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E-commerce travel companies Ctrip and eLong have built Internet portals, combining them with traditional telephone sales, to tap the growing domestic travel market. Both firms have tapped western capital markets to fund expansion.
Last year, eLong arranged more than one million nights in hotels through its own channels and sold 81,000 airline tickets - a relatively new service - in the third quarter of this year.
While electronic ticketing systems are standard practice in the west, they are new to China, where ticket sales have been controlled by the major airlines and hotel rooms are usually co-coordinated through the national tourist agency.
Instead, either by telephone or online, eLong arranges discount hotel rooms and airline seats. In future, it will buy inventory in advance, like western travel consolidators do, at cut-rate prices. There should be plenty of room for eLong to grow.
ELong chalked up 60.1 million yuan in revenue in the first half of this year, compared with 74.4 million for all of last year.
That was due to a 65 per cent year-on-year increase in hotel room bookings and a nearly 200 per cent rise in air ticket sales.
Investors have been big fans. The company raised US$70 million in an initial public offering on October 28, listing on Nasdaq at US$13.50 per share. The stock is now trading at US$24.30.
ELong posted a 9.3 million yuan loss in the first half of this year. It recorded a third-quarter net loss of 723,000 yuan, compared with a profit of 3.64 million yuan a year earlier. Sales rose about 65 per cent to 38 million yuan.
ELong's revenue is highly diversified, with no single customer accounting for more than 2 per cent of sales and no hotel chain providing rooms that amount to more than 3 per cent of revenue.
With US$80 million in cash from the share offering and other investors, eLong's prospectus said it would spend up to US$20 million on acquisitions.
"Air ticketing is a local business," said Justin Tang, eLong's chief executive. "We want to own our agents and we are exploring this."
In fact, the company has ambitions to dominate the travel business in the country - not just on the Internet. "We want to be the leader in travel distribution in China," Mr Tang said.
"We have the opportunity to use our model for all travel distribution, not just online."
Already, eLong has 1,500 employees in 25 offices across the country and earns 75 per cent of its business - not from selling tickets on the Internet - but from traditional sales over the telephone.
Some competitors dismiss eLong as a traditional bricks-and-mortar travel agency masquerading as an Internet company. "It's trading at the multiples of an Internet company but they don't have an Internet business," said the chief financial officer of one Internet company.
Certainly, the management is packed with former high-flying investment bankers and technologists.
Mr. Tang, who will own 12 per cent of the company after all options are exercised and much more if his indirect holdings through other companies are included, was a broker with Merrill Lynch in New York.
Richard Chen, the chief technology officer and co-founder, worked for technology consultancies in the United States; Frank Zheng, in charge of travel products, was previously a manager at the Bank of New York and Dean Witter; and Derek Palaschuk, the chief financial officer, held the same post at internet company Sohu.com.
Mr Tang said running the company since 1999 had given him an understanding of the travel business. "I understand the local business better than most people," he said. "I spend 80 per cent of my time on the operational side of the company."
Nor does he view Ctrip, another Nasdaq-listed mainland online travel company twice its size, as a serious threat at this stage in the industry's development.
"Ctrip and us combined own no more than 5 per cent of the market. We do not expect this landscape to change significantly in future," he said.
And as for the threat of the airlines taking to the Internet?
"It will take longer than most people expect," Mr. Tang said.
ELong also has a secret weapon in Barry Diller, a US media mogul who will own 52 per cent of the company if he exercises all of his warrants by a December 16 deadline.
Mr. Diller's Expedia.com and hotels.com have both agreed to share bookings with eLong and funnel mainland travel business through it.
(CRI November 22, 2004)
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