During the COVID-19 epidemic outbreak in the first half-year, tens of millions of trips booked on Trip.com were canceled or rescheduled, which puts a lot of competitive pressure on it.

On August 16, Trip.com and JD.com inked a strategic cooperation. JD.com will have access to Trip.com's core product supply chain, and the two sides will carry out all-round cooperation including users, channel resources, business travel expansion.

It's worth noting that prior to the official cooperation was announced, there were rumors that Trip.com chairman Liang Jianzhang and Alibaba CEO Zhang Yong had a meeting in Hangzhou, and that the two sides might be cooperating more on the basis of Alipay, and there were even rumors that Alibaba might be teaming up with Trip.com by way of acquisition, equity stake or strategic cooperation.

Whether the news is accurate or not, Liang Jianzhang is indeed looking for a partner for Trip.com, and the main reason behind this is to fight with Meituan, its arch-rival.

In July this year, Meituan launched a hotel advance purchase product named "Super Group-Buying", mainly for the international and domestic (China) high-end hotel group to attract investment, whose requirement is to participate in the hotel discounts below the market price of 60%, unused and expired at any time back.

Obviously, the move is a direct threat to Trip.com's development. And in the face of Wang Xing's challenge, Liang Jianzhang also takes an active measure.

Meituan is expanding its businesses from all sides, while Trip.com is sticking to its hotel and tourism business market. Now, the two are on a direct conflict, and it's unclear who will win.

Meituan launches new business to compete with Trip.com

Meituan's entry into the hotel and tourism business market is no coincidence. In 2016, Meituan signed a distribution partnership agreement with an intercontinental hotel. It meant that Meituan began to enter the high-star hotel market, which is Trip.com's core business.

For Meituan, the delivery business, which currently accounts for more than half of its revenue, accounts for only a third of its gross margin. While the in-store and travel business, with gross profit margins as high as 90%, is the most profitable business for Meituan. For this reason, Meituan has also been focusing heavily on the hotel and tourism business.

According to the data from Trustdata, a third-party data agency, in the first half of 2019, Meituan's hotel orders accounted for more than half of the total for the first time, reaching 50.6%. At the same time, Meituan's hotel overnight volume accounted for 47.3%, once again surpassing the combined total of Trip.com, Qunar.com and Tongcheng-Elong.

The development of the hotel and tourism business has also indeed brought benefits to Meituan. According to Meituan's financial report, in the third and fourth quarters of 2019, the in-store and hotel and tourism business contributed 57% and 58%, respectively, of the total gross profit for the period, more than half share.

However, most of Meituan's hotels are low-star hotels with low unit price, which leads to low gross profit margins, so its income is not as good as Trip.com. And the purpose of the launch of Meituan's group buying business is to make a breakthrough in the high-star hotel business.

On July 30, Meituan officially launched the "Super Group-Buying Day", and started the live broadcast event that night. According to the official disclosure data of Meituan, during the one-hour live broadcast, the total number of viewers reached 5.5 million.

However, it won't be that easy for Meituan to grab the high-star hotel market from Trip.com in the near future.

"In the high-star hotel market, users trust Trip.com more, which is the result of years of accumulation and is difficult for outsiders to break in the short term. Even if other platforms have acquired some customers through subsidies, they may not be able to retain customers." Li Lin, an employee of Trip.com, told Tech Planet (ID: tech618).

He also said that most of the high-star hotels involved in Meituan's "Super Group-Buying" project can only be considered as mid-range hotels, so it will not pose much of a threat to Trip.com.

At the same time, Trip.com has also been consolidating its relationships with high-star hotels. Liang Jianzhang understands that only by firmly grasping the resources of high-star hotels can the company occupy a place in the online hotel industry, or else it will soon be out of the game.

Trip.com focuses on the sinking market

Trip.com's main business includes hotel booking, transportation ticketing, vacation and business travel, of which transportation ticketing is also an important revenue segment of Trip.com.

According to Trip.com's 2019 financial report, hotel booking revenue for the year was 13.5 billion yuan, accounting for 38% of total revenue, while transportation ticketing revenue was 14 billion yuan, accounting for 39% of total revenue.

From the domestic business alone in China, transportation ticketing can generate considerable revenue, but it is far less profitable than hotel booking. In particular, the domestic train ticket booking business has completely zero commission, while the commission rate in the domestic airfare business remains only at a low 2%-3%.

Of course, Trip.com is aware of the problem, and to find more room for growth, it launched its G2 strategy on its 20th anniversary, that is Great Quality and Globalization.

"To become the world's largest international travel company in the next five years", said Liang Jianzhang.

Thanks to the globalized market, Trip.com's international hotel revenue (excluding Greater China destinations) grew 51% year-on-year in the fourth quarter of 2019.

However, Trip.com is facing great challenges, in addition to dealing with competition from overseas travel giant Booking, it also has to bear the pressure from Alibaba-backed Fliggy.

Back in 2017, Alibaba put forward the "Five Globalization" plan, and Fliggy became the first to implement the strategy. Supported by Alibaba's ecology, Fliggy provided users with outbound travel services to 192 countries and regions in the next year.

In March last year, Fliggy, has also launched its "Fliggy Buy" service, a new shopping channel for Chinese travellers to browse and buy goods on Fliggy before reaching their destination, picking them up in stores after they arrive. In the next 3-5 years, Fliggy aims to make the business scale to 100 billion, covering 200 million outbound travellers.

Originally, Trip.com's international travel business had already achieved good results. However, this year's global epidemic has dealt Trip.com a severe blow, which has almost halted its globalization strategy. Now, as the overseas epidemic worsens, there's little hope of restarting the international business anytime soon.

Faced with the threat of Meituan, Trip.com is also mastering the sinking market and invading Meituan's territory.

According to Trip.com CEO Sun Jie, in the fourth quarter of 2019, Trip.com further expanded its share of the domestic travel market, in which 60% of Trip.com's new users are from second- and third-tier target cities. And the year-on-year growth rate of Trip.com's low-star hotels reached about 50% in the quarter.

After high-star hotels stabilize the market, Trip.com's layout in low-star hotels will be able to generate some revenue and also somewhat curb Meituan's continued invasion.

Trip.com employee Li Lin revealed to Tech Planet (ID: tech618) that it will choose to directly bid against bidders in different areas, and will use Meituan as a rival bidder in certain areas.

Now 21-year-old Trip.com, in the face of strong challengers, is looking for ways to ease anxiety.

Will a strategic partnership with JD.com lift the spell? 

Recently, Trip.com and JD.com reached a strategic cooperation, the two started cooperation negotiations within a week, 7 days to finalize the cooperation framework, 30 days to complete the strategic cooperation contract. It is expected that Trip.com will launch its products on the JD.com platform in 8 months.

According to the agreement signed by both parties, Trip.com will provide JD.com with real-time product inventory and competitive prices. Meanwhile, JD.com will open up the platform's user traffic to Trip.com and provide comprehensive support for Trip.com's travel product supply chain in terms of daily operations and precision marketing.

Faced with the threat of Meituan and other competitors, Liang was actually not the only one who approached JD.com, and it was also rumored that he met with Alibaba CEO Zhang Yong.

It's worth noting that the biggest competitors in the local life, hotel and tourist business are Alibaba and Trip.com, therefore, they can work together to fight against Meituan, a fierce rival.

However, perhaps because Alibaba already has its own platform (Fliggy), the cooperation between the two ultimately failed. And eventually, Trip.com teamed up with JD.com.

Under the deal, Trip.com will offer travel deals and competitive ticket and package prices on JD.com. In return, JD.com will give Trip.com access to its 400 million active users, as well as offer supply chain support and targeted marketing.

In the short term, JD.com will connect Trip.com with its 8 million enterprise clients and 400 million individual users, further expanding its travel business. In the long term, consumers can achieve one-stop shopping on the platform.

From JD.com's point of view, the partnership with Trip.com directly complements its layout in the local life and travel segment, which will not only boost revenue but also to improve its service system.

It must be said that Wang Xing's borderless expansion has indeed become a great threat to Trip.com. Today, on the Meituan app, users can not only book hotels, but also order airline tickets, group tours and other services, all of which are Trip.com's main business.

Although for the time being, Meituan is only working on the hotel business, there's no guarantee it won't expand deeper into other areas in the future.

In order to solve Trip.com's plight, Liang has taken some measures frequently this year. Earlier this year, in April, the board of 58.com announced that it had received a non-binding offer from Ocean Link to acquire all of the company's outstanding common stock at an offer price of $55/ADS.

Ocean Link is an independent private equity firm focused on China's growing travel and tourism sector. According to data from Tianyancha, the company introduced Trip.com and General Atlantic as its strategic partners at its inception. Besides, its participation in investment and financing has focused almost exclusively on Trip.com's travel business.

If the acquisition is completed, Liang would be able to compete with Meituan by entering the local life business through 58.com, while also limiting Wang Xing's ability to further expand his territory by joining forces with 58.com.

The battle between Trip.com and Meituan is far from over, and the subsequent moves by the two will determine the final results.

This is an article from WeChat official accounts Tech Planet (ID: tech618), written by Zhou Xiaoqi, translated by Chris Yuan.