TRAVEL: Airlines Targeting Ctrip, Partners with Ticket Freeze-Out?

By on

Bottom line: China Southern’s new move to stop offering heavily discounted tickets through travel agents looks aimed at the growing clout of Ctrip,  and other carriers could follow with similar policies.

China Southern takes aim at Ctrip

China’s largest airline has joined a growing uprising against increasingly dominant online travel agent Ctrip (Nasdaq: CTRP), with reports that China Southern (HKEx: 1055; Shanghai: 600029) will no longer offer its most heavily discounted tickets via third-party agents. The actual move will see China Southern offer tickets with discounts of 60 percent or more only on its own website.

The move is the latest by travel products and services providers who are unhappy with Ctrip’s growing clout in the market, following a string of deals last year that saw the company purchase strategic stakes in most of its major rivals. Since that has happened, a growing number of hotels, airlines and other travel services companies have complained they are getting squeezed by a group including Ctrip and its partners, whose position looks increasingly like a monopoly.

I’ve been a fan of Ctrip for a long time, as I think it’s one of China’s best run Internet companies and focuses clearly on developing new products and services in its core area of travel services. But lately I’ve also lost some of my enthusiasm for the company’s management, which seems more focused these days on eliminating its competition than creating better products and services for travelers.

The one group that has benefited from Ctrip’s growing clout has been owners of the company stock. The shares more than doubled at one point last year following its string of deals that culminated with an equity tie-up that ended its bitter rivalry with Qunar (Nasdaq: QUNR), the industry’s second largest player. The stock has given back some of the gains since then, but is still nearly double where it was at this time last year.

But Ctrip’s honeymoon could soon be coming to an end with this growing chorus of complaints about its market domination. China Southern is by far the largest complaining voice to date, following its decision to freeze Ctrip and other travel agents out of selling its hugely popular most heavily discounted tickets. (Chinese article)

Travel Agent Freeze-Out

There’s no additional detail in media reports on the new move, which China Southern announced on its WeChat public account at the end of last week. One report points out the move continues a trend that has seen the airlines increasingly lower fees they pay to third-party travel agents who sell a big portion of their tickets. The same report points out that China Southern may try to placate unhappy travel agents by offering them heavily discounted tickets in other ways, such as through group packages.

The timing of this particular move doesn’t seem bottom line-related, since most of the airlines have recently posted strong profits due to extremely low oil prices. So the more logical conclusion is that China Southern is unhappy at big companies like Ctrip, whose demands for big commissions may be making heavily discounted tickets unprofitable even in the current environment of low fuel costs.

It’s unclear at this point if the other airlines will follow suit, but I suspect that at least some may also take similar steps. After all, China Southern is the nation’s largest carrier, and it’s not uncommon for industry leaders to take the lead like this in major pricing and policy decisions. This particular move comes 3 months after a group of major hotel operators also formed a major alliance to counter Ctrip’s growing clout. (previous post)

If other airlines do indeed follow China Southern’s lead, it could put a major damper on the air ticket business of Ctrip and it growing field of online partners. Such movement by so many major state-owned airlines could also draw attention from China’s commerce regulators, which until now have largely ignored Ctrip’s growing clout and increasingly anti-competitive behavior.

Related posts:

(NOT FOR REPUBLICATION)

(Visited 165 times, 1 visits today)