Wednesday, March 19, 2008

Airline Industry - Singapore Airlines cancels deal to buy a slice of China Eastern - parable for online travel in China

A little bit off the online track but I enjoyed reading a recent Wharton Article called "Turbulence in the Skies: The Ongoing Saga of China Eastern Airline, Air China and Singapore Airlines". Very quickly - SIA was going to buy 24% of China Eastern for HK$7.16 billion (US$918 million). Everything was announced and ready to go. But at the last minute the deal is off (see update below). Air China and a related company (China National Aviation Corporation or CNAC) swooped in and took the deal away from SIA.

What I particularly found interesting about the story was that it is a parable for a lot of online travel and investment activities in China.

The "once great" Cendant Corporation entered China online though a joint venture with government owned CYTS to form AoYou (English site China Travel Depot). Descendants of Cendant had to pull out.

Expedia jumped into China and jumped up and down about its investment in the permanently Ctrip chasing eLong. Fours CEOs (include one interim), untold number of secondees from Seattle and a lot of red ink later and this business is still losing ground to Ctrip. I am sure descendants of that deal wish they could pull out also.

China is tough. Culture and developing market issues aside. Online in China is more offline than online with more than 70% of the so called online volume going through enormous call centres. Regulatory environments mean it almost requires a different ticketing licence from each regional governments. Not to mention the security issues around famil trips.

If you want to keep more of a track of the online travel market in China I suggest you subscribe to Roy Gaff's China travel industry blog.

UPDATE - an informed reader tells me that an investment by SIA into China Eastern is not deal it is just very complicated and will take a lot of time.

1 comment:

Anonymous said...

Are Trojan horses madie in china as well ? :)