Report: China, India will lead region's online bookings boom

You can hardly blame the big online travel companies in North America if they're hearing footsteps from Asia-Pacific markets echoing at the fringes of their turf.

Online-travel research firm PhoCusWright predicts that China and India will lead growth in the Asia-Pacific region, where online travel sales are expected to jump 55% over the next two years.

For the most part, that growth will benefit the two countries' own online travel agencies, primarily China's Ctrip and India's MakeMyTrip, according to PhoCusWright.

In a recent report, PhoCusWright predicted that the Asian OTAs will pull their business from other channels, such as direct sales or phone reservations.

That, in turn, will prompt U.S. companies to invest in overseas operations such as China's eLong and India's TravelGuru, according to the report.

Asia-Pacific markets will account for more than $55 billion in online travel bookings in 2011, up from about $36 billion last year and $30.6 billion in 2008.

By comparison, U.S. online bookings, which include both online travel agencies and website sales through suppliers such as hotel companies or airlines, totaled about $90 billion in 2009.

While Japan remains the largest player in Asia-Pacific online bookings -- its total of about $13 billion equaled China's and India's combined last year -- online travel growth will be faster in China and India because of a widening user base tapping into China's state-owned GDS system, TravelSky, and the expansion of India's low-cost carrier industry as well as the rapid deployment of mobile devices in that country, PhoCusWright said.

The forecasted surge reflects the fact that the switch to online travel from traditional agencies that's already occurring in the U.S. and Europe is magnified in Asia-Pacific because, in comparison to the U.S. and Europe, Internet use in many Asian countries is still in its infancy.

While Australia and New Zealand's Internet penetration rate of 83% last year was on par with the U.S., only about one in five Chinese have access to the Internet, and the Internet penetration rate in India is a mere 6%, according to PhoCusWright.

"The inefficient and lazy commission travel agents definitely face a challenge in Australia, Japan, China and India, as commissions are being reduced, labor costs are going up and new technologies are transforming the way consumers purchase travel," said Ram Badrinathan, PhoCusWright's general manager for the Asia-Pacific region.

In China, the beneficiary of such growth is most likely to be Ctrip, a 10-year-old company whose 5,600-person call center has helped it quadruple air bookings, to more than 14 million segments, in the past three years. It is China's biggest travel-agency brand, as more people regularly start using the Internet.

Ctrip's third-quarter revenue of 545 million yuan, or $80 million, marked a 47% jump from Q3 2008, but it was less than half of Orbitz's $187 million in revenue.

In a November note to clients, Citigroup analyst Catherine Leung wrote that Ctrip "is a classic emerging-market play on the large, fast-growing and highly fragmented China travel industry."

What remains to be seen, said Henry Harteveldt, an analyst at Forrester Research, is whether Ctrip and eLong, a smaller competitor that is owned by Expedia, can overcome the challenges of getting accurate information from TravelSky, China's only government-sanctioned GDS.

"If the government doesn't take steps to ensure all sites have equal access [to the GDS], that's an issue," said Harteveldt. "I worry about the reliability of TravelSky."

PhoCusWright says such issues don't plague India, where local online travel agencies MakeMyTrip, Yatra and Cleartrip have the opportunity to grow faster as the country emerges from an economic slump. The growth will be fueled by the combination of a cellphone base of 300 million and the growing purchasing power of the country's middle class, factors that caused online rail bookings to surge 51% in 2008.

Moreover, a price war among India's low-cost carriers has made air travel affordable to a larger percentage of the population. And government mandates and GDS operations by Amadeus, Galileo, Sabre and Abacus, a GDS headquartered in Singapore, have widened accessibility to accurately updated airfares.

That type of broader competition and improved connectivity helped closely held MakeMyTrip book more than $500 million in travel reservations in 2008, according to PhoCusWright. While the total is still a fraction of Orbitz's $10.8 billion, it marked about a 75% jump from a year earlier.

Amid Asia's more established travel markets, Rakuten Travel bookings are expected to increase as an oversupply of hotel rooms in Japan forces both hospitality companies and customers to turn to aggregators.

At the same time, the higher propensity of Australians and New Zealanders to book hotel reservations online has helped Milton, Australia-based Wotif.com boost room-night bookings by almost 30% within the past year, Badrinathan said.

While such overseas OTAs grow, however, U.S. companies still have an opportunity to benefit from Asia-Pacific travel growth and even to challenge the market leaders, according to both Badrinathan and Harteveldt.

Sabre's Travelocity unit made what Badrinathan called "a serious entry" into the Indian market by acquiring TravelGuru in August, while Expedia's TripAdvisor in October acquired China travel search engine Kuxun as a way to drive traffic to TripAdvisor's China brand, Daodao.com.

Expedia, the world's largest OTA, has owned a majority stake in China's eLong since 2004.

The major North American OTAs have branded sites throughout Asia-Pacific. Travelocity, for example, has Travelocity.co.in in India. Expedia has Expedia.co.jp in Japan and Expedia.com.au in Australia.

"Unlike in North America, where it would be hard for anyone to disrupt the big OTAs here, I'm not sure the game is over in China," Harteveldt said.