7 years ago
 

Keep an eye on Asia for next wave of major online travel consolidation

The first two decades of online travel were filled with merge and acquisition activity within and between the US and Europe.

Starting in the late nineties with Travelocity’s acquisition of Preview and reaching a peak in the mid naughties with the Expedia/Hotels.com merger, Lastminute.com acquisition by Travelocity and the Orbitz/Ebookers/HotelClub acquisitions by Cendant.

Big dollar deals covering America and Europe. As we enter the third decade of the online travel I strongly suspect we are seeing the rise of Asian firms as acquisition targets and as potential acquirers.

asia

When I suggest M&A activity in Asia, I am not just talking about the buying of Asian online travel companies by large European or US companies. I am also referring to Asian firms with money to spend and a target list to spend it on.

There are three big and M&A active Asian based companies with money to spend and a need for growth outside their home market – Rakuten, Wotif and Ctrip.

  • Rakuten – is the largest online travel company in Asia and one of the largest ecommerce companies in the world. Based in Tokyo, Rakuten is generating around $2.5billion in gross bookings. 90% plus of it within Japan
  • Wotif – is the dominant force in online travel in Australia. They are on track to sell $1billion in travel this year, 85% of it in Australia or New Zealand.
  • Ctrip – is the biggest travel agency in China. Generating $3.7billion in GBs per year (according to PhoCusWright). Critically the vast majority of the sales are offline through a 12,000 seat call centre rather than online. I normally hear that 70% of their sales are offline but have also heard talk that the offline percentage could be as high as 90%.

In the last three years these companies have been very active in buying companies.

In 2008, Wotif bought Sydney based travel.com.au/lastminute.com.au and (separately) Thailand based AsiaWebDirect. The AWD (though a English language business) is Wotif’s first push for demand outside Aus/NZ

In 2009, Ctrip bought EZTravel, the number one domestic player in Taiwan. In December of that year Wotif also bought GoDo, an activities and services provider.

Rakuten has done three big deals in 2010 and we are only halfway through the year. Rakuten’s parent company launched a JV with China search giant Baidu, purchased US based Buy.com for $250 million and had $250 million left over to buy Euro ecommerce site PriceMinister (all separate deals).

None of these deals are specifically travel-related but they are indicative of the companies desire to push beyond Japan. The company has even announced a English By 2012 Pledge that will see English become the official language of the company in two years.

Also this year, Ctrip has announced plan to buy offline Hong Kong Travel Agency WingOn (to provide them with ticketing and fulfillment services in Hong Kong). And In a move reminiscent of a 1980s European tour operator, Ctrip has started buying up hotel interests across China. [NB: Tnooz post on both those deals]

Three years of deals from three companies

The reasons behind these deals are clear: each of the companies is very different but they share the common traits of being dominant in their home market and unable (mainly through market factors) to replicate outside of their home market the elements that drove that dominance.

Hence the need to use the big domestically generated cash-lows to fund international growth.

I predict that there is more to come; that we should expect to see more deals by these companies in the next three years. I would also not be surprised to see one of these companies make a major play through a big ticket acquisition in either Europe or America.

Share on FacebookTweet about this on TwitterShare on LinkedInEmail to someone
 
 
Tim Hughes

About the Writer :: Tim Hughes

Tim Hughes is an online travel industry executive who has been blogging since June 2006 at the Business of Online Travel (the BOOT).

The BOOT covers analysis of online travel industry trends, consumer and company behaviour and broader online/web activity of interest to online travel companies (with a bias towards Tim’s home markets of Asia and Australasia and with the odd post on consuming and loving travel thrown in).

In late-2010 the BOOT clocked its 1,000th post, 200,000th visitor and 300,000th page view.In his work life he is the CEO of Getaway Lounge - a premium travel deal site based in Australia.

Tim has worked for both Orbtitz and Expedia. Prior to the travel industry Tim was a commercial lawyer and venture capitalist. Tim’s views are his alone and not necessarily the views of Getaway Lounge or any of its investors.

 

Comments

Your email address will not be published. Required fields are marked *

  1. steve sherlock

    counterpoint – can you contact me via my twitter account so i can see your back ground? otherwise not balanced convo (to me)… (i will keep it to myself but am interest in your thoughts – with a context).

    reason being, im merely an enthusiastic user of wotif and impressed with their innovative culture. but for all i know you’re an analyst from expedia/priceline/etc etc….pushing an agenda..

     
  2. steve sherlock

    @counterpoint the first think i did after reading your comments was to see what company/industry your from, to give context to your comments. unfortunately you haven’t identified yourself….

    that aside; i agree about low margins not allowing 2nd tier distribution. but the flip side of that is consumers perceive rates to be lower when distribution margins are lower i.e. the wotif content can only be accessed at the wotif site.

    This goes a long way to explains why it gets 11% conversion rates, over 60% direct traffic and is very profitable – just reported $53mil profit 09/10 (22% up) off revenue of $136mil.

    As for expedia/priceline/orbitz they’ve been in anz market already quite a while and only incrementally growing share. Webjet is also fending them off.

    The OTA’s offerings are not differentiated enough to change the game in anz. They predominantly rely on paid search and mainstream media, as opposed to word of mouth. Likewise wotif’s model now is not differentiated enough, and not enough content, to change the game in the US and Europe, hence their lack of penetration there.

     
    • counterpoint

      Looking at the Wotif results, last few months show them with declining room nights vs 2009, so it looks to me like they rode a strong 1H into improved YTY results. With rising marketing costs (now advertising on TripAdvisor and Google, TV campaigns), they are going to be seriously squeezed.

      Supplier friendly (low margin) at the expense of the consumer (booking fees) is a model that long term just can’t hold together. Especially when you rely on word of mouth.

      Let’s see what happens over the next 12 months, but my own bet is that Wotif will have its hands too full playing defense to do much on the offensive end.

       
  3. counterpoint

    I actually think the main story is the other way around. Never mind trying to geographically expand, these companies are going to endure a full scale assault in their home markets from established global players.

    Weakest position: Wotif. ANZ presents very few cultural boundaries to international players (Expedia, Priceline, Orbitz). Low hotel margins keep them out of meaningful competition for click advertising and distribution deals. Ethnocentric management team demonstrating zero ability to be successful anywhere but ANZ.

    Expedia/Priceline/Orbitz all with a full court press in Australia and taking share in handfuls. This time next year, WTF is infinitely more likely to be acquired on the cheap than to make a major acquisition.

     
  4. The Week in Travel Tech - Rows almighty, Flipboard ecstasy, happy queuing | Tnooz

    […] Keep an eye on Asia for next wave of major online travel consolidation […]

     
  5. steve sherlock

    yeah good point Tim, i acknowledge getting consumer attention is finite, and therefore very difficult displace an established brand from consumers attention set (unless with some game changing innovation, like iphone did to nokia and perhaps google will do to expedia 😉

    guess its also evidence that online travel/transaction models are much more difficult to scale, than say, a social media model.

    but still possible i think. viator is the only australian example i can think of, where their model has scaled globally with Oz being by far the minority market for them.

    read yesterday expedia-au complaining about webjet. good example i reckon of the frustration expedia must have in not being able to displace webjet in the oz market, like you say due to first mover advantage and the attention the brand gets.

    maybe expedia should acquire webjet and stop whinging. (chuckle)

     
  6. steve sherlock

    would be something different to see a home grown Asian brand actually take on the world. seems the Americans, and to lesser extent Europeans, are the only onces capable of globalising brands in the online travel space.

    i can’t think of an Asian based brand that has really cracked the US or Europe?

    so i guess that’s where acquisitions come in, sort of concedes that a company hasn’t been able to grow its brands across multiple geographies, like twitter, facebook, google, expedia have been able to. (probably a whole bunch of sounds reasons why this is difficult to do out of asia)

    but in any case, i agree there will be more m&a activity though i suspect more cautious buys rather than extravagant deals.

    perhaps a focus on acquiring brands that might be able to scale across geographies is the way to go!

     
    • Tim

      @steve said “(probably a whole bunch of sounds reasons why this is difficult to do out of asia)”. The biggest reason is that each of the activities that made Rak, Wot and Ctrip big in their home markets cannot be replicated outside. Rak’s leadership in JP comes in part from a first mover advantage and in part from the extensive sharing of customers with the rest of the parent companies e-commerce network. For Ctrip it is the massive investment in call centres facilitated by a low cost workforce. For Wotif it is first mover advantage. They created the market for online accom in Australia. Organically none of the three can import those advantages to other markets.

       
  7. ram

    I am sync with you and the views on acquisition. The only caveat is the cultural dynamics that each company has built that is to a sense localized. Rakuten is built a model on 5-7% commission, Ctrip is built China centric hotel consolidation model and Wotif 10% ANZ model.

    Each has not been able to scale their acquisitions out of their home market yet. Something about travel makes acquisitions not that easy to execute unless you buy a market leader. The real challenge is in local content aggregation. Also depends on the local entrepreneur desire to sell out. In many cases the business and structural models are so local, that it is like buying another company.

    So yes they have money but the purchase of a market leader will be more beneficial

     
  8. Chetan Kapoor

    I completely agree with you, Tim. Asia will indeed witness a lot of action in the coming years. However, you forgot to include India in this picture.

    Online travel companies — Travelocity acquired online hotel consolidator Travelguru last year, Cleartrip recently launched a dedicated UAE website, MakeMyTrip acquired domestic online bus consolidator Ticketvala. Even other players, online and offline are looking at spreading their wings beyond India in the coming months, years. Whether this happens through organic or inorganic means is yet to be seen. Fun times, indeed!

     
  9. Tweets that mention Keep an eye on Asia for next wave of major online travel consolidation | Tnooz -- Topsy.com

    […] This post was mentioned on Twitter by Allanjit Singh and Turisdata, Kevin May. Kevin May said: Keep an eye on Asia for next wave of major online travel consolidation http://bit.ly/bkNoiO [Tnooz via @timothychughes] […]

     
 
 

Newsletter Subscription

Please subscribe now to Tnooz’s FREE daily newsletter.

This lively package of news and information from Tnooz’s web site provides a convenient digest of what’s happening in technology that drives the global travel, tourism and hospitality market.

  • Cancel