LEISURE – Home Inns Checks Out Of Qunar Lodge
Bottom line: Qunar could experience some short-term loss of business due to the withdrawal of Home Inns properties from its site, and its open platform business model makes it prone to such problems.
Signs of turmoil are coming from the lodge operated by Qunar (Nasdaq: QUNR), with word that the online travel agent has just lost a major customer with the abrupt departure of leading budget hotel chain Home Inns (Nasdaq: HMIN). The departure of such a major customer, if true, would mark a big blow to Qunar, which had a recent similar break-up with chief rival Ctrip (Nasdaq: CTRP). Home Inns’ decision is motivated by different reasons than Ctrip’s, which I’ll explain shortly. But the 2 spats highlight the fact that Qunar’s business model, which centers on an open platform for third-party travel agents, is far more prone to problems than traditional travel sites that directly sell products like hotel rooms and air tickets to consumers.
The latest reports haven’t had much impact yet on Qunar’s stock, which rose 1.1 percent on Friday. The shares are now 75 percent ahead of the company’s IPO price from just over a year ago, despite the fact that it is still losing big money. This kind of report is likely to slowly undermine the stock in the months ahead, as Qunar and other recently listed Chinese Internet stocks brace for a broader pullback in 2015 following strong gains this year.
All that said, let’s look at the latest headlines that say Home Inns intends to pull all of its hotel listings from Qunar’s site, but not because of anything Qunar has done. (Chinese article) Instead, Home Inns is upset because the third-party travel agents offering its rooms on the Qunar platform are selling those rooms at prices that are often far below the Home Inns’ own official rates.
In fact, Home Inns isn’t the only company that suffers from this problem. Travel agencies are a very competitive group, and in this case some are probably sacrificing part of their usual commissions so that they can offer prices that are cheaper than other agents. But Home Inns is upset because it says this kind of price undercutting is wreaking havoc on its broader pricing system, hurting its ability to create unity in pricing.
I’ve had a look at Qunar’s site, and it still includes a limited number of Home Inns properties. But I do expect Home Inns is quietly instructing all of its travel agent partners to remove its hotels from Qunar’s site. That will result in the loss of one of China’s best known and reputable budget chains from the site, which certainly won’t be good for its Qunar’s business.
I’m sure Qunar will step in to try and fix this problem, as it certainly doesn’t want to lose such an important customer as Home Inns. But that could be difficult to do due to the complexity of its business model, which gives Qunar very limited control over the prices that third-party travel agents charge on its site.
This particular dispute comes just 2 months after another high profile spat that saw Ctrip pull all of its hotel listings from Qunar. (previous post) That split wasn’t all that surprising, since the 2 companies are direct rivals and a recent string of alliances between the pair were showing signs of fraying. In that case, Ctrip reportedly took its action after complaining that Qunar was giving more prominent placement on its hotel search results to travel agents who paid extra fees.
At the end of the day, these recent disputes show that the kind of open platform used by Qunar is prone to problems, some created by Qunar itself and others due to shenanigans from third-party merchants. Qunar will have to work quickly to clear up those problems when they occur, since the loss of important clients like Home Inns could seriously damage its reputation among Chinese travelers over the longer term.
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