Ctrip Vs. Alibaba

C (CTRP) has long been the leading travel services provider in China. However, competitors with differentiated product strategies are looking to take on Ctrip. One such company is Alibaba’s (BABA) travel unit – Fliggy. By focusing on millennials, digital technology, and premium services, Fliggy is looking to carve a place in China’s competitive travel industry.

Investors can gain access to C and Alibaba and the growing China travel industry through direct purchase of the companies’ shares.

C – A “Jack-of-All-Trades” Approach

C International is China’s largest travel company, according to the company’s website which notes that Ctrip is the largest consolidator of hotels in volume of rooms booked, covering over 500,000 hotels in China and 750,000 worldwide. Ctrip also offers air, rail, bus, and other transportation services with China and globally, offers vacation packages and tours, insurance, visa services, and attraction tickets. The company also offers corporate travel services. Ctrip’s travel services are available through its mobile app, its website, and its customer calling center. Ctrip has grown its business both organically and through strategic acquisitions.

At the end of 2017, Ctrip relaunched itself under the Trip.com name. The change was to reflect the growing emphasis on international travel. Hence, the C in the company’s brand was removed.

According to Ctrip’s CEO Jane Sun, the Chinese travel industry is growing at about double the rate of the country's economy as a whole, which is expanding at a 6% annual rate. As GDP per capita increases, more Chinese people should be able to afford to travel more often. The CEO also noted that with Ctrip continuing to gain share within this fast-growing industry, she believes the company can expand three to four times faster than China's economy. Thus, investors can expect Ctrip to increase its revenue at an impressive 20% annual clip in the coming years.

Fliggy – A Digital Experience for Millennials

Alibaba launched its online travel platform “Alitrip” in 2014 to compete with Ctrip. Moving forward to 2017, Alibaba decided to scrap Alitrip and build a new travel platform, Fliggy, which in Chinese means “flying piggy.”

As opposed to Ctrip’s “jack-of-all-trades” approach, Fliggy is more focused. The platform is focused “on the millennials raised in the digital age.” The platform is also more focused on flights, particularly international flights as the company appears to be targeting more profitable market segments such as travel-hungry millennials and international travelers.

More than 80% of Fliggy’s users have a college-level degree or higher, have white-collar jobs, and live in a first or second-tier city. The perception of Fliggy is that it is a premium travel booking experience, more youthful, refined and energetic. The site is predominately geared toward long-haul and leisure trips versus short-term or domestic business travel.

Another distinguishing element of Fliggy is that rather than operating as a comparison site, it provides a direct connection between the airline and the customer which allows airlines to gather data directly from the customer. The site aims to eliminate the information asymmetry that stand between brands and their customers, according to Inbound. The platform enables brands to operate their own shop but provides them with marketing and data analytics support.

Some airlines on Fliggy’s platforms have offered special privileges to Fliggy customers and have integrated their loyalty programs with Fliggy’s. According to Jing Travel, if Fliggy can become the de facto website for flights, it will be easier to add additional products and services down the road.

Fliggy and the Hotel of the Future

Fliggy, along with other Alibaba business units, created a largely digital hotel. The 200-room FlyZoo Hotel, located in Hangzhou China, uses cutting-edge technology to transform the hospitality industry.

It all starts with booking through an app, where guests can pick a floor and a view and explore the room. Chinese travelers can check in via the app and go straight to their room. No need for keys. Using facial recognition, the elevator takes you to the correct floor and your face will open the room door. Once inside the room, requests for water, new towels, extra pillows, and more will be taken by Ask Genie, Alibaba’s Alexa-like assistant, and a three-foot-tall robot will deliver the goods.

Hungry guests can head to the hotel restaurant where a robotic bartender is mixing up drinks and food ordered via the FlyZoo app will be delivered by other robots. Face-scanning technology will send the charges straight to your room bill.

Your Face Can Open a Door

Fliggy teamed up with Shiji, a hotel information systems manufacturer, to launch a facial recognition system for hotel check-ins. The technology is available in 50 hotels in Hainan Province, China’s biggest tropical beach getaway. The goal of the project, according to the article, is to turn the hotel booking process into a faster, digital experience. The company has also been testing the technology with Marriott International in two hotels in China.

The two firms are closely monitoring the results of this program with an eye toward expanding it in the future. The goal of the project is to turn the entire hotel booking process into a faster, digital experience, creating greater convenience for consumers,

Summary

Alibaba’s Fliggy is seeking to establish its place in the Chinese travel industry by focusing on emphasizing flights, targeting millennials, and creating a high-tech, digital experience. The company is looking to expand the use of technology in the hospitality business, even developing its own hotel.

Ctrip and Fliggy represent two different approaches to the Chinese travel industry. We believe that both have their strengths and may be able to appeal to two very different types of travelers in China.

Investors looking for a pure play on the travel industry in China may consider Ctrip for which travel is the lion's share of their business.

Disclosure: I am/we are long BABA, CTRP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am the founder of the Emerging Markets Internet and Ecommerce Index, which is licensed to Exchange Traded Concepts and serves as the basis for the Emerging Markets Internet and Ecommerce ETF (EMQQ). I manage an Emerging Markets Hedge Fund that is sometimes long constituents of EMQQ and myself and my family are long EMQQ.