You’ve got to spend money to make money. That’s the theory and those fighting tooth and nail in the Chinese online space have certainly bought into it. But the problem for all the major players is that money’s much easier to spend than make.
“Everybody’s losing money,” said Guangfu Cui, CEO of Chinese OTA eLong, which is not quite true. Market leader Ctrip was profitable for the 3rd quarter but expects to lose money in Q4 as it spends big in a battle for maintain its position as the #1 Chinese OTA.
Forcing its hand are competitors eLong (RMB58.3 million Q3 loss) and Qunar, which dropped RMB566.2 million in the three months to September 30.
Guangfu Cui said that the China is an online travel market with “huge potential” but its a tough operating environment where the major players are embroiled in a brutal, costly battle for market share.
Discounting is the name of the game.
“The market’s got to such a point that we’re giving back 100% of (hotel) commission to consumers,” he said at Expedia’s annual partner conference in Las Vegas. Expedia is eLong’s major shareholder.
When will it end?
Nobody’s sure but Expedia boss Dara Khosrowshahi indicated that there’s no backing away from the present strategy. Market share is at stake in travel’s most important market.
So if no-one blinks, what happens?
Guangfu believes Qunar is most at risk. “We’ve done the numbers and Qunar will run out of money if they keep spending money at the present rate; they probably have a few quarters left.”
But Guangfu expects them to secure further funding if it came to that. The opportunity is just too big to walk away from.
As for eLong it’s in for the very long haul.
“There’s an old Chinese saying – ‘if you are afraid of heat and smoke, don’t go to the kitchen’.”