Investment opportunities in the Chinese travel market

BEIJING – Beijing’s recent rapid hotel growth contributed to a huge occupancy rate drop last year – the biggest of any major global city between November 2007 and November 2008, according to STR Global.

Average occupancy in China’s capital during that period declined 32 percent, dipping just below the 50 percent mark.

While Beijing’s high-end hotel market may be an example of over-development run amok, the travel industry as a whole is a different story.

“If you look at its overall development, the Chinese travel market is still growing quite strongly despite the economic downturn,” said William Bao Bean, partner at Softbank India and China Holdings, speaking recently at the China Travel Innovation Summit in Beijing.

In sessions at the Beijing conference, travel industry players discussed the market’s evolution, ways that it is changing and opportunities for investment in areas from online booking to corporate travel to rental cars.

The ability for all those disparate aspects of travel to work together was identified as key to the industry’s maturation in China.

“It is a scattered industry. To integrate the pieces, it takes time,” said Wu Hai, CEO and founder of Orange Hotels Group.

“A web site is not the travel industry. An airline is not the travel industry,” said Liu Erhai, managing director of Legend Capital. “The travel industry is one that can promote a lot of other industries.”

Liu added that with integration comes professionalisation: “It is my impression that there are not a lot of professionals in the travel industry, but there are more talented people joining it now. The inflow of professionals will lead to more capital flowing into the travel industry.

“If we have good people and money, opportunities will appear.”

One area that’s been identified by investors is China’s online travel booking. Despite China’s high online penetration rate, only about 10 percent of travel is booked online. But it has grown, and will continue to grow, said Softbank’s Bean.

“Two years ago, online was less than five percent,” he said. “I think if you look a year or two down the road, you’ll see online going to 20 percent. And I think we’ll see, in maybe three or years, half of all travel booking happening online.”

Singapore-based online travel agent Wego.com should like the sound of that. The company is set to launch three Chinese-language sites, but CEO Martin Symes acknowledges that there’s still a lot to be learned about tapping the market here."

“There’s a lot of traffic [in China], but making that traffic profitable still appears to be a challenge," Symes said.

So where are the best opportunities online? “I still think there’s some room for niche travel sites,” Bean said, adding, “Generally, I think Chinese people don’t look at travel every day.

“If you can be front and centre when they do go online to look at travel and give them a good experience in terms of planning, pricing and then sharing back into their online social community, there are opportunities there.”

A specific niche that Bean sees as under-served is corporate web-based booking. Only 27 percent of companies in China, including multinationals, use IT systems for corporate travel booking, according to PhoCusWright’s latest report, “Corporate Travel Management and Travel Practices in China.”

Less than half contract with a single travel management company.

“Working with Chinese companies, the biggest challenge is educating them on the role of working with a travel management company and how it’s different from booking leisure travel,” said Gregor Lochtie, Greater China vice president for American Express Business Travel.

But he is optimistic that Chinese companies will make the transition, saying, “There’s so much need out there. China is a market built for online booking of corporate travel.”

by Maggie Rauch