Online travel agencies capitalize on China's smart tourism boom

HAIKOU - On the eve of the three-day long Workers' Day holiday, IT engineer Feng Yue from south China's Hainan Province is planning a trip to southwestern province of Yunnan with his girlfriend.

While his parents consult local travel agencies for a group tour, Feng, 26, gets all the itinerary, tickets and accommodation ready beforehand on his smartphone.

"It's convenient and cost effective. Comments online should be more reliable than a salesman's pitch," Feng said.

Rising affluence, a better transportation network and pent-up curiosity means more Chinese are hitting the road and trip no longer means an all-inclusive package tour sold by bricks-and-mortar travel agencies. Travel websites are flourishing with individual customers like Feng who prefer freedom in making their planning while seeking quality service at the best available price.

Growing pie

Last year, online travel transactions hit 200 billion yuan (31.96 billion U.S. dollars), up 27.7 percent year on year, according to iResearch, a research and consulting group. But it only accounts for about 7.7 percent of the total travel market.

"The online travel market is growing faster and will be bigger than other countries. We have good local government support and the potential is enormous," said Henrik Kjellberg, chairman of eLong, a Nasdaq-listed company providing online hotel reservations in China.

The rising independent tourism community who demand better service has driven the online gains. The tropical coastal city of Sanya in Hainan Province received over 700,000 tourists during the week-long Spring Festival holiday last year, with individual tourists accounting for about two thirds of total, according to local tourism bureau.

The State Council, China's cabinet, decided to develop the tourism sector into a strategic pillar industry supporting economic growth in 2009.This year is the National Tourism Administration's (NTA's) "Year of Smart Tourism". A national smart tourism service center in Zhenjiang and 33 pilot smart tourism cities nationwide are doing everything in their power to improve the individual travel experience.

Smart tourism is a key step to upgrading the tourism sector from traditional service industry to a modern one, said Shao Qiwei, director of the NTA.

Grabbing a slice

Alert Internet companies have been investing heavily in the online tourism sector. Current online tourism agencies (OTA) are digging deep.

Some players simply act as agents and sell traditional tickets and hotel bookings online. Some offer price comparisons services. Some combine offline and online resources to roll out fully customized package trips, and others offer communication platforms for travelers to share experiences.

The three big Internet players Baidu, Alibaba and Tencent have all made forays into the OTA market. Baidu invested into Qunar. Tencent invested into eLong and 17U and has its own QQ Travel service. Taobao has the sparkling originally named, Taobao Travel.

The online travel space is always active with new players. LY.com and Nasdaq-IPO candidate Tuniu.com announced on Monday and Tuesday respectively that the Nasdaq-listed Ctrip, an important OTA, has became their shareholder.

Offline service still the core 

Like all e-commerce, online travel is nothing if the offline service in the real world is poor.

The purpose of online travel services is to make travel easier and cheaper, but whether the trip is pleasant mainly relies on the local resources service quality and infrastructure, said Dai Bin, director of the China Tourism Academy (CTA), a think tank with the NTA.

According to CTA, despite its scenic tropical location, Sanya well fell behind others destinations in a Q1 satisfaction survey due to its inadequate public and commercial infrastructure.

"If you don't even have access to WiFi, then smart travel apps are almost useless," Dai added.

Dai wants local governments to focus more on infrastructure and public services while leaving most of the platform development and promotion to market players who understand consumers.