It’s common knowledge that the double whammy of China’s so-called ‘new normal’ of slower economic growth and lower government spending on hotels due to the ongoing anti-corruption campaign have changed the landscape of China’s hotel market over the past three years. The luxury segment has been hit hardest, but budget and mid-range sectors have also been feeling the pinch.
During that same period, however, China’s online booking sector—increasingly driven by mobile—has been on a roll.
Travel research consultancy Phocuswright’s eighth edition of its China Online Travel Overview notes that in 2014, the Chinese online hotel booking market grew 57 percent, a substantial jump from 2013’s 44 percent growth.
In just 24 months, mobile has gone from a promising future market to the most important area of competition. In China, online travel agencies' mobile hotel bookings tripled from $1 billion in 2013 to $3 billion in 2014, the report said, with the trickle down effect of Chinese hotel chains, especially in the middle and budget segments, upgrading their mobile presence and execution.
During that same period, supplier mobile bookings jumped dramatically from only $42 million to $1.2 billion, almost 30-times growth. Phocuswright is projecting that 56 percent of bookings in 2015 will be made via mobile, a number it sees growing to more than 75 percent in 2017.
Perhaps more importantly, online lodging penetration grew from 18 percent to 27 percent in 2014, the report said, with that figure expected to grow to 37 percent next year and 41 percent in 2017. This is being pushed forward by suppliers, as well as OTAs—a space which has seen some major changes recently.
“Probably the biggest thing going on right now affecting the online hotel world is the consolidation of China’s OTAs—less than a month ago, Baidu led a deal which essentially brings Ctrip, eLong and Qunar all under one roof, with Ctrip on top,” said Maggie Rauch, Phocuswright senior research analyst and China expert.
Each of these platforms brings different strengths to the table, she said, with eLong not doing good business overall but being strong in hotels and recent entrant Qunar having a competitive advantage with its non-chain hotel inventory.
“All three were in a bitter battle for customers, which led them to engage in heavy hotel discounting at a big cost to the bottom line,” Rauch said of China’s OTA giants. “So one of the first questions is, is this the end of those price wars?”
A Mobile World
It’s too early to tell what the answer to that question is, but what is apparent is that the battle for the Chinese market is shifting quickly to mobile. The biggest players are aggressively pushing app downloads and smartphone hotel bookings with mobile only discounts, the Phocuswright report said. The mobile booking experience is also increasingly enriched with user-generated content including reviews and photos.
Once fairly closed to non-Chinese booking sites, the Chinese online booking market is beginning to open up to foreign players too, Rauch said. Agoda is gaining traction with Chinese booking trips elsewhere in Asia, she said, and Booking.com’s star is beginning to rise with Chinese overseas travelers. These platforms will need to continue to push into the market, however, as hotel brands improve their ability to engage Chinese travelers directly.
“China’s hotel brands have done a decent job at selling through their own sites,” Rauch said. “Much better than airlines.”