Eyefortravel - Travel Distribution China Report (edition 1)

Part of EyeforTravel’s

Emerging Online Travel Markets Series

TRAVEL DISTRIBUTION

CHINA REPORT Edition 1

EyeforTravel Research 7-9 Fashion Street London E1 6PX UK For queries contact: [email protected] www.eyefortravel.com EyeforTravel Ltd, May 2008

Table of Contents

Travel Distribution China Report • Edition 1

Table of Contents Executive Summary & Trends

1.1 1.2 1.3

2.1 2.2 2.3

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11

4.1 4.2

5.1 5.2

6.1

9

1. Country Overview

11

Economy Key Demographics Government Policies

11 18 25

2. Tourism Overview

31

Tourism Overview Domestic Tourism Outbound Tourism

31 33 39

3. Chinese Travel Distribution & Trends

55

China’s Total Travel Market: market trends and distribution channel analysis Domestic Travel Market: travel distribution and sector trends for:

55 58

Airlines Hotels Car Rental Market Cruises Railways Online Travel Agents (OTAs) Meta Search Engines Traditional Travel Agencies

62 76 90 93 101 103 109 110

Outbound Travel Market

114

4. Chinese Travellers – Search and Buying Behaviour

125

Internet Users & E-commerce Use of Online Facilities

125 132

5. Marketing, PR & Sales

141

Advertising Media and Online Marketing Marketing Strategies by Key Travel Segments

141 147

6. Case Study

155

Ctrip – near monopoly in Chinese online travel market

155

7. Useful Contacts

171

Research Methodology

179

© EyeforTravel Research. All rights reserved.

3

List of Figures

List of Figures Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24: Figure 25: Figure 26: Figure 27: Figure 28: Figure 29: Figure 30: Figure 31: Figure 32: Figure 33: Figure 34: Figure 35: Figure 36: Figure 37: Figure 38: Figure 39: Figure 40: Figure 41: Figure 42: Figure 43: Figure 44: Figure 45: Figure 46: Figure 47: Figure 48 Figure 49: Figure 50:

4

China’s Real GDP (2002-2012F) China’s nominal GDP (2002-2012F) Per capita GDP in real terms (2002-2012F) Per capita GDP in nominal terms (2002-2012F) Comparison of China’s GDP per capita with other leading countries, 2006 Employment in China (2002-2010F) Exchange rate against key currencies (Average Annual Rates, 2002-2012F) China’s foreign exchange reserves (2002-2007) Utilised foreign direct investments into China (2002-2006) China’s rank in global FDI flows (2006) Foreign direct investments into China by sector (2002 and 2006) Foreign direct investments into China by country (2002 and 2006) Population of China (2002-2012F) Share of population by age group (2000, 2005, 2006 and 2025F) Urbanisation in China (1978-2006) Population by region (2005 and 2006) Per capita disposable income of urban and rural households (2002-2007) Per Capita Annual disposable income of urban households by region, 2005 Share of urban households by income class (base year 2000) Average family size in China Education profile of Chinese aged six years and older, 2006 Number of new students enrolment by level and type of school (2002-2006) Number of Internet users in China (2002-March 2008) ADS status awards (2007) Visa processing time for Chinese Growth in China Travel and Tourism (Value, 2002-2012F) Travel & Tourism expenditure by travel purpose (2002-2012F) Growth of domestic tourism (2002-2007) Urban resident volume by purpose of visit (2005) Tourism receipts “Golden Week” vs. rest of the year (2005) Preferred domestic tourism destination for the rich Domestic tourism of urban and rural residents (2002-2007) Domestic tourism of urban residents by major cities – Per capita tourism expenditure Domestic tourism of urban residents by gender, 2005 Domestic tourism of urban residents by age, 2005 Outbound Chinese (Million, 1995-2020F) Geographic break-down of outbound travellers by destination (41 million; 2007) Chinese outbound by destination (2002-2007) Region wise outbound volume distribution (2002-2007) Hot travel destinations within Asia (ex Macau and Hong Kong) Purpose of travelling to Hong Kong (% of respondents) Outbound travellers to Japan (2001-2006) Mode of travel to Thailand (2006) Outbound travellers to Singapore (2001-2007) Purpose of travel to Singapore (2005) Dream destinations (2007) Top 5 European destinations for outbound Chinese (2007) Long haul travel destinations outside Asia (% respondents, 2007) Outbound travellers to US (2000-2006) Outbound group packaged tour travellers (Million, 1994-2006)

© EyeforTravel Research. All rights reserved.

11 12 12 13 13 14 15 15 16 16 17 17 18 19 20 20 21 21 22 22 23 24 25 29 29 31 32 34 34 35 36 36 37 38 38 39 40 40 41 41 42 43 43 44 44 45 46 46 47 48

Figure 51: Figure 52: Figure 53: Figure 54: Figure 55: Figure 56: Figure 57: Figure 58: Figure 59: Figure 60: Figure 61: Figure 62: Figure 63: Figure 64: Figure 65: Figure 66: Figure 67: Figure 68: Figure 69: Figure 70: Figure 71: Figure 72: Figure 73: Figure 74: Figure 75: Figure 76: Figure 77: Figure 78: Figure 79: Figure 80: Figure 81: Figure 82: Figure 83: Figure 84: Figure 85: Figure 86: Figure 87: Figure 88: Figure 89: Figure 90: Figure 91: Figure 92: Figure 93: Figure 94: Figure 95: Figure 96: Figure 97: Figure 98: Figure 99: Figure 100: Figure 101: Figure 102: Figure 103:

Outbound by package type and destination Expenditure by outbound travellers (1995-2006) Outbound per capita travel expenditure (1995-2006) Trip expenses at major destinations (2007) Spending composition 2003 Chinese spending in Singapore by major items (2005) Visa processing time (in business days) for major destinations China total travel market value (2002-2012F) China total travel market by segment (2002-2012F) Chinese total travel market - online vs. offline (2002-2012F) Chinese online travel market: direct vs. indirect (2002-2012F) Chinese online travel market: direct vs. indirect distribution (2002-2012F) Domestic travel market by segment (2002-2012F) Chinese domestic travel market - online vs. offline (2002-2012F) Domestic online travel market by segments (2002-2012F) Chinese domestic travel market - direct vs. indirect (2002-2012F) Chinese domestic travel market - direct vs. indirect distribution (2002-2012F) Growth in domestic revenue passenger kilometres (2002-2012F) Domestic Air Passenger Traffic (2002-2012F) Passenger traffic (Passenger kilometre) growth by mode of transport – 2007E Share of passenger traffic by mode of transport Type of travellers Chinese airports in global Top 100 ranking of airports by the number of passengers handled (2003-2006) Distribution of aircraft movements – 2006 Passenger throughput trends at major Chinese airports (2002-2012F) Number of airports (1990-2020F) Domestic Airlines (2006 Passengers Carried) China airline industry - grouped under the Big-3 Airline companies in China and their home-base Comparative market share in major China air traffic hubs Market share of China’s Big 3 airlines in terms of RPKs (2004 and 2007) Development of air passenger traffic (2002-2007) Private airlines pipeline in China Domestic air bookings value (2002-2012F) Domestic online air bookings and penetration (2002-2012F) Direct vs. indirect distribution in online bookings (2002-2012F) Overnight trips undertaken by Chinese tourists (2000-2012F) Star rated rooms in China (2002-2007E) Comparison of hotel pipeline in China and other regions (2007) Y-o-Y Growth in RevPAR (2005-2007E) Geographic segmentation of hotel revenues in China (2005) Geographic distribution of hotels and utilisation rates (2005) Breakdown of star-rated hotels by ownership type (2002 and 2005) Hotel pipeline by brand (Oct 2007) Number of rooms in non-star rated hotels (2002-2006) Economy hotel capacity growth (total rooms, 2004-2006) Competitive landscape of economy hotels Overnight stays by Chinese customers segmented by accommodation type Private vehicle ownership (1990-2006) National expressway (2001-2050F) Number of SMEs in China (1990-2006) Percentage split of branded and unbranded hotel rooms Domestic hotel bookings (2002-2012F)

© EyeforTravel Research. All rights reserved.

List of Figures

Travel Distribution China Report • Edition 1

48 49 49 50 51 51 52 55 56 57 58 58 59 60 61 61 62 62 63 63 63 64 65 65 66 67 67 68 69 70 70 71 72 73 74 74 76 77 77 78 78 79 80 81 82 83 83 84 85 85 86 86 87

5

List of Figures

Figure 104: Figure 105: Figure 106: Figure 107: Figure 108: Figure 109: Figure 110: Figure 111: Figure 112: Figure 113: Figure 114: Figure 115: Figure 116: Figure 117: Figure 118: Figure 119: Figure 120: Figure 121: Figure 122: Figure 123: Figure 124: Figure 125: Figure 126: Figure 127: Figure 128: Figure 129: Figure 130: Figure 131: Figure 132: Figure 133: Figure 134: Figure 135: Figure 136: Figure 137: Figure 138: Figure 139: Figure 140: Figure 141: Figure 142: Figure 143: Figure 144: Figure 145: Figure 146: Figure 147: Figure 148: Figure 149: Figure 150: Figure 151: Figure 152: Figure 153: Figure 154: Figure 155:

6

Chinese hotel consolidators operating model 88 Domestic online hotel bookings (2002-2012F) 88 Hotel aggregators in China 89 Direct vs. indirect distribution in domestic online hotel bookings (2002-2012F) 89 Value of car rental market in China (2002-2012F) 90 Domestic online car rental bookings and online penetration (2002-2012F) 91 Direct vs. indirect distribution in domestic online car rental bookings (2002-2012F) 92 Market size of domestic cruise industry (2002-2012F) 93 Major Yangtze cruise routes 94 Major inland cruise routes 95 Major coastal cruise routes 95 Cruise liners capacity share 96 Cruises along the Yangtze River 97 Major outbound cruise routes 98 Rail - Number of passengers carried (2000-2007) 102 Investment in transport fixed assets (2000-2006) 102 Domestic rail bookings (2002-2012F) 103 Share of OTAs in China travel market (Domestic, 2002-2012F) 104 Domestic OTA market – online revenue composition 105 Market share of leading OTAs at the end of 2007 Second Quarter 106 Revenue distribution of Ctrip (2002-2007Q3) 106 Revenue distribution of eLong (2002-2007Q3) 107 Revenue comparison between eLong and Ctrip (2002-2006) 108 Number of travel agencies in China (2002-2006) 110 Number of travel agencies in Top 15 regions 112 Number of authorised travel agencies for outbound travel by city/province (2007) 112 China outbound travel market value (2002 to 2012F) 115 Chinese outbound travel market - online vs. offline (2002-2012F) 116 Chinese outbound online travel market - direct vs. indirect (2002-2012F) 117 China outbound online travel market by segment (2002 to 2012) 117 Outbound travel bookings (2002-2012F) 118 Outbound airlines market value (2002-2012F) 119 Online vs. offline in the outbound airlines travel market (2002-2012F) 120 Direct vs. indirect distribution in outbound airlines online travel market (2002-2012F) 120 Outbound hotels market value (2002-2012F) 121 Outbound online hotel market - online vs. offline (2002-2012F) 121 Outbound cruise market value (2002-2012F) 122 Outbound car rental market value (2002-2012F) 123 Outbound railways value (2002-2012F) 123 Comparison of China’s broadband cost with select countries (2006) 125 Internet penetration in China (June 2002 to Dec 2007) 126 Internet penetration in various countries (as of December 2007) 126 Retail E-commerce in China (2002-2007) 127 Top eight online purchases for 2006 (as a % of respondents) 128 Online travel purchasers and % of Internet users (2003-2006) 128 China mobile subscriber base – Historical and forecast (2002-2012F) 129 China’s bank cards market – Volume and average spending (2002-2008F) 129 Bank cards in China (2002-2006) 130 Distribution of Internet population (as of December 2007) 132 Major Internet access points (as a percentage of Internet users) 133 Internet access point for urban and rural netizens (as of December 2006) 133 Internet user demographics (as of June 2007) 134

© EyeforTravel Research. All rights reserved.

Figure 156: Figure 157: Figure 158: Figure 159: Figure 160: Figure 161: Figure 162: Figure 163: Figure 164: Figure 165: Figure 166: Figure 167: Figure 168: Figure 169: Figure 170: Figure 171: Figure 172: Figure 173: Figure 174: Figure 175: Figure 176: Figure 177: Figure 178: Figure 179: Figure 180: Figure 181: Figure 182:

Internet penetration rate by age group (as of June 2007) Online activities of Internet users (as a % of sample surveyed) (as of June 2007) Broadband netizens and % of total netizens (2002-2007) Broadband households (2004-2010F) Installed base of computers – including desktops and laptops (as of June 2007) Sources of information for travel research by outbound Chinese traveller Leisure travel information sources (% of respondents) Travel planning and decision making figure Main factors influencing travel planning and decision making Advertisement expenditure by media type (2002-2008F) Daily average reach (millions) by channels in primetime (top ten for each sector) Quoted ad rates of selected television channels in China Top newspapers (all languages; Circulation in million) Top China dailies - Ad rates (2006) Minutes spent per day on newspaper, by age bracket and by education level Reading online news (% of Internet users) Production of radio programmes data (2002-2006) Contribution of different modes of transport in total passenger travel (1978-2006) China’s Internet advertising market (2005-2010F) Ctrip net revenue by segment (2007) Share of hotel booking in Ctrip’s net revenues (2002-2007) Ctrip’s revenues from hotel booking Share of air-ticketing in Ctrip’s net revenues (2002-2006) Ctrip – Air-ticketing revenues (2002-2007) Share of package tour in overall net revenues (2002-2007) Ctrip’s way of building customer base and achieving growth Ctrip’s marketing channels

© EyeforTravel Research. All rights reserved.

List of Figures

Travel Distribution China Report • Edition 1

134 135 135 136 136 137 137 138 139 141 142 143 144 145 146 146 147 152 153 156 156 158 159 159 160 162 164

7

8

© EyeforTravel Research. All rights reserved.

Executive Summary

Travel Distribution China Report • Edition 1

Executive Summary & Trends Chinese Travel Industry – Heading North Riding on strong fundamentals, the Chinese travel industry has posted strong growth over the past five years. The industry has progressed from RMB 176.4 billion (US$21.3 billion) in 2002 to RMB 364.9 billion (US$47.8 billion) in 2007, at a CAGR of 15.6%. Both the domestic travel market (spending by Chinese travellers in China) and the outbound travel market (spending by Chinese travellers outside China), have, since 2002, doubled to reach RMB 293.7 billion (US$38.5 billion) and RMB 71.2 billion (US$9.3 billion) respectively in 2007, making China the world’s largest domestic tourism market and one of the largest source markets for outbound travel. Among the various travel segments, i.e. Hotels, Airlines, Railways, Car Rental and Cruise, Airlines has recorded the highest growth rate at 22.4% (2002-07). Within Airlines, domestic travel is the fastest growing segment and within this domestic Airlines sector, business travel is growing faster than leisure travel. After the country’s accession to the World Trade Organization, it has seen the entry of MNCs and a subsequent spurt in small and medium enterprises. This automatically triggered growth in business travel activities within and outside the country. Business travellers constituted around 50% of the total travellers for three years from 2004 to 2006. Online bookings – Supplier Website rules Online bookings have swollen from RMB 442 million (US$53.3 million) in 2002 to RMB 18.2 billion (US$2.4 billion) in 2007 – at a CAGR of 110.5%. Such an astronomical growth can be attributed to the emergence of online bookings in Airlines, which increased its share in the total online travel market by 25% from 2002 to 88% in 2007. Despite this growth, online bookings merely accounted for 5% of the market in 2007. This is expected to increase to 12% over the next five years. Bookings on supplier websites garner a larger share at 74%. OTAs are expected to increase their share from 26% in 2007 to 40% by 2012 as the market evolves and traditional online travel agents such as Ctrip & E-Long establish their airline reservation offerings. Domestic Airlines – Government nod for participation of private players in the domestic aviation will fuel the growth Despite restrictive policies, the domestic Airlines sector has grown at a double digit rate over the past five years. Gross domestic bookings grew at 26% CAGR in the period 200207; in value terms it increased from RMB 23 billion (US$2.8 billion) in 2002 to RMB 74 billion (US$9.7 billion) in 2007. Online bookings in the domestic airlines industry grew at a CAGR of 139% to reach RMB 12 billion in 2007. Within online bookings, suppliers dominated in 2007 with 82% share, but OTAs are expected to gain a larger share over the next five years. Outbound airlines segment almost doubled from 2002 to 2007 primarily due to an increase in the number of countries with Approved Destination Status (ADS).

© EyeforTravel Research. All rights reserved.

9

Executive Summary

China’s ambitious plans of bringing 82% of its population to live within a 90-minute drive from an airport would help ease out current supply constraints and drive new engines of growth. Hotels – Economy and luxury hotels are gaining popularity The Hotel sector has received enormous foreign interest. MNC hotel chains have swiftly entered, post de-regulation of the sector and kicked off several mega-hotel projects across the country. Gross bookings in the domestic hotels segment, which crossed revenues of RMB 134 billion (US$17.6 billion) in 2007, is expected to reach RMB 256 billion (US$34.7 billion) by 2012. Economy hotels have become increasingly popular with the business travel segment. Several Chinese hotel-chains such as Home Inns have emerged and are spreading their tentacles far and wide. OTAs – Web bookings remain insignificant Online Travel Agents in China have traditionally focused on the hotel segment and grown as consolidators. Most of them have focussed on developing the offline channel of booking through call centres. At present, Pure web-bookings constitute a smaller part of their overall revenue. Despite the dominance of offline bookings in total OTA revenue, online revenue through OTAs has increased from RMB 142 million (US$17.1 million) in 2002 to RMB 4 billion (US$0.5 billion) in 2007 – at a whopping 101% CAGR. Whilst hotels have dominated the share of OTA revenue in the past, airlines and package tours seem the most promising and may turn out as a ‘surprise package’ in the future. Outbound – Restrictions on independent travel has ensured a steady business for offline Chinese agents A vast majority of Chinese leisure tourists travelling to destinations other than Hong Kong & Macau do so as part of a tour group. The Government does not currently allow FIT leisure travel to destinations other than Hong Kong, Macau and other select Asian destinations. Leisure travellers to destinations such as Europe and the US have to travel as a part of a group tour and purchase packages from Government authorised agents only. As a result, outbound suppliers such as airlines and hotels from these destinations have been unable to make significant inroads into this market with individual products. Thus online bookings at supplier websites remain low. Things are however changing as the Government has been relaxing group travel norms and including more destinations to which FIT leisure travel is possible. Hong Kong & Macau were the first countries to which leisure FIT from China was allowed. Several Asian countries including Japan are now a part of the list to which independent leisure travel has been allowed.

10

© EyeforTravel Research. All rights reserved.