Why Did Ctrip Form A Strategic Alliance With Offline Travel Agency Travelling Bestone?
Ctrip recently entered into a strategic alliance with Travelling Bestone, a travel agency based in China with over 5,000 outlets. Though the details of the partnership are yet to be revealed, certain Chinese financial agencies reported that Ctrip assumed a controlling stake in Bestone. Qunar, where Ctrip holds over a 40% stake had invested in Bestone in 2014. So, what was the reason behind Ctrip’s decision to invest in an offline travel agency?
It is noteworthy to mention that Bestone has a strong presence in the second and third tier cities in China. Ctrip is currently looking for aggressive penetration into these cities. In fact, in its Q2 2016 earnings call, the company mentioned that the profit it is generating through its high-end hotel rooms is being used to to subsidize the rates for the low and medium budget hotels which are prevalent in the lower tier cities.
The management also stated that the pricing related competition will carry on for now with Ctrip providing deep discounts, especially for the lower priced hotel bookings. Though Ctrip has to undergo an erosion of its bottom line as a result of this, the company’s main aim is to gain dominance at every spectrum of the hotel booking business. Ctrip is aggressive about letting competitors enter the market space, and hence this is its way of creating high barriers for entry for potential competitors in the mid-to-lower end hotel market. The local lodging market provides rooms at extremely competitive prices providing very little room for a profit margin, Ctrip is following the local market’s trend to increase the volume of its room bookings for mid-to-lower priced hotels.
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The partnership with Bestone is yet another step forward for Ctrip to gain a stronger foothold in the lower tiered cities and among the low priced hotel booking segment.
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Have more questions about Ctrip? See the links below.
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