CHINA: Chinese Airlines To Lower Costs By Moving Away from Online travel Agents

Three mainland airlines abandon air ticketing platform Qunar amid push to bolster their own direct-ticket sales model.

China’s big three airlines have formed a boycott of travel booking site Qunar over ticket sales, which means passengers are no longer able to book seats on the major operators through the online travel reservations platform.

The airlines said they abandoned the platform because of concerns over the sale and distribution of tickets, including what they said were complaints from customers after buying tickets from unauthorised agents on the platform.

But the airlines are also believed to be striving to comply with a government-set goal to sell half their seats directly to the public within two years, a measure that will help save on costs and put the airlines in a better position to compile online sales information about their customer base.

Qunar’s shares, which are listed on Nasdaq, have plunged nearly 25 per cent since the beginning of the year, when Chinese airlines led by China Southern Airlines started cutting ties with the travel booking site that was one of China’s largest for ticket bookings. China Eastern Airlines joined the boycott of Qunar on Tuesday. Air China has also abandoned the e-ticketing platform.

The airlines are investing heavily in their own websites and mobile apps. The effort is also to meet a benchmark set by the State-owned Assets Supervision and Administration Commission whereby the state-owned airlines will derive 50 per cent of seat sales through direct means by 2018.

The country’s largest airline China Southern, the first to begin a zero-commission policy for agents last June, said sales costs fell by 867 million yuan (HK$1.04 billion) last year mostly because of the commission savings, and that sales via its mobile app and WeChat account more than doubled.

China Eastern’s chief executive Ma Xulun said in Hong Kong last week that the airline saved 800 million yuan in agency fees in 2015 as it increased direct sales by 13.5 percentage points to 37 per cent. “We hope to make that higher than 50 per cent in two years. It will definitely rise over 40 per cent this year,” he said.

Air China’s board secretary Rao Xinyu said increased direct sales was the main reason for a 1.3 billion yuan drop in the national carrier’s commissions sales bill in 2015. Revenue from direct e-commerce, including the airline’s official website, mobile apps and flagship stores on online booking platforms, jumped 85 per cent to 123 million yuan last year, she said.

Both China Southern and China Eastern have pledged to offer refunds if customers bought cheaper tickets outside their official websites. That and the airlines’ move to scrap commissions ended an era of lucrative business for flight agents in China who once pocketed as much as 10 per cent of each ticket sold.

“The spat with online travel agencies is good for the Chinese carriers as they are taking control of their distribution capability and thus lowering costs,” UOB Kay Hian analyst K Ajith said.

Their collective boycott of Qunar is expected to make the loss-making company bleed even further, while CTrip - its parent since October - is also expected to have a harder time achieving its goal of more than doubling its transportation business revenue in 2016, the majority of which comes from air ticket sales. Qunar, which derives half its revenue from flight and related services, last month reported a loss of 7.34 billion yuan in 2015, up from 675.5 million yuan in 2014.

Jane Sun, CTrip’s chief operating officer, said airlines will weigh the costs of outsourcing part of sales to online travel agencies and the costs of increasing direct sales.

“A rational company will compare, you know, the costs internally versus the costs externally. Whichever channel gives them the best bottom line will be able to benefit the airlines for that. Our strength is excellent customer service and a strong technology platform,” she said.