Q3 2020: OTA trends taking off in China

As the first country to suffer from the impact of COVID-19, Q1 and Q2 were extremely challenging quarters for China. OTAs “survived” but were cash-strapped with huge international operating costs to cover, a former director at Trip.com, one of China’s biggest OTAs, said in a Third Bridge Forum Interview. As the outbreak started to stabilise in the country, green shoots of recovery emerged in Q3. Data from Trip.com illustrate this point. In Q2, its accommodation GMV was just 33% of the prior-year level but reached 85% by Q3. Similarly, its transport business recovered to 30% in Q2, rising to 65% in Q3. 

To put these numbers into context, we heard that Trip.com “has been hit the hardest” of the Chinese OTAs. The company had been grabbing global market share from rivals Booking Holdings (Booking) and Expedia, establishing offices in key markets and working with strategic partners. It still leads the charge among Chinese OTAs overseas, but, as a lesser-known challenger business, also faces fierce competition from local players. “Trip.com’s international business volume dropped almost as much as that of Booking did. I think the decrease rate was about 80-90% in Q1 to Q2,” the former Trip.com director said. 

Forum Interviews suggest that the more domestic-focused OTAs, such as Lvmama and Tongcheng Elong, have fared better than those driving international expansion. “They have laid emphasis on trips to neighbouring countries, such as Southeast Asian countries, Japan and South Korea. Japan was a key focus because of the Olympic year. In summary, OTAs which made great efforts to develop [their] overseas business have been greatly affected this year”, an executive at Alibaba’s Fliggy said. Surrounding tours are expected to be a growth point for OTAs in the next two to three years, mirroring the wider trend of “experience and consumption upgrades”. In addition, Chinese OTAs are increasingly catering to high-end tastes. With long-haul domestic and international trips off the cards for the foreseeable future, Chinese consumers are embracing two- to three-day leisure trips that offer a higher-quality experience.

Meanwhile, Meituan Dianping, which serves as both an OTA and an online travel platform (OTP), was recently described as the “dark horse” among its peers. “It serves as a travel life platform or digital life platform, offering more tourism scenarios featuring a low average revenue per customer,” the expert said. Its focus on domestic scenic areas, and small and medium-sized independent hotels, has also worked in its favour during the pandemic. We’re told there is a broadly untapped opportunity across amusement parks and other local recreational facilities, which typically represent less than a fifth of OTA bookings. 

Until international travel rebounds, domestic tourism, including surrounding tours, will be critical to the continued development of OTAs in China. This shift in focus has also underscored the importance of being able to adapt strategies according to changing local market conditions. For example, we heard that Booking has been constrained by its centralised decision-making approach, which was an effective model pre-pandemic, but has served as a roadblock during the crisis. With all strategies deployed by its head office, local offices lacked the power to respond when individual markets started to bounce back. The pandemic could therefore challenge the way some OTAs think about their organisational structure and prompt a shift in how local markets are managed. 

Interviews have also shed light on how OTAs have tried to encourage travel now that the situation has stabilised in China, with live streaming emerging as a popular marketing method. Trip.com has set aside RMB 30bn to cooperate with tourist authorities in a bid to facilitate the industry’s recovery, support suppliers and stimulate demand with discounts. This approach has netted RMB 1.1bn in GMV for the company, with business coming primarily from mainland China as well as Japan, South Korea, Hong Kong and Singapore.  

It has also been interesting to hear about other trends gaining traction in China. For example, self-guided products have been growing at a rate of about 5% over the past two to three years, and the pandemic is likely to advance this shift. OTAs are also in the process of upgrading their products and services, including trying to evolve into “smart platforms”, using big data to improve the customer journey and integrate the various links across their supply chain. Adding to this, over 60-70% of the leading OTAs’ customers are in their 20s and 30s, according to an Interview, which the specialist anticipates will result in OTAs increasingly focusing on self-guided tours and products aimed at younger consumers. 

Before COVID-19, China’s online travel market was expected to grow by “at least 12-15%” in 2020. But as travel restrictions continue to blanket swathes of the world, and the virus remains rampant in many countries, uncertainty and anxiety are likely to weigh heavily on demand both at home and abroad. The consensus is that business and leisure international travel will remain at a low ebb for months to come, with cross-border travel unlikely to regain momentum until at least H1 2021.

* According to Phocuswright