategic decision to go further into the China market. It scouted for
discount deals from transport companies and hotel operators in second-tier cities in China,
targeting its service to small and medium-sized businesses in Hong Kong. By late 2005, the
company said business was “up 130 per cent in dollar sales” over the previous year, driven by
more suppliers and LCCs “coming on board to the online market.”29
Meantime, there was a bit
of drummed-up fanfare when Travelocity, Zuji’s strategic investor and shareholder, announced
that it was interested in acquiring full control. Travelocity had previously owned 13.63% of
Zuji. At a price tag of US$34 million, the US travel portal acquired the remaining shares from
Abacus International Pte Ltd., AGC Holdings Ltd. and a consortium of 15 airlines in the region.
It was suggested that Travelocity had its eye on the mainland market, which Zuji was poised to
enter.30
The acquisition was completed in January 2006, when Zuji’s operations in Australia, Hong
Kong, Korea, New Zealand, Singapore and Taiwan became wholly owned by Travelocity.
Between these markets, Zuji’s revenue model varied. In Hong Kong, it was “a mix of service
fee mark-up and commission from hotels” that made up the OTA’s total revenue.31
Travelocity
said the acquisition would accelerate Zuji’s B2B capabilities and scope (i.e., travel partner
network), and extend both companies’ presence in China and India.32
On the other hand,
consumers would benefit from the combined offer of more and better content and deals.
As the credit crunch hit the global economy, consumer travel behavior changed.
“Holidaymakers are booking at the last minute more often” and were looking to websites for
better deals, said one industry executive.33
At the supply end, hotels were more receptive to
online distribution, and more budget flights were available. The change in the supply chain
enabled Zuji’s dynamic air + hotel packages to take off, and business was picking up. Riding
on its TripSaver packaging technology, Zuji was able to allow travelers to combine hundreds
of airlines and thousands of hotels to form their own holiday packages. “This new technology
also saves customers money, averaging out at about 30 per cent,” the company claimed.34
Other
sales initiatives included “crazy sale” auctions every Friday afternoon, with opening bids for
holidays “starting at HK$8” and air fare deals such as “Britain for less than HK$2,000.”
As social media gained in popularity, Zuji stepped up its marketing efforts on Facebook. In
2011, it conducted a “Hotel Sudden Launch” campaign, uploading e-vouchers for discounts on
hotel bookings to its Facebook page. “We don't see social media as just a platform to advertise,
but a platform to engage both existing and potential customers and a place to incorporate
inspiration, recommendations and discovery into the online consumer experience,” said the
company’s loyalty program executive.35
28
Li, S. (15 January 2003), “Online travel firm aims for 30pc of market”, South China Morning Post.
29
Healy-Fenton, A. (5 December 2005), “Online travel agent Zuji clicks with technology savvy travelers”, South China Morning
Post.
30
Bailey, M. (30 May 2005), “Travelocity gets closer” under “Cathay Pacific puts more passengers on board to overtake JAL”,
South China Morning Post.
31
Healy-Fenton, A. (5 December 2005), “Online travel agent Zuji clicks with technology savvy travelers”, South China Morning
Post.
32
Sabre Holdings (24 January 2006), “Travelocity Acquires Full Ownership of ZUJI Continuing Its Global Expansion”,
http://www.sabre.com/insights/releases/travelocity-acquires-full-ownership-of-zuji-continuing-its-global-expansion/ (accessed
24 February 2016).
33
Peters, E. (3 June 2009), “Late deals spurred by cyber revolution”, South China Morning Post.
34
Peters, E. (3 June 2009), “Late deals spurred by cyber revolution”, South China Morning Post.
35
South China Morning Post (27 July 2011), “Travelers tales go viral”, http://methode-qa.scmp.com/article/974533/travellers-
tales-go-viral, (accessed 24 February 2016).
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9
In the age of the internet, online forums were important channels for consumers to review and
share their experiences of a particular vendor. If you typed Zuji in the search field of
TripAdvisor Forum, you would find pages of results featuring catch phrases such as “avoid
booking with Zuji,” “the Zuji nightmare” and “Zuji worst customer service.” It seemed the
online agent had trouble managing their airline suppliers in cases of a change in itinerary. And
Zuji’s price-quotation system had been criticized for not providing the customer with the “full”
price inclusive of tax, service charge and related surcharges.
Amid the consolidation of the global online travel market, Zuji changed hands again. In
December 2012, Australian online travel company Webjet announced its intention to acquire
Zuji’s operations in Hong Kong, Singapore and Australia. In a company statement, Webjet
reasserted Zuji’s position as “the number one online travel agency in air tickets” in Hong Kong
and Singapore.36
Financial analysts rated the transaction as “looking positive.”37
The US$25
million price tag, compared, although not on an entirely “apple-to-apple” basis, to the US$34
million Travelocity paid in 2006, represented the shrinking market value of Asia’s leading
online portal. As a subsequent media report revealed, “Analysts estimate Zuji lost A$3.6m
across its entire regional business, which includes operations in Singapore and Hong Kong, in
2012.”38
The acquisition was completed in March 2013.
Zuji: Search, Discover and Share
In October 2015, Zuji launched “Search, Discover and Share,” a new brand marketing
campaign, which included a Hong Kong-specific Zuji blog, a series of travel video clips by
popular bloggers and a Facebook contest. The campaign was designed to further the OTA’s
interaction and engagement with prospective travelers, and reinforced Zuji’s position as Hong
Kong residents’ “most favorite” online travel agency. The new campaign was kick-started by a
“Three-Part Outbound Travelers’ Sentiment Index Series,” in which Zuji tracked the local
population’s propensity to travel, their desired destinations and travel habits and preferences.
Exclusive channels, secret deals and budget packages were Zuji’s key tactics in appealing to
prospective travelers. On its website, Zuji’s propositions to customers were:
200,000 weekly flights on 400 airlines
150,000 hotels
an endless number of packages
activities, car rental and travel insurance
24/7 customer service
instant confirmation
safe and secure transaction on all international bookings
At the time, Zuji implemented a handling fee of HK$150 (approx. US$20) per booking change
online, and HK$250 (approx. US$32) via Zuji hotline.
Charlie Wong, CEO of Zuji Hong Kong, told media at the launch of the new brand campaign,
“Online travel sales in Hong Kong was estimated at approximately 10% of the total market,
36
Webjet.com.au (12 December 2012), “Webjet Acquisition of Zuji to Propel TTV By 30%”,
http://investor.webjet.com.au/media-release/webjet-acquisition-of-zuji-to-propel-ttv-by-30-percent/, (accessed 12 February
2016).
37
Tan, G. (12 December 2012), “Webjet’s Zuji Deal Looks Good to Analysts”, The Wall Street Journal,
http://blogs.wsj.com/dealjournalaustralia/2012/12/12/webjets-zuji-deal-looks-good-to-analysts/, (accessed 24 February 2016).
38
Kelly, M. (4 February 2013), “Zuji A Long-Term Loser – $33m in Australia Alone”, TravelTrends,
http://www.traveltrends.biz/ttn555-webjet-buy-zuji-a-long-term-loser-33m-in-australia-alone/, (accessed 24 February 2016)
10. 16/577C Zuji: Finding a Winning Strategy
10
reflecting an under-developed market compared to other markets in the world.”39
He said that
about one-quarter of total travel bookings in Asia Pacific were transacted online in 2013, and it
was anticipated the percentage would rise to one-third in 2016. With more international online
travel brands coming to Hong Kong, Wong expected the growth of the online share would
accelerate. “We hope everyone in Hong Kong will ‘Zuji’ to find what suits their desire, just like
we ‘Google’ when we want to find something,” said the CEO.40
Becoming the “Google” of Travel
The road to becoming the “Google” of travel was not without challenges.
With leading technologies, bargaining power in the supply chain and comprehensive online
services under one family umbrella, global giants such as Expedia certainly enjoyed a
competitive advantage over local players like Zuji. Yet, the performance of Expedia Hong Kong
was below the company’s expectations, reflecting the unique challenges of the local market.
Hence, the company invested heavily in marketing, using high visibility outdoor media such as
large track-side billboards at subway stations and aggressive online conversion tactics to
strengthen the brand’s traction in the market.
Increasingly, it was imperative for all OTAs to be mobile-friendly as well as mobile-ready. The
migration did not mean just changing from one device to another, but a new engagement
approach that would be personal and instantaneous, capable of conducting secure transactions
anytime and anywhere. The mobile format presented the opportunity to extend a customer’s
lifetime value. It required a change in business model beyond just the technological challenge.
Zuji’s future success banked on its ability to develop unique and superior value-for-money
products that catered to the needs of the locals, and created a mobile engagement platform that
captured the hearts and souls of millennial travelers.
39
宋知羲 (28 October 2015), “Zuji 摩拳擦掌 冀成旅業 Google”, 香港經濟日報. [Sung, Jihei (28 October 2015), “Zuji Gearing
Up to Become the Google in Travel”, Hong Kong Economic Times.]
40
宋知羲 (28 October 2015), “Zuji 摩拳擦掌 冀成旅業 Google”, 香港經濟日報. [Sung, Jihei (28 October 2015), “Zuji Gearing
Up to Become the Google in Travel”, Hong Kong Economic Times.]
11. 16/577C Zuji: Finding a Winning Strategy
11
EXHIBIT 1: HONG KONG: ECONOMIC & TOURISM INDICATORS (2010-2014)
2010 2011 2012 2013 2014
Values quoted in US$ at fixed exchange rate of US$1 to 7.754
Per capita GDP in US$ 32,551 35,142 36,710 38,241 39,994
Per capita RGNI in US$ 33,240 36,102 37,240 38,968 41,076
2010 2011 2012 2013 (e) 2014 (e)
Travel Services Export in US$ billion 22.247 28.566 33.080 38.948 38.380
Source: Hong Kong: The Facts (April 2015),
http://www.gov.hk/en/about/abouthk/factsheets/docs/statistics.pdf, (accessed 12 January2015)
Resident Departure by
Control Point (in '000)
2010 2011 2012 2013 2014
Airport 6,824 7,130 7,809 8,596 9,223
Harbor Control(1) 123 137 133 125 3
Macau Ferry Terminal 5,907 5,765 5,510 5,394 5,239
Tuen Mun Ferry Terminal(2) § 144 116 – –
China Ferry Terminal(3)(4) 2,230 2,311 2,204 2,167 1,932
River Trade Terminal § § § § §
Kai Tak Cruise Terminal(4)(5) –- –- –- 48 337
Hung Hom Control Point 795 876 916 923 901
Lo Wu Control Point 36,941 36,258 35,394 33,286 30,663
Lok Ma Chau Spur Line 11,739 13,092 14,687 15,419 17,030
Control Point(6)
Lok Ma Chau Control Point 11,991 10,773 9,855 9,192 8,782
Man Kam To Control Point(7) 192 86 109 291 751
Sha Tau Kok Control Point 1,156 1,155 1,124 1,120 1,047
Shenzhen Bay Control Point(8) 6,544 7,089 7,421 7,851 8,611
TOTAL 84,442 84,816 85,276 84,414 84,519
Source: Hong Kong Government Immigration Department
Notes : Figures exclude drivers.
(1) Figures before 30 September 2013 included passengers on cruise liners. Starting from 30 September 2013, figures for these passengers
are included in the figures for Kai Tak Cruise Terminal.
(2) Ferry services at Tuen Mun Ferry Terminal were suspended from 16 December 2010 to 14 April 2011. Tuen Mun Ferry Terminal then
provided ferry services between Tuen Mun and Macao from 15 April 2011 to 30 June 2012. Beginning 1 July 2012, ferry services at the
Terminal were suspended until further notice.
(3) Figures refer to passenger arrivals, with immigration clearance handled by the China Ferry Terminal Section of the Immigration
Department.
(4) Including passengers of high-seas cruises.
(5) The inaugural berthing at Kai Tak Cruise Terminal took place on 12 June 2013. Figures refer to Hong Kong resident departures with
immigration clearance handled by the Kai Tak Cruise Terminal Section of the Immigration Department.
(6) Lok Ma Chau Spur Line Control Point came into operation as of 15 August 2007.
(7) From 22 February 2010 to 25 August 2013, clearance services for passengers at Man Kam To Control Point were suspended. During the
suspension period, clearance services were provided to goods vehicles and cross-boundary students, whereas clearance services were
also provided to passengers using limited cross-boundary bus services beginning 27 March 2010.
(8) Shenzhen Bay Control Point came into operation as of 1 July 2007.
![Josephine Lau prepared this case under the supervision of Professor Kevin Zhou for class discussion. This case is not intended to
show effective or ineffective handling of decision or business processes.
© 2016 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—
without the permission of The University of Hong Kong.
Ref. 16/577C
1
KEVIN ZHOU
ZUJI: FINDING A WINNING STRATEGY
At the launch of a new branding campaign, “Search, Discover and Share,” Charlie Wong, CEO
of Zuji Hong Kong, told the media that he would love to see Zuji became the Google, that is,
the de facto engine, for travel in Hong Kong.1
Indeed, having been deemed a pioneer and the
leading online travel agent (“OTA”) in Hong Kong, this did not seem too much to ask for. Since
Zuji went online in 2002, the company had gone through changes in ownership, and its business
coverage had shrunk from six regional markets to a remaining three: Hong Kong, Singapore
and Australia. In spite of online booking being a long-established practice, the online share of
sales remained low, estimated at only about 10% in Hong Kong, compared with an average of
25% in the Asia Pacific region. Wong anticipated the OTA market would quadruple, from the
current 10% share to 40%, in two years.2
With global leaders entering the market, offline agents
expanding their online platforms, changes induced by the surge in data-enabled smartphone
usage and, above all, the rise of millennial travelers, Zuji was facing the biggest opportunity of
its time to ride this wave of change and reinforce its market leadership.
Hong Kong’s Thriving Outbound Travel
With per capita income of US$41,076 in 2014, the 7.24 million residents of Hong Kong loved
traveling. This was evident in the 84.52 million departures by residents and US$38.38 billion
in export travel services recorded by the government in 2014 [see Exhibit 1].
Since 1997, the Hong Kong Special Administrative Region (HKSAR) government had
managed to secure visa-free access to 152 countries around the world for its citizens.3
Fueling
this growth was the strong US dollar, to which the local currency was pegged, making overseas
traveling and shopping more attractive. The Japanese yen had dropped from the all-time high
of one Hong Kong dollar to ¥9.88 in November 2011 down to ¥16.2 in January 2016. Similarly,
the euro had gone from one Hong Kong dollar to €0.087 in 2011, down to €0.123 in January
2016.4
1
宋知羲 (28 October 2015), “Zuji 摩拳擦掌 冀成旅業 Google”, 香港經濟日報. [Sung, Jihei (28 October 2015), “Zuji Gearing
Up to Become the Google in Travel”, Hong Kong Economic Times.]
2
宋知羲 (28 October 2015), “Zuji 摩拳擦掌 冀成旅業 Google”, 香港經濟日報. [Sung, Jihei (28 October 2015), “Zuji Gearing
Up to Become the Google in Travel”, Hong Kong Economic Times.]
3
Hong Kong Government Immigration Department (2016)
http://www.immd.gov.hk/eng/service/travel_document/visa_free_access.html, (accessed 12 January 2016).
4 Exchange information from www.xe.com, (accessed 31 January 2016).](https://image.slidesharecdn.com/zuji-case-200421085635/85/zuji-case-1-320.jpg)
![16/577C Zuji: Finding a Winning Strategy
2
Taiwan, Japan, Singapore, Thailand and South Korea were popular short-haul destinations for
the people of Hong Kong. Low-cost carriers (“LCC”), such as Hong Kong Express and Hong
Kong Airlines, had been aggressively marketing new routes to secondary Japanese cities, such
as Hiroshima, Miyazaki and Kumamoto, in addition to all-time favorites like Tokyo, Osaka and
Sapporo. Other regional LCCs also participated by offering more regional short-haul
destinations to lure Hong Kong travelers. Cross-border travel to Shenzhen or southern China
was a regular weekend activity for many in the Hong Kong working class. With the opening of
Kai Tak Cruise Terminal in 2013, cruise travel was developing momentum.
Industry analyst Euromonitor estimated the Hong Kong travel-intermediaries market at a value
of slightly more than US$12 billion, of which the 70% lion’s share went to package holidays
[see Exhibit 2].5
Local travelers were familiar with independent excursions, but package
holidays were by far the most popular mode of travel. Traditional tour operators dominated this
market segment, and they worked hard to keep up with travelers’ changing preferences and
interests. Destination weddings, wellness holidays, gourmet tours and adventure holidays were
just a few of the choices.
Hong Kong residents were mobile-savvy and spent a lot of time interacting with their
smartphones: reading news, sharing information with friends and browsing Facebook. When
they planned their holidays, they relied on local travel media such as U Magazine and Weekend
Weekly and their websites for information, and other global travel platforms, such as
TripAdvisor, and travelers’ blogs for endorsements and reviews. In recent years, the penetration
of data-enabled smartphones gave travel suppliers the opportunity to feed last-minute deals and
limited-time offers to mobile users, which boosted online sales. Although the segment
represented only 8% of the total market in 2014, the online sector had recorded much stronger
growth than its offline counterparts, citing a 16.74% compound annual growth rate beginning
in 2010, double that of bricks-and-mortar tour operators.6
Key Players
The US$12 billion local travel-intermediaries market was fragmented.7
The largest market
leader captured slightly more than 5% of the total market. The top 10 players together accounted
for less than 20% of total sales.8
For a market of seven million people, there was intense
competition.
Hong Tai Travel (康泰旅遊), Wing On Travel (永安旅遊), Travel Expert (專業旅遊), EGL
Tours (東瀛遊), China Travel Service (中旅), Morning Star Travel (星晨旅遊) and Sunflower
Travel (新華旅遊) were the traditional tour operators who had operated in Hong Kong for
decades. All of them relied on a network of branches and in-shop consultants who answered
customer inquiries face-to-face or over the phone. They also invested heavily in advertising,
from daily full-page print ads to sponsored TV travel series.
Among them, Hong Tai was the largest, with double the sales of its closest competition year
after year [see Exhibit 3]. Euromonitor estimated the market leader’s annual sales at US$637.7
million in 2014, posting close to 20% year-on-year growth.
5 Euromonitor International (20 October 2015) “Intermediaries in Hong Kong, China”, Global Market Information Database,
http://www.portal.euromonitor.com.eproxy2.lib.hku.hk/portal/analysis/tab, (accessed 26 January, 2016).
6 Euromonitor International (20 October 2015) “Intermediaries in Hong Kong, China”, Global Market Information Database,
http://www.portal.euromonitor.com.eproxy2.lib.hku.hk/portal/analysis/tab, (accessed 26 January, 2016)
7
According to government statistics, Hong Kong had 1,743 registered travel agents in 2014. See: Travel Agents Registry,
http://www.tar.gov.hk/eng/statistics/index.html#1, (accessed 1 April 2016)
8 Euromonitor International (20 October 2015) “Intermediaries in Hong Kong, China”, Global Market Information Database,
http://www.portal.euromonitor.com.eproxy2.lib.hku.hk/portal/analysis/tab, (accessed 26 January, 2016).](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)