Online travel firms see turning point in profitability

While competition is intense in the Chinese online travel industry, the relatively low penetration rate compared with Western peers indicates there may be much room for growth for Chinese market players.

According to the latest numbers provided by UBS Investment Research, the penetration rate of online travel agencies was only around 10 percent in 2015, while the number in the United States was over 40 percent and that for Europe was nearing 50 percent.

Regarding the low penetration rate and Chinese tourists' increasing enthusiasm for both domestic and overseas trips, Xu Ming, analyst at UBS Investment Research, predicted that this year will be a turning point for online travel agencies.

Those which have not made profit yet, will start to turn in a satisfactory balance sheet, and those that are already profitable will seek even faster growth.

Travel agencies which provide non-standard trip products will perform extremely well, including Nanjing-based online outbound travel service provider Tuniu Corp, Xu said.

Yu Dunde, chief executive officer of Tuniu, agreed growth opportunities abound for online travel agencies as consumers' demand is more diverse now than in the past.

"Travel agencies used to classify their products simply according to tourists' consumption level. But as people travel more frequently, travel products should have different characteristics. Thus, we now have products such as family trips, cruise trips and trips tailor-made for the elderly," Yu said.

Tuniu introduced a family trip package late December targeting three different age-groups of children: 2-5, 6-11 and 12-15 years. The idea is to avoid homogenized competition. It is also one of the three focus areas, said Yu.

Enhanced service quality figures among Tuniu's priorities. The company has set up more offline service centers, whose number rose from 15 in 2014 to 150 by the end of last year. It will set up overseas offline service centers this year.

"By 2017, we shall have 1,000 offline service centers in China and more than 100 overseas. Apart from providing services at destinations, we will start our services at the departure stage itself, which consumers value a lot," he said.

Increased efficiency in the supply chain is Tuniu's third priority. In the past, it was not aware of consumers' needs in real time as there were too many intermediaries. Tuniu will now work directly with suppliers, and, by extension, consumers, through its own communication system. The goal is to ensure the output of one Tuniu team-member is twice the industry average.

"It is true that some Chinese Internet companies are undervalued in the US. But the most important thing is not seeking short-term profit in the capital market. What we should really do is to seize the unprecedented chance in the Chinese online travel market right now," Yu said.