Travel Distribution China Report (Edition 1)

Part of EyeforTravel’sEmerging Online Travel Markets Series

TRAVEL DISTRIBUTION

R E P O R TCHINA

Edition 1

© EyeforTravel Research. All rights reserved.3

Travel Distribution China Report • Edition 1

EyeforTravel Research 7-9 Fashion Street LondonE1 6PXUK

For queries contact:[email protected] www.eyefortravel.com

EyeforTravel Ltd, May 2008



Table of Contents Executive Summary & Trends 9 1. Country Overview 11

1.1 Economy 111.2 Key Demographics 181.3 Government Policies 25 2. Tourism Overview 31

2.1 Tourism Overview 312.2 Domestic Tourism 332.3 Outbound Tourism 39

3. Chinese Travel Distribution & Trends 55

3.1 China’s Total Travel Market: market trends and distribution channel analysis 553.2 Domestic Travel Market: travel distribution and sector trends for: 58

3.3 Airlines 623.4 Hotels 763.5 Car Rental Market 903.6 Cruises 933.7 Railways 1013.8 Online Travel Agents (OTAs) 1033.9 Meta Search Engines 1093.10 Traditional Travel Agencies 110

3.11 Outbound Travel Market 114 4. Chinese Travellers – Search and Buying Behaviour 125

4.1 Internet Users & E-commerce 1254.2 Use of Online Facilities 132

5. Marketing, PR & Sales 141

5.1 Advertising Media and Online Marketing 1415.2 Marketing Strategies by Key Travel Segments 147

6. Case Study 155

6.1 Ctrip – near monopoly in Chinese online travel market 155

7. Useful Contacts 171 Research Methodology 179

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Travel Distribution China Report • Edition 1List of Figures

List of FiguresFigure 1: China’s Real GDP (2002-2012F)Figure 2: China’s nominal GDP (2002-2012F)Figure 3: Per capita GDP in real terms (2002-2012F)Figure 4: Per capita GDP in nominal terms (2002-2012F)Figure 5: Comparison of China’s GDP per capita with other leading countries, 2006Figure 6: Employment in China (2002-2010F)Figure 7: Exchange rate against key currencies (Average Annual Rates, 2002-2012F)Figure 8: China’s foreign exchange reserves (2002-2007)Figure 9: Utilised foreign direct investments into China (2002-2006) Figure 10: China’s rank in global FDI flows (2006)Figure 11: Foreign direct investments into China by sector (2002 and 2006)Figure 12: Foreign direct investments into China by country (2002 and 2006)Figure 13: Population of China (2002-2012F)Figure 14: Share of population by age group (2000, 2005, 2006 and 2025F)Figure 15: Urbanisation in China (1978-2006)Figure 16: Population by region (2005 and 2006)Figure 17: Per capita disposable income of urban and rural households (2002-2007)Figure 18: Per Capita Annual disposable income of urban households by region, 2005Figure 19: Share of urban households by income class (base year 2000)Figure 20: Average family size in ChinaFigure 21: Education profile of Chinese aged six years and older, 2006Figure 22: Number of new students enrolment by level and type of school (2002-2006)Figure 23: Number of Internet users in China (2002-March 2008)Figure 24: ADS status awards (2007)Figure 25: Visa processing time for ChineseFigure 26: Growth in China Travel and Tourism (Value, 2002-2012F)Figure 27: Travel & Tourism expenditure by travel purpose (2002-2012F)Figure 28: Growth of domestic tourism (2002-2007)Figure 29: Urban resident volume by purpose of visit (2005)Figure 30: Tourism receipts “Golden Week” vs. rest of the year (2005)Figure 31: Preferred domestic tourism destination for the richFigure 32: Domestic tourism of urban and rural residents (2002-2007)Figure 33: Domestic tourism of urban residents by major cities – Per capita tourism expenditure Figure 34: Domestic tourism of urban residents by gender, 2005Figure 35: Domestic tourism of urban residents by age, 2005Figure 36: Outbound Chinese (Million, 1995-2020F)Figure 37: Geographic break-down of outbound travellers by destination (41 million; 2007)Figure 38: Chinese outbound by destination (2002-2007)Figure 39: Region wise outbound volume distribution (2002-2007)Figure 40: Hot travel destinations within Asia (ex Macau and Hong Kong)Figure 41: Purpose of travelling to Hong Kong (% of respondents)Figure 42: Outbound travellers to Japan (2001-2006)Figure 43: Mode of travel to Thailand (2006)Figure 44: Outbound travellers to Singapore (2001-2007)Figure 45: Purpose of travel to Singapore (2005) Figure 46: Dream destinations (2007)Figure 47: Top 5 European destinations for outbound Chinese (2007)Figure 48 Long haul travel destinations outside Asia (% respondents, 2007)Figure 49: Outbound travellers to US (2000-2006)Figure 50: Outbound group packaged tour travellers (Million, 1994-2006)

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Figure 51: Outbound by package type and destination Figure 52: Expenditure by outbound travellers (1995-2006)Figure 53: Outbound per capita travel expenditure (1995-2006) Figure 54: Trip expenses at major destinations (2007)Figure 55: Spending composition 2003Figure 56: Chinese spending in Singapore by major items (2005)Figure 57: Visa processing time (in business days) for major destinationsFigure 58: China total travel market value (2002-2012F)Figure 59: China total travel market by segment (2002-2012F)Figure 60: Chinese total travel market - online vs. offline (2002-2012F)Figure 61: Chinese online travel market: direct vs. indirect (2002-2012F)Figure 62: Chinese online travel market: direct vs. indirect distribution (2002-2012F)Figure 63: Domestic travel market by segment (2002-2012F)Figure 64: Chinese domestic travel market - online vs. offline (2002-2012F)Figure 65: Domestic online travel market by segments (2002-2012F)Figure 66: Chinese domestic travel market - direct vs. indirect (2002-2012F)Figure 67: Chinese domestic travel market - direct vs. indirect distribution (2002-2012F)Figure 68: Growth in domestic revenue passenger kilometres (2002-2012F)Figure 69: Domestic Air Passenger Traffic (2002-2012F)Figure 70: Passenger traffic (Passenger kilometre) growth by mode of transport – 2007EFigure 71: Share of passenger traffic by mode of transportFigure 72: Type of travellersFigure 73: Chinese airports in global Top 100 ranking of airports by the number of passengers handled (2003-2006)Figure 74: Distribution of aircraft movements – 2006Figure 75: Passenger throughput trends at major Chinese airports (2002-2012F)Figure 76: Number of airports (1990-2020F)Figure 77: Domestic Airlines (2006 Passengers Carried)Figure 78: China airline industry - grouped under the Big-3Figure 79: Airline companies in China and their home-baseFigure 80: Comparative market share in major China air traffic hubsFigure 81: Market share of China’s Big 3 airlines in terms of RPKs (2004 and 2007)Figure 82: Development of air passenger traffic (2002-2007)Figure 83: Private airlines pipeline in ChinaFigure 84: Domestic air bookings value (2002-2012F)Figure 85: Domestic online air bookings and penetration (2002-2012F)Figure 86: Direct vs. indirect distribution in online bookings (2002-2012F)Figure 87: Overnight trips undertaken by Chinese tourists (2000-2012F)Figure 88: Star rated rooms in China (2002-2007E)Figure 89: Comparison of hotel pipeline in China and other regions (2007)Figure 90: Y-o-Y Growth in RevPAR (2005-2007E)Figure 91: Geographic segmentation of hotel revenues in China (2005)Figure 92: Geographic distribution of hotels and utilisation rates (2005)Figure 93: Breakdown of star-rated hotels by ownership type (2002 and 2005)Figure 94: Hotel pipeline by brand (Oct 2007)Figure 95: Number of rooms in non-star rated hotels (2002-2006)Figure 96: Economy hotel capacity growth (total rooms, 2004-2006)Figure 97: Competitive landscape of economy hotelsFigure 98: Overnight stays by Chinese customers segmented by accommodation typeFigure 99: Private vehicle ownership (1990-2006)Figure 100: National expressway (2001-2050F)Figure 101: Number of SMEs in China (1990-2006)Figure 102: Percentage split of branded and unbranded hotel roomsFigure 103: Domestic hotel bookings (2002-2012F)

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Travel Distribution China Report • Edition 1List of Figures

Figure 104: Chinese hotel consolidators operating modelFigure 105: Domestic online hotel bookings (2002-2012F)Figure 106: Hotel aggregators in ChinaFigure 107: Direct vs. indirect distribution in domestic online hotel bookings (2002-2012F)Figure 108: Value of car rental market in China (2002-2012F)Figure 109: Domestic online car rental bookings and online penetration (2002-2012F)Figure 110: Direct vs. indirect distribution in domestic online car rental bookings (2002-2012F)Figure 111: Market size of domestic cruise industry (2002-2012F)Figure 112: Major Yangtze cruise routesFigure 113: Major inland cruise routesFigure 114: Major coastal cruise routesFigure 115: Cruise liners capacity shareFigure 116: Cruises along the Yangtze RiverFigure 117: Major outbound cruise routesFigure 118: Rail - Number of passengers carried (2000-2007)Figure 119: Investment in transport fixed assets (2000-2006) Figure 120: Domestic rail bookings (2002-2012F)Figure 121: Share of OTAs in China travel market (Domestic, 2002-2012F) Figure 122: Domestic OTA market – online revenue compositionFigure 123: Market share of leading OTAs at the end of 2007 Second QuarterFigure 124: Revenue distribution of Ctrip (2002-2007Q3)Figure 125: Revenue distribution of eLong (2002-2007Q3)Figure 126: Revenue comparison between eLong and Ctrip (2002-2006)Figure 127: Number of travel agencies in China (2002-2006)Figure 128: Number of travel agencies in Top 15 regionsFigure 129: Number of authorised travel agencies for outbound travel by city/province (2007)Figure 130: China outbound travel market value (2002 to 2012F)Figure 131: Chinese outbound travel market - online vs. offline (2002-2012F)Figure 132: Chinese outbound online travel market - direct vs. indirect (2002-2012F)Figure 133: China outbound online travel market by segment (2002 to 2012)Figure 134: Outbound travel bookings (2002-2012F)Figure 135: Outbound airlines market value (2002-2012F)Figure 136: Online vs. offline in the outbound airlines travel market (2002-2012F) Figure 137: Direct vs. indirect distribution in outbound airlines online travel market (2002-2012F)Figure 138: Outbound hotels market value (2002-2012F)Figure 139: Outbound online hotel market - online vs. offline (2002-2012F)Figure 140: Outbound cruise market value (2002-2012F)Figure 141: Outbound car rental market value (2002-2012F)Figure 142: Outbound railways value (2002-2012F) Figure 143: Comparison of China’s broadband cost with select countries (2006)Figure 144: Internet penetration in China (June 2002 to Dec 2007)Figure 145: Internet penetration in various countries (as of December 2007)Figure 146: Retail E-commerce in China (2002-2007)Figure 147: Top eight online purchases for 2006 (as a % of respondents)Figure 148: Online travel purchasers and % of Internet users (2003-2006)Figure 149: China mobile subscriber base – Historical and forecast (2002-2012F)Figure 150: China’s bank cards market – Volume and average spending (2002-2008F)Figure 151: Bank cards in China (2002-2006)Figure 152: Distribution of Internet population (as of December 2007)Figure 153: Major Internet access points (as a percentage of Internet users)Figure 154: Internet access point for urban and rural netizens (as of December 2006)Figure 155: Internet user demographics (as of June 2007)

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Figure 156: Internet penetration rate by age group (as of June 2007)Figure 157: Online activities of Internet users (as a % of sample surveyed) (as of June 2007)Figure 158: Broadband netizens and % of total netizens (2002-2007)Figure 159: Broadband households (2004-2010F)Figure 160: Installed base of computers – including desktops and laptops (as of June 2007)Figure 161: Sources of information for travel research by outbound Chinese travellerFigure 162: Leisure travel information sources (% of respondents)Figure 163: Travel planning and decision making figureFigure 164: Main factors influencing travel planning and decision makingFigure 165: Advertisement expenditure by media type (2002-2008F) Figure 166: Daily average reach (millions) by channels in primetime (top ten for each sector)Figure 167: Quoted ad rates of selected television channels in ChinaFigure 168: Top newspapers (all languages; Circulation in million)Figure 169: Top China dailies - Ad rates (2006)Figure 170: Minutes spent per day on newspaper, by age bracket and by education levelFigure 171: Reading online news (% of Internet users)Figure 172: Production of radio programmes data (2002-2006)Figure 173: Contribution of different modes of transport in total passenger travel (1978-2006)Figure 174: China’s Internet advertising market (2005-2010F)Figure 175: Ctrip net revenue by segment (2007)Figure 176: Share of hotel booking in Ctrip’s net revenues (2002-2007)Figure 177: Ctrip’s revenues from hotel bookingFigure 178: Share of air-ticketing in Ctrip’s net revenues (2002-2006)Figure 179: Ctrip – Air-ticketing revenues (2002-2007)Figure 180: Share of package tour in overall net revenues (2002-2007)Figure 181: Ctrip’s way of building customer base and achieving growthFigure 182: Ctrip’s marketing channels

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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 2002-07; 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).



Travel Distribution China Report • Edition 1Executive 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.