Travel Distribution in China: Look, but Don't Touch
Author: Douglas Quinby
Published: August 16, 2012
Concern has been mounting for some time now about a slowing Chinese economy, with export growth suffering from Europe's and America's economic malaises. But no one seems to have informed the Chinese traveler, and the hefty pipelines of new hotels and plane orders indicate the industry is betting on substantial long-term growth. The total Chinese travel market is expected to nearly double between 2009 and 2013, when it will exceed US$105 billion1, and the online travel market will more than quadruple over the same period, to exceed $15 billion2.
Understandably then, pretty much any entity involved in travel distribution has been licking its chops at the prospect of getting a foothold in this burgeoning behemoth – none more so than the global distribution system (GDS) companies, whose growth is threatened by market uncertainty in Europe and the U.S, and global market share loss by traditional travel agencies amid the rise of supplier (and in particular airline) websites. Although China has agreed under its commitments to the WTO to open up its travel distribution environment for foreign competition, unfortunately for the GDSs – and for travel sellers in China – they may have to hurry up and wait.
The country's governing body for the airline industry, the Civil Aviation Administration of China (CAAC), is expected to issue its first provisions in 2012 that could provide for selective easing of some GDS regulations, but a new analysis by PhoCusWright's China analyst Charlie Li makes the case that the expected "easing" will offer few if any meaningful benefits – either commercially to the GDSs, or in market efficiencies and operational improvements for China's many travel sellers – at least in the near- to mid-term.
GDS Distribution in China: Flying the Regulated Skies maps the current distribution landscape in China, and describes step by step what regulations the CAAC is likely to loosen. The paper also examines the potential implications for China's airlines, travel agencies, online travel agencies, the state-owned (and virtual monopoly) distribution and airline CRS provider TravelSky, as well as for the GDSs and international carriers. The bottom line: expect the CAAC to open up just a sliver of the market – more than nothing, but less than something – with a sufficient amount of bureaucracy and uncertainty in place to ensure slow and very controllable market developments.
While this is unwelcome news for the GDSs, it is even more unfortunate for the broader Chinese travel industry. Limited competition for travel technology – from distribution and connectivity to agency front- and back-office tools – has impeded market efficiency and burdened many travel sellers. Previous research by PhoCusWright3 has revealed general agency dissatisfaction with TravelSky products, especially among agencies that have access to foreign GDSs (for faring, if not ticketing).
The CAAC's expected approach is surely a deliberate and considered one, and provides more than enough legroom for TravelSky to improve its market position. And TravelSky is hardly sitting still. The company has introduced new products, including a GUI desktop for agents, inked deals for a next-generation airline reservations system in partnership with Travelport, and significantly expanded its hotel content through deals with GDSs, Pegasus and hotel chains directly.
TravelSky appears to have gotten the message, and it could well be that the CAAC has bigger, if longer-term plans for deregulation. But we think sooner would be better. Access to China for the growth-hungry GDSs would inject needed – if not entirely welcome – competition across a range of travel technology fronts and ultimately benefit travel sellers and the travelers they service.
But for now, we wait.
2 PhoCusWright excludes bookings by online travel agencies that are paid for offline.
3 GDS Deregulation and the State of Travel Agency Technology in China, July 2011 (Global, Innovation and Asia Pacific Edition subscriber access only)