It would have been inconceivable a decade ago to imagine the scope and reach of investment that has recently taken place in the China-driven travel and tourism industry as it affects the United States. And in its wake, the activity has left industry professionals contemplating just where it might lead.
A quick re-cap of some major developments in this activity:
—Last year, Anbang insurance bought Hilton’s globally known Waldorf Astoria Hotel in New York for $1.9 billion.
—Early last week, online travel agencies Ctrip.com and Qunar announced their merger, creating an online travel behemoth in the world’s largest country source market for tourism. Ctrip and Qunar will combine products and services and control 70 percent to 80 percent of the hotel and air ticket markets, wrote Summit Research analyst Henry Guo.
—And then, last Thursday, on top of the Ctrip-Qunar merger announcement, it was revealed in the official newspaper China Daily that three major Chinese firms are seeking to acquire U.S.-based hotel giant Starwood (its brands include Sheraton, Westin, and W hotels). The three Chinese companies are sovereign wealth fund China Investment Corporation (that manages part of China’s foreign exchange reserves), Hainan Airlines and Shanghai hotel Jin Jiang. Analysts told the newspaper that Starwood could turn out to be the largest international acquisition by a Chinese firm, surpassing that of U.S. meat company Smithwood, acquired by Shuanghui in 2013 for $7 billion.
The Inbound Report heard speculation that the nature of the activity and the players involved suggested that there could emerge in China the type of vertically integrated travel company that exists in Europe: i.e., Germany’s largest tour operator, Tui, for instance, has its own airlines, ships, hotels and ground transport network.
We put the question of what all the activity means to Las Vegas-based Bob Gilbert, who heads up China Ready Partners in North America.
“I think there will be a lot of positioning within China to gain footholds outside of China. ‘Money’ will invest outside of China as they feel there is more security and stability,” he said. “Look at the intra-China Ctrip – Qunar deal…it is huge. More will follow.”
Meanwhile, Back Online: As reported by Bloomberg, China’s online travel market will more than triple to $200 billion by 2020, Goldman Sachs analysts led by David Jin wrote in a note last week. While the number of Chinese who book trips online keeps growing, tougher pricing competition has hurt profit margins for the biggest online travel agencies.
Bloomberg also reported that China’s three largest Internet companies are all seeking to capture more leisure travelers:
—Alibaba Group Holding Ltd. is expanding its Alitrip unit,
—Tencent Holdings Ltd. offered to buy out the 85 percent of Elong Inc. it doesn’t already own as they compete with Baidu. (Baidu Chairman Robin Li said the deal “demonstrates Baidu’s continuing commitment to online travel, an industry with tremendous potential ahead.”
—The acquisition would add to the $62.5 billion of Internet deals involving Chinese companies during the past year, data compiled by Bloomberg show.
“If you look at the travel market, it’s such an obvious way to drive synergy through consolidation,” said Chi Tsang, an analyst at HSBC Holdings Plc. “The key issue the two have always needed to figure out was always about valuation and management integration.”