CEO Interview: Ctrip’s Strategic Threat to Expedia, Priceline and Everyone Else

If you want to understand the nature of Ctrip’s global ambitions and strategy, just let the CEO take you on a guided tour of China’s largest online travel agency, and the globe’s second largest by market cap, as she scrolls through screens on her phone. Jane Jie Sun, who got promoted from Ctrip co-president to CEO in November, sits in a conference room on a late Tuesday afternoon a couple of weeks ago in a heavily Chinese section of Flushing, Queens in New York City. Sun, currently the only female CEO of a publicly traded online travel agency, landed in New York from China only a couple of hours earlier but she’s eager to talk to Skift about where Ctrip is headed. (Gillian Tans is CEO of Booking.com, the biggest piece of the Priceline Group.) Asked to discuss Ctrip’s business model and seemingly all-encompassing array of products, including everything from flights and hotels to luggage, translation and extraction services, Sun takes out her mobile device and points to what seems like pages of multi-colored “cards” depicting the hierarchy of the company’s multifaceted products and operations. “If you look at the pink section, that’s accommodation-related. You have overseas hotel, Groupon, Airbnb, HomeAway,” Sun says, meaning flash sales, short-term rentals, and vacation homes. “The blue section is transportation. We start with air tickets, high-speed railway, bus, ferry, chauffer, taxi, special tickets. So this is transportation. Then this is leisure travel. You have packaged tour. This is TripAdvisor [meaning user reviews], when you make a reservation, and then cruise. You have tailored cruise.” Given this wide-ranging assortment of services and as well as investments in tour operators, China Eastern Airlines, India’s MakeMyTrip, and a joint venture with Royal Caribbean Cruises, Ctrip seems more like a TUI Group or Thomas Cook than a Priceline Group or Expedia. Ctrip also acquired Universal Vision and two other tour operators servicing Chinese clients in the U.S. last year. The focus clearly is on Chinese travelers It’s a distinction with purpose. While Priceline and Expedia want to be as global as they can be, servicing Brazilians, Dutch, Spaniards, Nigerians, Egyptians, Chinese, Americans, and Canadians, Ctrip’s vision primarily is to accommodate and support Chinese travelers, whether it is for a domestic hotel stay, which is a particular priority at the moment, or wherever else they wander internationally. “Lots of countries have lifted their visa restrictions on Chinese customers so that’s why it’s a wonderful opportunity for us to explore the opportunity along with our customer,” Sun says. “Our goal is wherever our customer goes, we will be able to help them by supplying them with the best inventory, the best price, best services. When our customers started to visit Taiwan, Hong Kong and Macau, we invested in a Hong Kong company and a company in Taiwan to help them get the best product and service.” It isn’t a small demographic Ctrip is chasing. The China Tourism Academy reported that Chinese outbound tourism grew 4.3 percent to 122 million travelers in 2016. They spent an estimated $109.8 billion abroad on everything from hotels and tours to shopping and dining. So there isn’t necessarily a collision coming, in the next few years at least, with the Priceline Group, which owns around 10 percent of Ctrip, because in many ways they are chasing different markets. They assuredly compete but it often isn’t very directly. That competition will become more intense, especially in Europe, when Skyscanner, under Ctrip, competes more directly against Kayak, which is in the process of grabbing the Momondo Group. The Priceline/Kayak deal with the Momondo Group is expected to close later this year. Asked about any looming confrontation, Sun replies: “I think if you look at the target, the market is quite different. I think Ctrip serves China-related customers very well, so the first step is domestic China. The second way is the Greater China Area, including Hong Kong, Taiwan, Macau. The third one will be Asia, including Japan, Korea, Southeast Asia. “I think the Ctrip brand probably is very well-known within China. Also, we’re doing very well in Hong Kong. In Hong Kong, we are well-known. In Asia, gradually, hopefully, we’ll build a good brand in Asia. Skyscanner [acquired in December] is well-known for their air products in Europe, so it’s two regions, different products.” No one can touch Booking.com The Priceline Group’s Booking.com is almost untouchable, according to Sun. “Booking, on the other hand, is a global brand and in hotels, they are just so far ahead of anybody else,” Sun says. “I think it will be very difficult for anybody to come to close to them. Ctrip can do well because we focus on the Asia region and we also provide such a comprehensive product suite to the customers, which neither Booking nor Expedia does.” The Priceline Group saw its hotel room nights soar 31 percent in the fourth quarter of 2016. That was all organic growth and not the result of recent acquisitions. Total revenue, the majority of which comes from hotels, climbed 17.4 percent to more than $2.3 billion. Ctrip, which offers a much wider array of products and services than the Priceline Group, which doesn’t do much with flights, doesn’t break down room nights and its hotel business is a fraction of the size of Priceline’s. Ctrip saw its fourth quarter accommodations revenue jump 56 percent to $266 million. The acquisition of former rival Qunar contributed to a chunk of the increase. “Booking does the hotel so well,” Sun says. “I think they built a wonderful platform for the hotel business and they are doing it wonderfully. Nobody can really compete with Booking. We have very high respect for the Booking team.” Booking.com and Ctrip are partners, offering each other their respective hotel supplies for their customers. Expanding through Skyscanner One of the ways Ctrip should be able to increase its international footprint is through its acquisition of flight-metasearch site Skyscanner, which Ctrip bought late last year for $1.74 billion. Sun says Skyscanner is strong in Europe, Russia and Asia, and will operate as an independent company. Asked if Ctrip would put a lot of money into Skyscanner, Sun replied: “Not necessarily. The company, ever since it has been established, has been quite profitable so they will invest money. Maybe there is a time lag.” That profitability, though, may go missing for the next six months. Sun said for two quarters Skyscanner’s costs will be greater than its revenue because it needs to recruit 20 people to a service team — and that’s a strong hint at Skyscanner transitioning toward doing more bookings on its own instead of just letting consumers click off to airline and online travel agency sites to complete their flight bookings. Asked to comment on Sun’s remarks about Skyscanner, a Skyscanner spokesperson denied there was any change in strategy or that profits would be imperiled. “It seems that Jane simply meant customer service as an example of an area Skyscanner might potentially look to invest in the future, but not one we have any concrete plans on at present,” the Skyscanner spokesperson said. “One of the key benefits of working with Ctrip is that we can learn from them in a number of areas (and vice-versa), but rest assured our strategy and direction remains the same. Moreover, while we’re always recruiting, we haven’t any plans to recruit to handle bookings ourselves. “Certainly we expect our profit margin to be maintained and this would not be impacted by hiring forecasts.” Contrary to published reports, Sun says Ctrip will probably not integrate Skyscanner into Ctrip search results, although Ctrip will become a prominent booking option within Skyscanner’s results. Among Skyscanner’s competitors, Sun sees Priceline’s pending acquisition of flight-metasearch company Momondo as being advantageous for Priceline’s Kayak unit in Europe. For his part, Kayak CEO Steve Hafner thinks Ctrip may turn Skyscanner into a full-fledged online travel agency — or at least Ctrip and Skyscanner should test the premise. “That’s something that Kayak will watch with interest,” Hafner said. “We’re not ready to make that move although that’s something we keep taking a look at.” Can Ctrip be all things to the Chinese traveler? When you consider the world’s three largest online travel agencies, Priceline focuses on hotels and is very global; Expedia is a full-service travel agency and is trying to get more international, and Ctrip has a wider array of services than all of them. Expedia is fond of referring to itself as the largest full-service online travel agency. That’s true since its revenue is much larger than Ctrip’s, but the Chinese online travel agency’s services are more wide-ranging. “If you look at Expedia, they have two products mainly,” Sun says. “One is hotel, one is the air ticketing business, but for us, we want to make sure we start with China and Chinese customers because they have a language problem … If we know they’re going from Shanghai to Paris, we will push a Paris hotel. For example, Ritz-Carlton in Paris if they’re taking first-class or business-class tickets. We know they’re staying at Ritz-Carlton, then we calculate the distance between the hotel and airport, and we’ll push a rental car or chauffer service to them. “Then once we know they’re staying in Ritz-Carlton, [we’ll determine] around Ritz-Carlton what kind of attraction tickets we’ll get. Around Ritz-Carlton, do we have a Tiffany? Do we have Hermes or Louis Vuitton shops for them to shop at, and Michelin restaurants. When they travel with Ctrip, they have peace in mind, everything is taken care of.” But how can Ctrip maintain its focus when it is offering so many products and services while also integrating various conquests? Sun points to her phone and a hodgepodge of cards designating business units in the company’s Baby Tiger program. These are an array of startup businesses within Ctrip, each with its own chief executive, chief financial officer, chief technology officer, and profit and loss (P&L) statement. “Every year we measure them by a formula. They have a virtual valuation for their business unit and their bonuses are tied to that,” Sun says. “Every quarter we have a business review meeting and employees are encouraged to bring a business plans and we are the VCs (venture capitalists).” Sun recalls a young employee who wanted to start a bus service and there was a lot of skepticism about his idea. “Buses are very low, very cheap, so we say, ‘How can you make money off buses? You go back and think about it.’ “He comes back again with his business and he’s like, ‘I want to do this. This is promising.’ We look at the numbers, and it’s not that promising. ‘Go back and rerun your numbers.’ The third time he comes back again; he never gives up, right? Finally, I said, ‘How much resources are you looking at?” He’s like, ‘I want two million RMB,’ which is about $150,000. Affordable. Six people, six months. ‘If I can reach 10,000 per day, you let me grow. If not, I will close it down.’ “I’m saying, ‘Yeah, let him go do it, right?’ If it works, it’s great. If it’s not working, then it’s fine. One month later, the daily volume is more than 10,000 a day, so now we give him a tab in the blue section. They’re a prominent tab now.” “This is the bus,” Sun says, pointing to a blue tile on her phone. “Yeah, he did bus, now he is doing ferry.” “He wants to connect everyone,” Sun says, laughing, “either ferry or bus or high-speed railway or air tickets. The transportation is growing triple digits.” The idea is similar to what Lola CEO Paul English said at the Skift Global Forum in Manhattan in September: Innovation happens in small teams. How will Ctrip avoid major distractions? “Decentralizing,” Sun says. “Ctrip is a big company with 25,000 employees already. We just cannot ask a CEO to make every decision. Instead, we push down and let each business unit act as if they are the CEO for their own business, taking charge of the resources. You can hire as many people as possible as long as the ROI (return on investment) makes sense to you. In a way, it’s a great training ground to bring up the next generation of the leadership, as well.” Breaking teams down into small units, though, doesn’t address all the challenges Ctrip faces with its breadth of offerings and its string of major acquisitions since 2015, including Qunar, eLong and Skyscanner This remains something to watch in Ctrip’s evolution. “We are very patient, very disciplined in making our investments,” Sun says. “Our investment strategy is very disciplined. Lots of companies want to get Ctrip’s investment. First of all, it needs to be closely related to our core companies, which is travel. Secondly, whichever verticals we invest in, it needs to be the industry leader.” The woman thing Asked about her role as the sole female CEO of a major online travel agency, Sun says she feels a special responsibility. “There are lots of strengths a female leader can represent and take the team to the next level so I think as long as we recognize the strengths and also use the team to make up for weak points, you will be able to build a very good team,” Sun says. Sun believes a woman can bring special things into the board room, and even relates these traits to her decision to delay taking on the CEO role for almost a year after then-CEO and now executive chairman James Liang asked her about it. “In terms of female versus male, I think there are different traits in different males and females,” Sun says. “In females, normally they are very team-oriented. When James asked, do you want to be a CEO? Maybe [a man] would have jumped into it right away rather than wait 10 months later to take it on. I always put our team first rather than personal achievement. I think it’s important for our team to be strong. If your team is strong, then everyone will have a very good opportunity. “As a female leader, I feel team-building and leadership is very strong. You are willing to make personal sacrifices for the benefit and the interest of the team. That’s also very important, and also as a female leader, I’m always trying to put myself in other people’s shoes. When I’m in a very tough negotiation, I always try to make it one way so even a very tough negotiation can move along very effectively.” Ctrip is certainly moving along — and on a path that’s different than its major rivals. For now, Ctrip is focusing primarily on the massive ranks of Chinese travelers as they discover the world. That’s a huge opportunity that will take up Ctrip’s strategic bandwidth for years. Will the company pivot one day toward even more direct competition with some of its biggest rivals? Never say never. This article was originally published on Skift, a Jing Daily content partner.

CEO Interview: Ctrip’s Strategic Threat to Expedia, Priceline and Everyone Else

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Published March 17, 2017

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CEO Interview: Ctrip’s Strategic Threat to Expedia, Priceline and Everyone Else