BRITAIN'S THOMAS COOK, the world's oldest tour operator brand, has forged a partnership with Fosun International in an attempt to enter the Chinese travel market.
Fosun already owns 5% of the British firm. Thomas Cook believes the joint venture (JV) will help develop domestic, inbound and outbound tourism activities for the Chinese market under Thomas Cook brands.
Fosun will own 51% of the JV while Thomas Cook will own 49%. The two partners will make a combined contribution of £1.6m (US$2.5m) to support the initial start-up phase of the JV which will be based in the Shanghai Free Trade Zone.
The current lack of innovation and differentiation in the travel product offerings for Chinese tourists in China and abroad was cited as a driving force behind the new JV, with a view to gaining a competitive advantage. Thomas Cook's international travel experience will be combined with Fosun's local market knowledge and operational resources to expose Thomas Cook to China's growing demand for leisure travel.
The new JV will face stiff competition from established competitors such as China's largest online travel agency (OTA) Ctrip as well as CITS, an established SOE. The two firms rank 44th and 93rd respectively among China's most valuable brands. Meanwhile, travel agencies as a category grew by 48% year-on-year in 2014.
Ctrip had a brand valuation of US$1.2bn in 2014, and has grown 71% in brand value from last year’s valuation. It greatly benefited from its investment in online infrastructure with its mobile app downloads reaching 600 million by the end of 2014, according to their annual financial statement. 2014 was also a year of high-flying investments for Ctrip, including a US$500m investment from the world’s largest OTA, Priceline, with another US$250m announced in May this year. It also bought a 37.6% stake in major Chinese OTA competitor, eLong, from world travel giant Expedia for about US$400m, also in May.
A notable trend in China's travel market is the switch to mobile. More than 70% of transactions were made on Ctrip’s mobile app during Chinese New Year, an opportune time to travel for most Chinese. This time in 2014 was the first time that mobile internet usage surpassed PC internet usage.
With the Chinese travel industry’s trend already going mobile, Ctrip looks poised to continue to grow on their digital home turf. Meanwhile, the JV between Thomas Cook and Fosun is expected to be operational later this year, beginning with domestic holidays, before applying for a licence to sell outbound travel to Chinese travellers in two years’ time.