The newly formed (as of December 2017) Tongcheng-Elong Holdings Limited is planning a Hong Kong IPO for the second half of this year, according to the Wall Street Journal. Ctrip held stakes in both Tongcheng Network and E-dragon Holdings Limited (eLong) when the two merged last year. Tencent also holds a stake in the new company. According to Ctrip, “The two companies have complementary travel services and products and the merger should create resource optimization and operational efficiency synergies.”
The IPO will undoubtedly raise Tongcheng-eLong’s profile in an increasingly crowded Chinese travel market
The IPO is expected to raise between $1 and $1.5 billion. It is unclear to what extent this new IPO is being driven by Tencent, Ctrip, or both. The IPO may serve to further solidify Tongcheng-Elong’s position in the China travel market. While still dwarfed in terms of market share compared to other Chinese firms, its backing from Ctrip and Tencent invariably makes it a company worthy of attention.
eLong was originally a company that primarily provided hotel and transportation booking. Tongcheng primarily provided air and train transportation booking.
For eLong, which went private almost exactly a year after Ctrip acquired a stake in the company in May 2015, the move represents a quick return to the market. Ctrip still holds a dominant position in the online travel market in China, which has been built up in part via acquisitions and investments like those it made in TongCheng and eLong separately.
The move is likely a part of both Tencent and Ctrip’s plans to consolidate their positions in the travel market
A more robust Tongcheng-Elong would no doubt help Ctrip consolidate its position in a market that is receiving more interest from China’s biggest companies.
While Ctrip is undoubtedly China’s most important travel company, it’s difficult to deny that the company will be facing stiffer competition going forward. China is already the world’s most important tourism source market. Moreover, China’s domestic tourism market is also huge. In 2017, Chinese tourists spent $115.29 billion internationally and China’s domestic tourism industry pulled in $720 billion domestically. While the growth of Chinese domestic and international tourism indicates that Ctrip stands to boost revenue, this growth has also prompted interest by other non-travel firms hoping to tap into this growing revenue opportunity.
Tencent and Ctrip are both partners and rivals in the travel market, and Tongcheng-eLong illustrates how complicated the web of Chinese travel investments has become
Tongcheng-eLong stakeholder, Tencent, is one of those companies. While the company isn’t necessarily overly interested in accessing revenue via bookings, its various offerings through its tech products like social media and messaging app WeChat (like its CityExperience Mini Program) and WeChat Pay are poised to benefit. Investments in travel companies are also a key part of Tencent’s efforts to tap into the Chinese travel market.
Alibaba is another prominent example. The tech company rose to prominence primarily through its online retail platforms, but the popularity of its mobile payments platform Alipay effectively made the company a major stakeholder in the success of the Chinese travel market. Moreover, Alibaba has its own travel booking platform, Fliggy.
This interest in travel by many of China’s major companies has produced a strange inter-linking of competition and cooperation. Tencent and Ctrip are effectively partners in the travel market because of their mutual investment in Tongcheng-Elong. However, Tencent is also a major investor in Ctrip competitor Meituan-Dianping. Booking Holdings, formerly Priceline Group, is also a major Ctrip partner, however that didn’t stop the company from participating in the same $4 billion series C investment round in Meituan-Dianping with Tencent.