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This case was fully supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (UGC/IDS12/14).
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This case was prepared for class discussion purposes and is not intended to demonstrate how business decisions or other
processes are to be handled. Ref.: 16/009C Version: SHMBA (July 2016)
Page 1
AMY YIP MINYI HUANG
ALIBABA’S ALITRIP: CREATING TRAVEL
INNOVATION FOR COMPETITIVE ADVANTAGES
Alitrip is building an online travel platform which enables more businesses to
serve users directly, and pushes the whole traditional online travel industry to
upgrade.
-Amy Deng, Deputy GM of Alitrip’s Hotel Services Department1
In October 2014, Alibaba Group (Alibaba) announced the integration of all its travel
businesses under a new brand name, Alitrip, in hopes of reaping benefits in the fast-growing
Chinese travel market. Alibaba had developed online marketplaces such as Taobao and Tmall,
and wanted to make Alitrip a success in the travel industry. Alitrip provided a business-to-
customer portal for travel business operators of all sizes, allowing them to share the same
resources as the retailers in Alibaba’s other large marketplaces, including Alipay payment
options and Aliyun cloud-computing services.
The travel industry, however, was already crowded and highly competitive. In China, Ctrip
and eLong were well-established online travel agencies. Qunar was the largest travel search
engine and wanted to “be the Taobao for travel services.”2 With additional competition from
international companies and local small- and medium-sized companies, it was a challenge for
Alitrip to beat its competitors, who were very aggressive in expanding their business. After
Alibaba announced the Alitrip launch, competitors considered it a serious threat and took
immediate action to defend their market share.
Li Shaohua, General Manager of Alitrip, was very confident that Alitrip was well positioned
to bring something new to the online tourism industry. As a latecomer to the already crowded
market, Alitrip wanted to claim a leading position by changing the rules of the industry game.
Leveraging Alibaba’s resources, Alitrip introduced a series of innovative travel products and
services to improve travelers’ experiences by giving them more flexibility and greater
1 Zhu, J. (2015) “Alitrip: New Kid on the Block, New Angle”, The LINK, vol. 2, CEIBS.
2 Xiang, Tracey (21 Dec 2014) “Qunar or Alitrip: Which Will Be China’s Travel Taobao?”, Technode,
http://technode.com/2014/12/21/who-will-be-the-taobao-for-travel-in-china/, (accessed on 20 March 2015).
Alibaba’s Alitrip: Creating Travel Innovation for Competitive Advantages (16/009C)
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convenience. Facing the criticism that Alitrip did not offer anything new to the travel industry,
Li saw the need to evaluate their competitive strategies. What were Alitrip’s strengths and
weaknesses? What challenges did Alitrip face? How could Alitrip build on its existing
strengths and maximize growth?
The Travel Industry
Industry Overview The travel industry was one of the largest industries around the world and a main source of
income in many countries, contributing more than US$7.1 trillion worldwide in 2015. 3 The
travel-industry value chain consisted of service suppliers, travel intermediaries and travellers.
[See Exhibit 1 for the travel-industry value chain.] According to the World Tourism
Organization,4 the industry enjoyed steady growth, and the number of international tourists
grew from 528 million in 2005 to 1.184 billion in 2015. It was expected to reach 1.8 billion
by 2030. The top three source countries with the largest international tourism expenditures
were China, the US and Germany.
Online Tourism5
The online tourism industry had enjoyed fast growth since 2008, thanks to online travel
agencies’ strong performance and traditional tour operators moving online. The trend was
expected to continue, but the competition between tour operators and online intermediaries
would intensify. In 2015, global online travel sales reached US$533.52 billion which was
expected to grow to US$762.34 billion in 2019. 6 The regional markets in Asia Pacific,
Western Europe and the U.S. were of similar size, which collectively accounted for the
world’s 80% online travel market in 2015.7
Expedia and Priceline were the top online travel agent giants after a few years of industry
consolidation [see Exhibit 2]. Their old competitors, Orbitz and Sabre’s Travelocity,
respectively experienced stagnation and a significant decline in sales. It was expected that
Expedia and Priceline could be challenged only by rapidly growing Asian companies,
including China’s Ctrip and India’s MakeMyTrip.
The general trends of the online tourism industry were: First, mobile travel bookings became
popular. Priceline, for instance, allowed travellers to make bookings on the move through
smartphones, tablets, connected credit cards and in-flight screens. Smartphones and tablets
were expected to be the fastest-growing channel for global mobile travel sales. With the
increase of the average size of smartphone screens and travel companies’ easy-to-use mobile
apps, travelers were expected to use mobile devices to search and make bookings and
payments more frequently on smaller screens.
3 Statista (2016) “Statistics and facts on the global tourism industry,” http://www.statista.com/statistics/233223/travel-and-
tourism--total-economic-contribution-worldwide/ , (accessed on 20 May 2016). 4 World Tourism Organization (2015) “Annual Report 2014,” UNWTO; World Tourism Organization (Jan 2016) “International
Tourist Arrivals Up 4% Reach A Record 1.2 Billion In 2015,”
http://media.unwto.org/press-release/2016-01-18/international-tourist-arrivals-4-reach-record-12-billion-2015, (accessed on 20 May 2016). 5 Euromonitor International (Nov 2014)“Travel and Tourism: Online Travel Intermediaries – A Fast Changing Competitive
Landscape.” 6 Statista (2016) “Digital Travel Sales Worldwide From 2014 to 2019,”
http://www.statista.com/statistics/499694/forecast-of-online-travel-sales-worldwide/, (accessed on 20 May 2016). 7 Daedal Research (April 2016) “Global Online Travel Market: Trends and Opportunities (2016-2020).”
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Second, innovative technologies and business models were emerging and having significant
impact on the travel industry. With metasearch engines available, travelers were able to
compare a wide range of offers and make bookings instantly. Metasearch engine companies,
such as Google and Baidu, entered the travel market. The airline sector typically had more
bargaining power and paid much lower commissions to intermediaries because of the limited
number of carriers. The highly competitive hotel sector had now put more focus on
developing new strategies and alternative channels to facilitate direct sales such as metasearch
channels, social media, Google Hotel Ads services (such as Google Hotel Finder) and review
sites (such as TripAdvisor). 8
Third, travel companies in general were seeking innovative ways to use big data to offer
personalized services to travellers. Normally, it was difficult for travel companies to
differentiate their travel products and services from one another, because the choices of travel
destinations and means of transportation were limited, and hotel and catering-service
offerings were not remarkably different. As a result, the traveler’s experience, from searching
for to completing a trip, became important. Social media made the sharing of travel
experiences quick and easy, and this was changing consumer behavior. Many travel
companies were therefore very eager to use big data analytics to identify travel trends
systematically and offer personalized services to travellers,
Chinese Travel Industry
China’s tourism industry was growing quickly and the future was promising. The industry
employed 88.5 million people in 2014, 11% of the Chinese working population.9 The number
of domestic tourists increased from 1.102 billion in 2004 to 3.61 billion in 2014, representing
an annual growth rate of 12.6%. Revenue also increased from Rmb 471.1 billion in 2004 to
Rmb 3.3807 trillion in 2014.10
In 2014, the number of inbound tourists was 128.5 million,
generating US$56.913 billion in revenue.11
Most amazing was the growth of China’s
outbound tourists and their expenditures. The number of international trips made by Chinese
travelers jumped from 10 million in 2000 to 109 million in 2014,12
making it the fastest-
growing travel market in the world. Chinese tourists spent US$102 billion in 2012 and were,
for the first time, the top source of tourist expenditure. The average Chinese tourist spent
US$1,230 per trip.13
Since 2014, many countries had announced a relaxation of visa rules for Chinese visitors.
Validity of business and short-term visas to the US was extended from one to ten years. This
helped further boost industry development. In 2015, 109 million Chinese tourists travelled
abroad, spending more than US$299 billion.14
By 2030, around US$1.8 trillion was expected
to be spent annually by Chinese traveling overseas.15
8 Euromonitor International (Nov 2014) “Travel and Tourism: Online Travel Intermediaries – A Fast Changing Competitive
Landscape.” 9 Incitez China (31 March 2015) “China to overtake U.S. As the Biggest Business Travel Market in 2017,”
http://www.chinainternetwatch.com/12942/business-travel-market/, c(acessed on 5 April 2015). 10
China National Tourism Administration (7 July 2015) “Tourism Industry Contributes More than 10% to GDP,”
http://www.cnta.gov.cn/xxfb/wxzl/201507/t20150707_720396.shtml, (accessed on 3 September 2015). 11
TravelChinaGuide (2015) “China Inbound Tourism in 2014,”
http://www.travelchinaguide.com/tourism/2014statistics/inbound.htm, (accessed on 3 September 2015). 12
People.cn (15 Jan 2015) “Over 100 Million People Travel Abroad in 2014, 2015 Total Income Expects RMB 3.66 Trillion,”
http://travel.people.com.cn/n/2015/0115/c41570-26391640.html, (accessed on 21 Aug 2015). 13
Cripps, Karia (12 Apr 2013) “Chinese travelers the world's biggest spenders,” CNN,
http://edition.cnn.com/2013/04/05/travel/china-tourists-spend/, (accessed on 8 April 2015). 14
Incitez China (31 Mar 2016) “Chinese Outbound Tourists Spent $229 Billion Shopping in 2015,”
http://www.chinainternetwatch.com/17112/chinese-tourists-shopping-2015/, (accessed on 20 May 2016). 15
Abkowitz, Alyssa (31 Oct 2014) “China’s Internet Giants Get Online-Travel Bug: Alibaba, Tencent, Baidu Angle to Grab
More of Burgeoning Tourism Business,” Wall Street Journal, http://www.wsj.com/articles/chinas-internet-giants-get-online-travel-bug-1414604652, (accessed on 20 March 2015).
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In 2015, the travel market in China was dominated by traditional brick and mortal travel
agencies. According to a study of China’s travel industry 16 , among 120 million Chinese
outbound travellers in 2015, 80 percent made a booking offline, using one of more than
27,000 traditional travel agents. Compared with other countries, traditional travel agencies in
China had closer relationships with their customers, especially those Chinese customers who
made their first international trip preferred to speak to a travel agent in person.
Although traditional agencies still dominated the Chinese travel market, online retail sales,
especially mobile bookings, were growing fast [see Exhibit 3].17 The GMV18 of the Chinese
online travel market reached nearly US$42.88 billion in 2014, increasing 27.1% over 2013.
This was driven by the sales growth in air tickets, hotels and vacation tours. For example, the
GMV of online vacations was worth US$6.67 billion, with a yearly growth rate over 40.0%.19
In 2015, Chinese tourists booked US$11 billion worth of travel online, representing a 70%
increase over 2014.20 While the online travel market was expected to grow fast, the market
witnessed an emerging trend of online and offline market integration in 2016.21
In China, the market leaders in online tourism were Ctrip and Qunar, respectively occupying
34% and 22% of market share in 2013. 22 In 2014, the revenue of online travel agents totaled
US$2.38 billion. Ctrip received US$1.27 billion, accounting for 54.3%.23
In the extremely competitive mobile business, using mobile app downloads as an indicator of
a company’s mobile market share, Qunar, Ctrip, eLong and LY had accumulated 610 million,
350 million, 110 million and 140 million downloads respectively by the end of September
2014.24 The profitability of a company’s mobile business depended on the company's ability
to generate income from apps downloads [see Exhibit 4 for a comparison among companies].
Aside from major domestic competitors, international companies such as Expedia and
Priceline entered and competed in the Chinese market. There were also numerous relatively
smaller Chinese companies targeting niche markets. There were additional new entrants
attracted by market potential. For instance, in September 2014, Tencent Holdings, the internet
gaming and social-media conglomerate, invested heavily in Woqu.com, a site targeted at
outbound Chinese tourists travelling to the United States. In 2014, a total of US$114.94
billion was invested directly in the Chinese travel industry. 25
16
Peltier, D. (20 May 2016) “Online Travel Booking Grows in China, But Traditional Agents Still Dominate,”
https://skift.com/2016/05/20/online-travel-booking-grows-in-china-but-traditional-agents-still-dominate/, (accessed on 20 May
2016). 17
Abkowitz, Alyssa (31 Oct 2014) “China’s Internet Giants Get Online-Travel Bug: Alibaba, Tencent, Baidu Angle to Grab
More of Burgeoning Tourism Business,” Wall Street Journal, http://www.wsj.com/articles/chinas-internet-giants-get-online-travel-bug-1414604652, (accessed on 20 March 2015). 18
GMV stands for “gross merchandise volume,” GMV is calculated using the unit price charged to customers multiplied by the
number of units sold,. This is used by online retail websites to indicate the business volume over a period of time in a
particular marketplace. See: http://en.wikipedia.org/wiki/Gross_merchandise_volume, ”accessed on 5 April 2015). 19
iResearch (26 Mar 2015) “China Online Travel Market Breaks 270 Billion Yuan,”
http://www.iresearchchina.com/views/6324.htmlhttp://www.iresearchchina.com/views/6324.html, (accessed on 4 Apr 2015). 20
Peltier, D. (20 May 2016) “Online Travel Booking Grows in China, But Traditional Agents Still Dominate,”
https://skift.com/2016/05/20/online-travel-booking-grows-in-china-but-traditional-agents-still-dominate/, (accessed on 20 May 2016). 21
Mangocity (Jan 2016) Forecast of 2016 Tourism Market Trends. 22
Abkowitz, Alyssa (31 Oct 2014) “China’s Internet Giants Get Online-Travel Bug: Alibaba, Tencent, Baidu Angle to Grab
More of Burgeoning Tourism Business,” Wall Street Journal, http://www.wsj.com/articles/chinas-internet-giants-get-online-travel-bug-1414604652, (accessed on 20 March 2015). 23
Ibid. 24
iResearch (4 Jan 2015) “China Major Online Travel Companies Put Extra Stress on Mobile Business in Q3 2014,”
http://www.iresearchchina.com/views/6145.html, (accessed on 5 Apr 2015). 25
China National Tourism Administration (7 July 2015) “Tourism Industry Contributes More than 10% to GDP,”
http://www.cnta.gov.cn/xxfb/wxzl/201507/t20150707_720396.shtml, (accessed on 3 September 2015).
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Alibaba Group
Alibaba was first founded in 1999 by Jack Ma to provide a business-to-business portal for
small- and medium-sized merchants in China to sell their products to global buyers. Rather
than sourcing its own inventory, Alibaba created a platform to facilitate trading between
sellers and buyers. This asset-light and inventory-free business model helped generate cash
flow with no inventory expenses.26
In September 2014, Alibaba’s IPO (initial public offering)
on the New York Stock Exchange raised US$25 billion, which broke the Agriculture Bank of
China’s record of US$22.1 billion in 2010 and made Alibaba’s listing the world’s largest
IPO.27
As the world’s largest online marketplace [see Exhibit 5 for financial summary], Alibaba
Group had a “live @ Alibaba” vision of making its products and services central to customers’
daily lives [see Exhibit 6 for Alibaba’s marketplaces]. Taobao, for instance, was a successful
consumer-to-consumer portal developed in May 2003. Within two years, Taobao took the
market-leader position in China, and its market share soared from 8% in 2003 to 59% in
2005.28
By March 2013, Taobao had around 760 million products listed and was one of the
world’s top ten most visited websites.29
Taobao marketplace had China’s largest GMV in
online shopping in 2013, and was the most popular mobile commerce app with the largest
number of active users in China.30 To support its and other trading platforms, Alibaba also
developed Alipay, an online payment system, and Sesame Credit, an internet credit agency.
In 2013, with 300 million registered users and 100 million mobile users, Alipay beat PayPal
with an estimated US$150 billion transactions processed, and became the largest mobile
payment platform in the world.31 Sesame Credit gave each user a credit rating, ranging from
350 to 950, depending on the user’s credit history, purchasing behavior, ability to pay off
debts, personal information and social networks. All this enabled Alibaba to accumulate more
data than any other company regarding the online spending habits and creditworthiness of the
Chinese middle class.32
Alitrip: Alibaba’s Travel Arm
Before the Alitrip Launch Before integrating all travel services together, Alibaba’s travel businesses were scattered
among Taobao Travel, Etao and Juhuasuan. Taobao Travel, launched in May 2010, was
Alibaba’s first online travel platform, and one of the Taobao marketplaces. Taobao Travel
allowed merchants to offer flight tickets, accommodations, vacation packages, excursions and
visa services. Customers could access it via the internet or by using the Taobao mobile app.
Taobao Travel adopted a commission model, earning a small percentage of the online
booking value. Its revenue reached US$1 billion within a year.33 In 2011, Taobao travel gross
26
Alibaba (2015) “Alibaba Group Business at a Glance,” http://www.alibabagroup.com/en/ir/glance, (accessed on 5 April 2015). 27
Chen, Liyan, Ryan Mae and Brian Solomon (22 Sept 2014) “Alibaba Claims Title for Largest Global IPO Ever With Extra
Share Sales,” Forbes,
http://www.forbes.com/sites/ryanmac/2014/09/22/alibaba-claims-title-for-largest-global-ipo-ever-with-extra-share-sales/, (accessed on 7 April 2015). 28
Wikipedia (2015) “Taobao,” http://en.wikipedia.org/wiki/Taobao, (accessed on 20 March 2015). 29
Ibid. 30
Alibaba (2015) “Our business,” http://www.alibabagroup.com/en/about/businesses, (accessed on 05 Apr 2015). 31
Padilla, Richard (11 Nov 2014) “Alibaba and Apple in Talks Over China-Focused Payments Partnership,”
http://www.macrumors.com/2014/11/11/alibaba-apple-payments-solution-china/, (accessed on 06 Apr 2015_. 32
The Economist (23 Mar 2013) “The Alibaba phenomenon,”
http://www.economist.com/news/leaders/21573981-chinas-e-commerce-giant-could-generate-enormous-wealthprovided- countrys-rulers-leave-it, (accessed on 04 Apr 2015). 33
Hou, Jiyong (29 Oct 2014) "Alitrip turns into Qua, competing for online tourism",
http://houjiyong.baijia.baidu.com/article/34130, (accessed on 9 April 2015).
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bookings totaled US$1.73 billion, most of which came from air ticket sales.34 The sales record
was more than 80,000 tickets in one day, equaling one ticket sold every second. By the end of
2013, Taobao Travel had more than 800 IATA35 certified flight-ticket dealers, 100,000 hotels
and 2 million travel products. 36
Etao, developed by Alibaba in 2010, was a shopping metasearch engine. In July 2013, Etao
started offering a hotel search service, Hotel.etao.com, which indexed 300,000 hotel-
information entries from six online travel services, including Ctrip.37 Its business was in direct
competition with Qunar, the leading travel metasearch engine.
Juhuasuan was launched as a Taobao marketplace in March 2010, and spun off in October
2011. It grew into a top Chinese group-buying site, with a 34% market share,38 and travel
being one of its businesses. In April 2013, Juhuasuan worked with Taobao to launch the
Juhuasuan Overseas platform. It offered localized lifestyle services and travel deals, including
hotel and travel packages for major cities such as Shenzhen, Guangzhou and Zhuhai.
Customers were allowed to redeem deals by showing a QR code or transaction serial number
received via text message.
In January 2013, Alibaba carried out a group-wide restructuring and integrated all travel
businesses into an Online Travel Services Division. Later, on October 28, 2014, Alibaba
announced it was upgrading the Online Travel Services Division to an Online Travel Services
Group. Taobao Travel was rebranded as Qua. The development of enterprise groups was Jack
Ma’ first attempt to give the entity both greater operational discretion than a division and less
financial independence than a subsidiary, in hopes of facilitating co-operation inside the
group.39
To enrich its provision of travel services, Alibaba made a series of investments to acquire
advanced technologies. In May 2013, Alibaba invested US$294 million in AutoNavi,40 a
leading company listed on NASDAQ that provided digital maps, navigation and location-
based solutions in China. Alibaba and AutoNavi agreed to share AutoNavi’s map data and
merchants’ location-related information in Alibaba marketplaces, including Taobao. This
allowed travelers to search Etao’s hotel portal and book hotels directly on AutoNavi maps.
The same year, Alibaba invested in Qyer.com and 117go.com. Qyer was set up in 2004 to
provide a Chinese-language portal for travel deals sourced from such sites as Ctrip and
Juhuasuan. 117go.com was a travel journal and experience-sharing app.
In September 2014, Alibaba invested US$458 million in Beijing Shiji Information
Technology, a hotel software service provider and IT management consulting firm.41 Shiji was
34
Schaal, Dennis (2014) “Alibaba’s Mega U.S. IPO Would Mean Huge Things for China Travel Competition,”
http://skift.com/2014/03/16/alibabas-mega-u-s-ipo-would-mean-huge-things-for-china-travel-competition/, (accessed on 20 March 2015). 35
IATA stands for Ïnternational Air Transport Association, an airline trade association, which represents about 250 airlines
around the world. See: http://www.iata.org/about/Pages/index.aspx, (accessed on 9 Apr 2015). 36
Ibid. 37
Xiang, Tracey (10 Jul 2013) “Alibaba’s Shopping Search Etao Taps into Online Travel Sector,” Technode,
http://technode.com/2013/07/10/alibabas-shopping-search-etao-to-launch-a-hotel-search/, (accessed on 12 May 2015). 38
Shu, Catherine (7 April 2013) Alibaba Group Launches Daily Deals Site Juhuasuan Overseas in Hong Kong & Taiwan,
Techcrunch,
http://techcrunch.com/2013/04/07/alibaba-group-launches-daily-deals-site-juhuasuan-overseas-in-hong-kong-taiwan/,
(accessed on 12 May 2015). 39
See: : http://www.iata.org/about/Pages/index.aspx, A(accessed on 9 Apr 2015)., 40
Lee, Melanie (28 Oct 2014) “Alibaba Travel Website Gets a New Name and Upgraded Services,”
http://www.alizila.com/alibaba-travel-website-gets-new-name-and-upgraded-services, (accessed on 6 Apr 2015). 41
Business Wire (29 Sept 2014) “Alibaba Group Announces Strategic Investment in Shiji Information Technology,”
http://www.businesswire.com/news/home/20140929006721/en/Alibaba-Group-Announces-Strategic-Investment-Shiji - Information#.VR3ep-GTNrg, (accessed on 30 March 2015).
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established in 1995, and provided software to over 6,000 Chinese hotels for managing room
reservations, inventory, procurement, sales, billing systems and broadband networks. The deal
allowed Alibaba to connect with Shiji’s IT systems to strengthen its provision of online travel
services.
Launch of Alitrip
Alitrip was launched on October 28, 2014 with the Chinese name “Qua” (“去啊” meaning
“let’s go!” in Chinese). It not only sounded quite similar to its competitor, Qunar (“去哪兒”
meaning “where to go?” in Chinese), but in the brand-launch press conference, Alibaba’s
slogan was, “Where to go is not important, what counts is … let’s go!”42 In fact, Alitrip
interpreted the meaning of the brand name “Qua” in a special way.
The core of Qua brand means what consumers need to do is simply to make a
“set out” decision, leaving the rest for us to do.
- Li Shaohua, General Manager of Alitrip43
The objective of developing Alitrip as an individual business unit was to provide an
integrated travel platform and consolidate Alibaba’s marketing efforts in promoting travel
products and services. As an integral part of Alibaba Group, Alitrip was able to access and be
supported by Alibaba’s other back-end services, such as the online financial service Alipay.
Instead of promising to offer the lowest prices, Alitrip emphasized ensuring a trip was
enjoyable and “value for money.” 44 Alitrip wanted to develop holiday markets, which were
not yet addressed by Taobao Travel.
Qua emphasizes more on consumers’ materialization of their dreams, more on
holiday markets. Compared to business trips, we pay more attention to the
consumers’ experiences during the holidays. Our innovations focus on this
aspect.
- Li Shaohua, General Manager of Alitrip45
Alitrip aimed to move decision-making power over travel products and services from travel-
service providers to travelers themselves. Alitrip wanted to improve travelers’ user
experiences in the online tourism industry through mobile-service enhancement, business-
model innovation and consumer-oriented service innovation.
Alitrip’s Innovative Services Alitrip not only consolidated all Alibaba’s existing domestic and international bookings for
travel, hotel accommodations, cruises, package tours and other services across Alibaba
Marketplaces, including Taobao, Tmall and the Juhuasuan daily deal site, but also introduced
an array of innovative services.
Improving service levels does not necessarily mean to put more customer-
service people on the phone. It means [changing] the traditional mode of
service by means of technology.
-Li Shaohua, General Manager of Alitrip46
42
Ibid. 43
Ibid. 44
Ibid. 45
Ibid. 46
Lee, Melanie (28 Oct 2014) “Alibaba Travel Website Gets a New Name and Upgraded Services,”
http://www.alizila.com/alibaba-travel-website-gets-new-name-and-upgraded-services, (accessed on 6 Apr 2015).
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Online travel companies, including Alitrip, were competing in three main battlefields: mobile
offerings as service-channel innovations; platform expansion to increase market share; and
hotel offerings as a focus of travel-product innovation.
Mobile offerings
Alitrip’s mobile services provided travelers with an “Itinerary Service Platform,”47 including
One-Button Cancellation, Auto Check-In, and other services. It aimed to provide a seamless
service to travellers throughout their journeys by linking travel suppliers with functional
services and customer support.
Alitrip was the first to offer One-Button Flight Ticket Cancellation Service, where travelers
who booked flight tickets via the platform could cancel or change their tickets with just one
click, using the mobile app. It was an industry norm that travelers could wait several weeks to
get refunds from canceled flight tickets, but Alitrip promised to credit the refunds to the
travelers’ Alipay accounts within one hour.48
Alitrip’s Auto Check-In function was different from normal self-check-in. Travelers could
pre-register their personal preferences, such as flight seat choices. When they purchased a
flight ticket through Alitrip, the system would automatically check them in based on such
preferences as a window or aisle seat. This was an industry first.
To encourage travelers to use mobile services, Alitrip made a special “one yuan” offer,
allowing travelers to buy specific flight tickets, hotel accommodation, theme-park entrance
tickets and some other travel products for one yuan each, that is, less than one US dollar. By
the end of November 2014, mobile sales accounted for 58% of Alitrip’s total sales and were
expected to grow further.49
Platform expansion
Alitrip was not only a platform for small- and medium-sized businesses, but also started
drawing major airlines, travel agents and third-party providers. Since its launch, Alitrip’s
platform had brought in Agoda.com, a Bangkok- and Singapore-based online hotel
reservation service acquired by Priceline, and Cathay Pacific Airlines, a leading Hong Kong
carrier.
Alitrip’s discounted offers not only attracted customers to its platform, but also helped
enhance customer loyalty. Alitrip introduced “Across China” air ticket packages, the first of
their kind in the travel industry. "Across China" had two products: customers could pay
US$800 to buy ten domestic air tickets for three people to use on 300 popular domestic routes
in 2015, and US$1,600 to buy twenty-five tickets for five people to use together. The target
customers were business travelers and family holiday-makers.50
Alitrip also made an effort to attract those customers who did not have the confidence to
purchase travel products and services online. With over 10,000 merchants offering travel
products and services, Alitrip wanted to convince travelers that the transactions were made on
a safe platform by setting up a US$16.3 million consumer protection fund.51 Alitrip promised
47
TravelDaily China (29 Oct 2014) “Alibaba has launched the new online travel brand ‘Alitrip,’”
http://www.chinatravelnews.com/article/85696, (accessed on 6 April 2015). 48
Supra Note 45. 49
TravelDaily China (28 Nov 2014) “Alitrip achieves RMB 500 million sales on ‘Singles Day,’”
http://www.chinatravelnews.com/article/86711, (accessed on 9 April 2015). 50
Schaal, Dennis (2014) “Alibaba’s Mega U.S. IPO Would Mean Huge Things for China Travel Competition,”
http://skift.com/2014/03/16/alibabas-mega-u-s-ipo-would-mean-huge-things-for-china-travel-competition/,
(accessed on 20 March 2015). 51
Ibid. The consumer protection fund was worth Rmb 100 million,
Alibaba’s Alitrip: Creating Travel Innovation for Competitive Advantages (16/009C)
CENTENNIAL COLLEGE Page 9
that travelers could get refunds within an hour, and this differentiated Alitrip from other all-
in-one online service providers, including Ctrip.
Hotel offerings
The new online travel booking platform not only improves hotels’ efficiency, but
also enhances the guest experience, with the Internet + hotel model holding
great potential for development.
- Zhang Ruogang, Chairman of the China Tourist Hotel Association52
Alitrip developed a “Hotel of the Future” program in order to use network and big-data
technology to help hoteliers improve operational efficiency, and attract and retain customer
loyalty. Working with China’s hotel industry, Alitrip enabled customers to select hotel rooms
online and use self-check-in systems. Alitrip also sought alliances with independent hoteliers
to integrate their loyalty programs into the system.
Alitrip launched a service called “Post Post Day” to show the kind of innovation "Hotel of the
Future" would offer. Post Post Day was different from other online booking services, which
usually require travelers to book rooms with advance cash payment or credit card details.
Working with Sesame Credit of Ant Financial Services Group, qualified travelers with high
Sesame credit scores used Alitrip to reserve hotel rooms without paying a deposit and enjoyed
fast check-out by leaving their room keys at reception. As room charges and incidental
expenses were automatically debited from the travelers’ Alipay accounts, this service enabled
them to enjoy fast check-in and check-out and protect personal privacy. Already around 5,500
hotels in China had joined the program, ranging from high-end brands such as Shangri-La,
Starwood and Jinling to budget hotel groups such as Homeinns, Yinzuo and Huazhu. 53 In
addition to enhanced convenience, travellers with a Yu’e Bao money-market account could
continue to earn interest until the transactions were completed. Dissatisfied travelers could be
reimbursed from the consumer-protection fund.
From the hotelier perspective, Sesame Credit addressed the common problem of guest no-
shows because the link with customers’ credit records allowed hoteliers to evaluate credit-
worthiness in advance. Alitrip hoped the arrangement would help hoteliers reduce the average
no-show rate to less than 30%, compared to the industry average of 40-50%. 54
Online Tourism Market Leaders in China
There is a helluva competition going on in China’s online, mobile and call
centre travel businesses, and the biggest players (Ctrip, Qunar, eLong and now
Taobao Travel) are coming to the U.S. to raise some big bucks, intensifying the
competition.
- Dennis Schaal55
52
Erickson, Jim and Susan Wang (30 Mar 2015) “In the Future, Checking into a Hotel Won’t Be Such a Pain,”
http://www.alizila.com/future-checking-hotel-wont-be-such-pain, (accessed on 06 April 2015). 53
Ibid. 54
Ibid. 55
Schaal, Dennis (2014) “Alibaba’s Mega U.S. IPO Would Mean Huge Things for China Travel Competition,”
http://skift.com/2014/03/16/alibabas-mega-u-s-ipo-would-mean-huge-things-for-china-travel-competition/, (accessed on 20 March 2015).
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CTRIP56
Ctrip, established in June 1999, was a NASDAQ-listed company. It had a leading position in
China’s online travel market. In Q2 2014, for example, Ctrip had more than half the total
gross merchandise revenue of online travel agencies in China, worth US$10 billion. 57 Its call
center employed about 14,000 people.58 Their target customers were Chinese business and
leisure travellers who did not travel in groups. In August 2014, US-based Priceline Group Inc.
invested US$500 million on Ctrip. Priceline acquired 10% of Ctrip’s shares and brought
advertisements from its Booking.com, Agoda.com and rentalcars.com sites to Ctrip’s
platform. 59
The expectation of consumers is very high in China. When people call our call
center, they don’t want to wait more than five seconds to speak with a live
person.
- Jane Jie Sun, Chief Operating Office of Ctrip60
Ctrip had invested heavily in developing travel products and services in 2014, which led to an
increase in operating expenses and an operating loss in that financial year [see Exhibit 7].
Anticipating operating profits lasting for several years, James Liang, Ctrip’s Chairman and
CEO, was unworried and confident that the investment would lead to stronger year-on-year
growth.61
Mobile offerings
Ctrip launched its mobile applications in 2010. Ctrip's mobile booking software provided a
one-stop travel platform allowing customers to search for and book hotels, flights, travel
packages, and train, car and ticket products with ease. Customers could also use mobile
applications to search for travel tips and information. Travelers could also share their
experiences and micro-blogs through the Ctrip community. By the end of 2013, there had
been more than 100 million downloads of the Ctrip mobile app.62
In 2013, Ctrip developed China's first corporate travel mobile app, with extensive booking
capabilities to match personal preferences of travelers with their companies' travel policies. Its
smart itinerary and travel update functions ensured travelers were updated immediately on
any changes relevant to their journeys. In 2014, Ctrip launched Young, a mobile app offering
tailor-made services for college students.
Platform expansion
Ctrip had formed strategic partnerships to increase market exposure. It had contracts with the
leading internet search engines in China to feature its websites and promote its businesses.
Ctrip’s began co-operating with Qunar in 2003, and Ctrip’s tourism products were promoted
on Qunar’s website beginning in August 2013. Ctrip also bought keywords or directory links
to guide potential travelers to ITS websites.
56
Ctrip (2014) “Annual Report 2013.” 57
Cowen, Martin (28 Oct 2014) “Alibaba earthquake: new travel URL, signs Agoda, ApplyPay hint, Tnooz,”
http://www.tnooz.com/article/Alibaba-new-travel-site-alipay.com-Agoda-ApplePay/, (accessed on 20 March 2015). 58
Abkowitz, Alyssa (31 Oct 2014) “China’s Internet Giants Get Online-Travel Bug: Alibaba, Tencent, Baidu Angle to Grad
More of Burgeoning Tourism Business,” Wall Street Journal, http://www.wsj.com/articles/chinas-internet-giants-get-online-travel-bug-1414604652, (accessed on 20 March 2015). 59
Ibid. 60
Ibid. 61
Elliott, M. (14 May 2015) “Ctrip revenues surge, but losses widen,”
http://www.traveldailymedia.com/221761/ctrip-revenues-surge-but-losses-widen/, (accessed on 22 May 2015). 62
Abkowitz, Alyssa (31 Oct 2014) “China’s Internet Giants Get Online-Travel Bug: Alibaba, Tencent, Baidu Angle to Grab
More of Burgeoning Tourism Business,” Wall Street Journal, http://www.wsj.com/articles/chinas-internet-giants-get-online-travel-bug-1414604652, (accessed on 20 March 2015).
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Ctrip was making a move to international markets. It formed a global partnership with
Priceline, the world’s largest online travel group, in 2012, and the relationship was further
strengthened in 2014 when Priceline invested US$500 million in return for 10% of Ctrip’s
shares. The partnership allowed Ctrip’s customers to access to Priceline’s more than 500,000
accommodations outside the Greater China Region.63 Priceline also agreed to promote Ctrip’s
services, including flight and attraction tickets.
In December 2013, Ctrip bought cn.toursforfun.com, an online supplier, to organize US tours
for Chinese travellers. In 2014, Ctrip invested in Hua Yuan International Travel Company,
China’s largest packaged tour seller, which focused on organizing trips to Europe.
Ctrip also launched a cruise-booking platform covering worldwide cruise voyages and
acquired UK-based Travelfusion in January 2015. Travelfusion’s travel distribution platform
provided travel management systems and self-booking tools to online travel agents and to
travel search and mobile travel service providers.64
Hotel offerings
Ctrip had the largest number of rooms and nights booked in China. As an agent in the hotel
business, Ctrip had developed room-supply relationships with about 70,000 hotels in China
and 277,000 hotels overseas, covering different price ranges and geographical locations.
Travelers normally made bookings and paid hotels directly after their stay. They negotiated
with hotels based on either the "guaranteed allotment" model or the "on-request" model. The
agreements required hotels to give Ctrip a price equal to or lower than their published prices,
and also required them to notify Ctrip of any promotional sales. Ctrip was also a major
shareholder with representation on the boards of directors in Home Inns, Hotels Management
Inc. and China Lodging Group Ltd., three large budget hotel chains in China.
QUNAR Qunar, meaning “where to go” in Chinese, was launched in May 2005 in Beijing. Qunar
began by providing a travel-search service. Later, it developed a transaction-processing
system, or Total Solution (TTS), to enable travel-service providers to sell products and
services directly online. Qunar supported a wide range of online payment services, including
Alibaba’s Alipay, Tencent’s Tenpay and 99bill. As a travel information search engine, Qunar
provided Chinese travelers with a “fun and hassle-free one-stop travel information source.”65
Qunar wanted to use its technological advantages to help travelers find suitable travel
products and information. The company targeted do-it-yourself travelers comfortable with
using automated technologies. The company tried to automate the travel-buying process as
much as possible, including making refunds after cancellations. This way of working was
very similar to Taobao marketplaces. Nevertheless, Qunar was still in the red [see Exhibit 8],
although analysts estimated the company would break even in 2016.
Before Alitrip announced Qua as its Chinese brand name, Qunar already bought the Qua.com
website to offer international airline ticket booking services for English speakers. It
announced Qua as its new sub-brand, a first step to tapping into overseas markets. Qunar was
also making efforts to boost its international expansions by introducing overseas mobile
phone booking and PayPal functions.66
63
Ctrip (6 Aug 2014) “The Priceline Group and Ctrip Expand Partnership,”
http://ir.ctrip.com/phoenix.zhtml?c=148903&p=irol-newsArticle&id=1956212, (accessed on 31 March 2015). 64
Asia Cruise News (08 Jan 2015) “Ctrip to strengthen China outbound travel,”
http://www.asiacruisenews.com/News/Ctrip-to-strengthen-China-outbound-travel/3w3c575.html, (accessed on 31 March 2015”. 65
Qunar (2015) “About us,” www.qua.com/about.html, (accessed on 5 April 2015). 66
ChinaTravelNews (16 Dec 2014) “Qunar’s new English sub-brand duplicates Alitrip’s branding,”
http://www.chinatravelnews.com/article/87270, (accessed on 5 April 2015).
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(Qua) is easy to read for non-Chinese speakers and convenient for them to
search and remember.
- Wei Yang, Vice President and ticketing division CEO of Qunar67
Mobile offerings
The consumer will not install many travel applications on the mobile phone.
The space is quite limited, so we have been developing a very comprehensive
service.
- C.C. Zhuang, CEO of Qunar68
Qunar was committed to making investments in product development and technology in order
to stand out among travel agencies. Qunar’s app, the most popular mobile travel app in China
by far, allowed customers to pay via Tencent’s WeChat, the most popular social media
service in China, and offered voice recognition for hotel searches. 69
Platform expansion
Qunar was acquired in 2011 by Baidu, the largest search engine using simplified Chinese.
This helped fulfill Baidu’s objective of developing from a search engine to a web-search box
by integrating additional functions. Baidu was able to direct travel-related business inquiries
to Qunar.70
Qunar emphasized platform expansion in order to gain bigger market share. The company
believed that the more people who accessed the website, the higher click-through prices the
company could charge. Therefore, while trying to keep its cost structure as fixed as possible,
Qunar sought to increase its market share. The company targeted bargain-hunting travelers,
and Qunar invested in sales and marketing to bring more brick-and-mortar small travel
agencies to its platform.71
Hotel offerings
Qunar’s hotel services benefited from the company’s core technological competency, search
capabilities. The system was able to extract targeted data immediately from a huge number of
online sources using different formats. Travelers could use their hotel search service to review
results, including price, availability and other information, on a website mining the individual
websites of a huge number of hotels. Qunar believed hotel seekers could benefit from its
comprehensiveness, superior search capabilities and informative user reviews. By the end of
2013, Qunar's search results had about 297,900 hotels covering 2,700 Chinese cities and over
69,460 overseas cities. In 2013, they processed about three billion web and mobile queries.72
In 2014, Qunar formed strategic partnerships with travel service suppliers to secure room
supplies during peak seasons in popular destinations.
eLONG73
eLong was partly owned by Tencent, the largest online social media website, and Ctrip. Ctrip
bought the shares from Expedia, which had for eleven years been eLong’s largest shareholder.
67
Ibid. 68
Abkowitz, Alyssa (31 Oct 2014) “China’s Internet Giants Get Online-Travel Bug: Alibaba, Tencent, Baidu Angle to Grab
More of Burgeoning Tourism Business,” Wall Street Journal,
http://www.wsj.com/articles/chinas-internet-giants-get-online-travel-bug-1414604652, (accessed on 20 March 2015). 69
Ibid. 70
Kwong, Robin (24 Jun 2011) “Baidu sees Qunar as its ticket to travel,” Financial Times. 71
Cao, Belinda (23 Feb 2015) “Qunar Eclipses Ctrip as Revenue Growth Surges: China Overnight,” BloombergBusiness. 72
Qunar (2014) “2013 Annual Report.” 73
eLong (2015) “2014 Annual Report.”
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eLong placed its business focus solely on booking accommodations. The majority of their
revenue came from commissions received from nights booked through the company. This
constituted 76%, 80% and 81% of the total revenue in 2012, 2013 and 2014 respectively [see
Exhibit 9]. Other income mainly came from air ticket sales. The total number of room nights
sold by eLong jumped from 6.4 million in 2010 to 34.2 million in 2014.74
Mobile offerings
In 2010, eLong launched a mobile-optimized version of their Chinese language website at
m.eLong.com. Then, eLong mobile iPhone and Android applications were launched in 2011
and iPad and Windows phone applications in 2012. The company saw the rapid increase of
mobile hotel bookings, which became its largest hotel booking channel in 2014. The company
continued updating their mobile applications, by, for example, adding last-minute hotel
booking and location-based hotel search and other ancillary services. Besides mobile
applications, travelers could also choose to make bookings through their websites, 24-hour
customer service centers and distribution partners and resellers across the country.
Platform expansion
eLong put the focus on promoting the eLong brand, using the slogan "Book Hotel, Use
eLong," through a combination of online marketing, media advertising, co-marketing with
other companies’ established brands and direct marketing. They had contracts with search
engines and directory-link websites, and purchased related keywords and directory links to
direct users to their websites.
Hotel offerings
As a leader in mobile and online reservations, eLong's domestic hotel coverage reached
200,000 hotels by the end of 2014, compared to 70,000 at the end of 2013. They offered
travelers around-the-clock hotel booking and a wide range of booking models, price points
and payment choices. Customers could choose to pay eLong in advance or pay the hotel.
eLong settled commissions with hotel suppliers once a month. They either had an agreement
with hotels on a hotel room allotment basis or operated on an "as requested" basis. In 2014,
they began emphasizing the first option because they could provide immediate confirmation
of customer reservations and had no obligation if the allotment was not used.
Challenges Ahead for Alitrip
Alitrip was Alibaba’s attempt to integrate all its travel services and marketing efforts to reap
the benefits of the fast-growing travel industry. Moreover, since its founding, Alitrip had
introduced a series of innovative travel products and services, especially in three main
battlefields of the travel industry: mobile offerings, platform expansion and hotel offerings.
The question facing the management team of Alitrip and Alibaba was whether Alitrip could
shake up the competitive landscape and become the market leader.
Alitrip was facing a highly competitive industry. In China, the online travel industry had long
been dominated by powerful companies, such as the online travel agency Ctrip, online search
engine Qunar and online hotel specialist eLong. The competition was further intensified by
the participation of global players, including Priceline and Expedia, as well as a significant
number of small travel agencies. Alitrip’s senior management was facing the question of how
to stir up industry competition through innovation.
Was Alitrip moving in the right direction? What made Alitrip different from its competitors in
terms of service provision and value creation? What were Alitrip’s competitive advantages?
74
Ibid.
Alibaba’s Alitrip: Creating Travel Innovation for Competitive Advantages (16/009C)
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How could Alitrip build on its existing strengths and overcome its weaknesses? Will Alitrip
revolutionize the online travel industry in China?
Alibaba’s Alitrip: Creating Travel Innovation for Competitive Advantages (16/009C)
CENTENNIAL COLLEGE Page 15
EXHIBIT 1: VALUE CHAIN OF THE TRAVEL INDUSTRY
Source: Adopted from Travelport Holdings (2007) 2006 Financial Report.
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EXHIBIT 2: LEADING ONLINE TRAVEL AGENCIES
Source: Adopted from Euromonitor International (2014) Travel and Tourism: Online Travel
Intermediaries – A Fast Changing Competitive Landscape, November, p.9.
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EXHIBIT 3: CHINA ONLINE TRAVEL MARKET BETWEEN 2011 - 2018
Source: iResearch (4 Jan 2015) China Major Online Travel Companies Put Extra Stress on
Mobile Business in Q3 2014, http://www.iresearchchina.com/views/6145.html, Accessed on 5 Apr
2015.
0
20
40
60
80
100
120
2011 2012 2013 2014 2015e 2016e 2017e 2018e
China online travel GMV (in US$ bn)
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EXHIBIT 4: MOBILE SALES AS A PERCENTAGE OF TOTAL SALES
Source: iResearch (4 Jan 2015) China Major Online Travel Companies Put Extra Stress on
Mobile Business in Q3 2014, http://www.iresearchchina.com/views/6145.html, Accessed on 5 Apr
2015.
0%
10%
20%
30%
40%
50%
60%
Qunar LY eLong Ctrip
Mobile hotel room night sales as a percentage of the company's total hotel room night sales
Mobile air ticket sales as a percentage of the company's total air ticket sales
Alibaba’s Alitrip: Creating Travel Innovation for Competitive Advantages (16/009C)
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EXHIBIT 5: ALIBABA GROUP INCOME STATEMENTS
Fiscal year April-March
2012
(USD million)
2013
(USD million)
2014
(USD million)
Sales/Revenue 3,139 5,495 8,576
Cost of Goods Sold (COGS)
Incl. D&A
1,052 1,568 2,235
COGS excluding D&A 915 1,419 1,965
Depreciation & Amortization
Expense
136 149 270
Gross Income 2,087 3,927 6,341
Source: The Wall Street Journal (2015) Alibaba Group Holding Ltd. ADS,
http://quotes.wsj.com/BABA/financials/annual/income-statement, Accessed on 5 Apr 2015.
EXHIBIT 6: ALIBABA GROUP’S MARKETPLACES
Year of Launch Business Nature
Alibaba.com 1999 Online wholesale platform for small businesses
1688.com 1999 A wholesale channel for Alibaba’s retail market
merchants to source products from Chinese
wholesalers
Taobao.com 2003 Consumer-to-consumer platform for small
businesses to open online storefronts for
Chinese speaking customers
Tmall.com 2008 Business-to-consumer platform to help global
brands to reach China’s middle class
Juhuasuan.com 2010 Online group buying platform
AliExpress.com 2010 Business-to-consumer platform between
Chinese manufacturers and customers mainly
from Russia, Brazil and the U.S.
Source: Adopted from Alibaba Group (2015) Company Overview,
http://www.alibabagroup.com/en/about/overview, Accessed on 4 April 2015.
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EXHIBIT 7: CTRIP INCOME STATEMENTS
(For the year ended 31 December)
2011 (RMB
thousand)
2012 (RMB
thousand)
2013 (RMB
thousand)
2014 (RMB
thousand)
2015 (RMB
thousand)
Total Revenue 3,498,085 4,158,791 5,386,746 7,346,918 10,897,568
Cost of Revenues (805,130) (1,037791) (1,386,767) (2,100,606) (3,043,440)
Gross Profit 2,692,955 3,121,000 3,999,979 5,246,312 7,854,128
Operating Expense
Product developments (601,485) (911,905) (1,245,719) (2,321,349) (3,296,693)
Sales and marketing (624,600) (984,002) (1,269,413) (2,214,210) (3,087,990)
General and
administrative
(400,876) (570,487) (646,405) (861,551) (1,088,402)
Income From
Operations
1,065,994 654,606 838,442 (150,798) 381,043
Source: CTrip’s Annual Report 2013 and 2014, and press release on 16 March 2016.
EXHIBIT 8: QUNAR INCOME STATEMENTS
(For the year ended 31 December)
2011 (RMB
thousand)
2012 (RMB
thousand)
2013 (RMB
thousand)
2014 (RMB
thousand)
2015 (RMB
thousand)
Total Revenues 262,427 501,725 850,922 1,756,755 4,171,212
Cost of Revenue (43,682) (95,787) (173,395) (454,902) (1,433,237)
Gross Profit 218,745 405,938 677,527 1,301,853 2,737,975
Operating Expense
Product developments (83,110) (187,266) (319,021) (774,511) (2,578,528)
Sales and marketing (134,246) (243,800) (382,777) (1,207,764) (2,671,637)
General and
administrative
(43,135) (50,574) (129,209) (399,914) (3,388,467)
Operating Loss (41,746) (75,702) (153,480) (1,844,804) (6,723,220)
Source: Qunar’s Annual Report 2013, 2014 and 2015.
EXHIBIT 9: ELONG INCOME STATEMENTS
(For the year ended 31 December)
2011 (RMB
thousand)
2012 (RMB
thousand)
2013 (RMB
thousand)
2014 (RMB
thousand)
2015 (RMB
thousand)
Total Revenues 586,177 744,244 1,009,705 1,086,153 970,780
Gross Profit 431,313 539,921 748,862 735,575 466,569
Total operating expenses (381,981) (606,073) (927,045) (1,081,470) (1,461,274)
Operating income/loss 49,332 (66,152) (178,183) (315,895) (1,062,540)
Source: eLong’s Annual Report 2014 and 2015.
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