Recently, China’s primary, stable, all-in-one, state-railway-bureau-directly-operated official railway ticketing platform, 12306, announced an expansion into the airline ticket market. This move is not expected to reduce airfare costs directly, yet it signifies a notable shift in the competitive landscape for Online Travel Agencies (OTAs) like CTrip, potentially impacting their market share and profitability.
Understanding the mechanics of airline ticket sales is crucial here. Airlines set their flight schedules, seat pricing, and then distribute this information through a Global Distribution System (GDS). OTAs access this data, aggregating flight options for consumers as intermediate information sources without directly influencing ticket supply or pricing. Similarly, railway tickets follow this model, with OTA revenue deriving from commissions, sales bonuses from airlines, and fees for ticket changes and cancellations. They OTAs are notoriously famous for offering overwhelmingly termed insurance contracts for reschedule or refund, and they charge a inflated fee for any uninsured reschedule, not to mention cancellation.
Anyway, back to the pricing. The preceding is to say that, despite 12306’s extensive user base, its entry into the market doesn’t disrupt the competition among airlines, who control pricing. Its service offerings, mirroring those of existing OTAs, fail to introduce competitive differentiation or demand stimulation, leaving airfare unaffected. However, this development poses challenges for OTAs, confronting them with a formidable competitor. As consumers grow savvier, avoiding pricing pitfalls and seeking transparency, there’s a noticeable shift towards purchasing directly from official sources like 12306 or airline websites, circumventing the complexities of dynamic pricing and data-driven price discrimination.
Ctrip, dominating over half of China’s OTA market, faces sustainability challenges as barriers to market entry lower and suppliers (airlines and railways) directly engage with consumers. Moreover, historically, a significant portion of OTA revenue came from inflated refund policies. Now, emerging platforms are eclipsing these outdated practices with greater transparency, efficiency, and a focus on customer experience.
This shift doesn’t demonize OTAs; it reflects the evolving internet landscape, offering consumers better options for certain purchases. OTAs remain vital for accessing information and booking specialized products like local niche hotels or private inns, where Ctrip’s comprehensive database is unparalleled.
This instance, along with earlier examples (I and II), illustrates the complex nature of competition. While haphazardly introducing competition into the market can lead to unforeseen challenges, this particular case underscores its potential benefits. It serves as a reminder that, under the right circumstances, competition can drive positive change.