Online travel portal Elong was originally set up in 1999 as a US company providing “city life information.” Several acquisitions later, it had moved into China’s travel services market. In 2005, it issued the country’s first e-ticket, for a seat on an Air China flight. Today Elong is popular, but it continues to struggle to compete with China’s online travel market leader, Ctrip – which accounted for nearly half of China’s online travel market in the first quarter, compared with Elong’s share of 7%, according to data from iResearch.
Spearheading the charge against Ctrip is Guangfu Cui. Cui took the helm at Elong in 2007, after serving as the managing director for FedEx Kinko’s China for four years and working at Procter & Gamble for more than a decade. Cui spoke with China Economic Review about his company’s bid to catch up with Ctrip and its partnerships with big players like Expedia and Tencent.
Q: What trends are you seeing in outbound travel? Where will Chinese people be going in the next few years?
A: We’re going to see more Chinese consumers everywhere. Normally the first overseas trip Chinese consumers take is to nearby places, like Hong Kong, Macau, Southeast Asia, Korea and Japan. Next they might go to Europe or the US, and then expand further to Africa or South America. Elong’s overseas hotels and international ticket sales are growing very fast, but they’re still a very small part of our business. We have a competitive advantage in this area though, because of our partnership with Expedia.
Q: How is Elong positioning itself to take advantage of opportunities in the online travel market?
A: Our strategy is to win online hotel bookings. Hotel bookings were 68% of Elong’s business in the first quarter of this year, compared to 64% a year ago. About half of all of our hotel bookings were made online in the first quarter, and we expect this ratio to be higher as we go forward. This will be a milestone for China’s online travel industry: In the past, call centers have always been more popular, but now online booking is starting to take over.
Q: You’ve said you want Elong to be the number one player in its industry. How do you plan to close the gap with Ctrip?
A: We do recognize our gap with Ctrip. It’s clear that we are not about to win call center bookings, package or corporate travel. However, we believe that if we succeed in online hotel bookings, we will eventually win overall hotel bookings. If we win hotel bookings, we will eventually become the largest online travel agency in China – that is our logic. To achieve this, our first initiative is to keep expanding our hotel network, which is already number one in terms of contract hotels in China. Elong already has 20,000 domestic hotels in over 700 cities in our network, as well as 140,000 overseas hotels through our partnership with Expedia.
Q: Why did Elong choose to focus on online bookings rather than using call centers?
A: Right now, most Chinese consumers still book offline. However, we expect online to be the primary method going forward. It provides consumers with better information and comparisons between products, and a good user experience overall. It also helps us save operating costs, since we don’t need as many call center staff.
Q: Ctrip’s CEO says that Chinese people prefer booking by phone, and that many people will check information online but then still pick up the phone to book. What’s your take on that?
A: Well, different companies focus on different things. We want to position ourselves differently from Ctrip; we want to offer a unique value proposition for consumers. At Elong, we think consumers will move to online bookings. Part of the reason they are not already online is that the older generation is not so familiar with or confident in using the internet – but they will become more so, there is no doubt about that. The reason that some of our competitors are not seeing better growth online is that their sites are not geared toward offering a better booking experience. Consumers like our website – the data is already showing that.
Q: How does your partnership with Expedia benefit your company?
A: We recently issued new shares to both Tencent and Expedia, so Expedia now has a 56% share in Elong, down from 63%. We are cooperating closely to offer Chinese consumers overseas hotel products, and we also share knowledge about the overall industry and marketing. Going forward, we want Expedia to be able to tap into Elong’s China hotel products and distribute these products at their points of sale.
Q: When Tencent invested US$84 million in your company in May, the official announcement said you planned to leverage Tencent’s more than 600 million users. What does that mean specifically, mainly advertising?
A: It’s more than advertising. We’re working with Tencent to bring our hotel offerings to Tencent’s 674 million users across multiple platforms, including portal, mobile instant messaging and social networking. We believe this partnership will give Elong and Expedia’s hotel supply partners significant access to young consumers.
Q: How have your payment policies changed in the past few years? You no longer do offline payments, right?
A: Over the past four years, Elong has been aggressively pushing credit card transactions. To do this, we are offering rewards and building connections with all of the credit card companies in China. So in the past year, we’ve phased out a lot of our cash transactions. Now about 90% of our transactions are paid by credit card, about 9% are through online banking or mobile payments, and about 1% are through third-party payment vendors.
Q: Ctrip has admitted that it faces some pressure from the group-buying sites that are springing up in China. How is Elong dealing with this new source of competition?
A: Elong sees group-buying as a source of pressure but also a great opportunity. We provide our own group-buying products, and we actually have an advantage here. Compared with other sites, we have more sales people, better relationships with hotels, and the understanding of how to market them online.
Q: Are you planning to enter the railway ticket market? What are the obstacles here?
A: The railway ticket market is not open to third-party online travel agencies now. There’s only one state-owned company that can do the bookings. We are closely monitoring the market, but until [the government] opens it we can’t really do much about it. Train tickets could be a value-added service for our customers, but our primary focus is still hotels.