Price Wars Shake Up Travel Sites 价格战或促在线旅游业洗牌

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E-commerce leaders like Jingdong Mall, Suning (Shenzhen: 002024) and Alibaba are taking their bloody price wars to the travel arena, where a new round of cutthroat competition threatens to infect this more established industry dominated by the likes of Ctrip (Nasdaq: CTRP) and eLong (Nasdaq: LONG). This new round of price wars could also potentially undermine up-and-comer Qunar, which just last year received a $300 million investment from search leader Baidu (Nasdaq: BIDU) but could need even more cash if the sector gets plunged into the same prolonged cutthroat competition now gripping the e-commerce sector.

The travel price wars, detailed in a new interview with Ctrip Chairman Liang Jianzhang, have taken a toll on Ctrip’s stock, which has lost about half of its value since March. Shares of eLong, controlled by US online travel giant Expedia (Nasdaq: EXPE), are also down about 40 percent over the same period.

In one of the most recent signs of trouble, Qunar reportedly laid off some workers earlier this month, a move the company referred to as an adjustment rather than actual layoffs. (previous post) Regardless of what you call it, such “adjustments” never look good for a high-growth company like Qunar, and probably reflect the stiff competition in the industry created by the recent entry of Alibaba, Suning and Jingdong, which also goes by the name 360Buy.

Ctrip’s Liang discussed the situation, saying the rapid entry of so many big names is hurting profits for everyone, and will ultimately result in a reshuffle that could see some major players bow out of the business. (Chinese article) The profit erosion was on prominent display in Ctrip’s latest quarterly results, which saw the company’s profit tumbled 28 percent in the first quarter of this year as its marketing costs soared and its commissions also took a hit amid the intensifying competition. (previous post)

Those kind of aggressive promotions and have taken an even bigger toll in the e-commerce space, sending Dangdang (NYSE: DANG), the only publicly listed player in the space, deeply into the red over the last few quarters, with no signs that the competition will ease anytime soon. (previous post)

Considering that this newest round of travel price wars is backed by such big names as Jingdong, Suning, Alibaba and Baidu, I wouldn’t expect the competition to ease anytime soon, which could result in big profit declines through the end of this year and perhaps could even see some of the bigger established players slip into the red. Analysts have been constantly downgrading their earnings forecasts for both Ctrip and eLong over the last 3 months, and are now forecasting both companies will see their profits dive by around 60 percent in the current quarter.

Watch for the price wars and heated competition to continue for the next year as everyone continues to spend lavishly without too much concern for earning money. We may see some of the big newer entrants either merge or close their operations by the start of next year, with more rational conditions not set to return to the market until perhaps the middle of 2013 at earliest.

Bottom line: Intensifying competition in online travel will seriously undermine profits at industry leaders Ctrip and eLong, potentially sending one or both into the red by next year.

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