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China’s Ctrip to buy Skyscanner for £1.4bn

November 24, 2016

Ctrip International has agreed to pay £1.4bn ($1.7bn) for Skyscanner, the Scottish airfare comparison website, in move that will help the Chinese online travel group target the country’s booming outbound tourism industry.

Some 120m Chinese tourists went abroad last year — more than double the number of 2010, according to the China Tourism Research Institute — a market Ctrip is hoping to better target with the Skyscanner purchase.

“Ctrip knows it needs to make international acquisitions to grow its own tech,” said Shaun Rein, managing director of China Market Research Group. “International investors have seen Ctrip as a slow mover in a fast-growing market.”

Ctrip’s operating margins in 2015 were 3.5 per cent, compared with the most recent results of 5.7 per cent and 7.6 per cent for Expedia and Kayak, two international rivals.

Mr Rein noted that Ctrip relied on high-cost call centres and a sprawling web infrastructure that was built in the 2000s at a time when users preferred to phone rather than go online. Three-quarters of Ctrip bookings were done by phone, according to Jeffrey Towson, professor of investment at Peking University.

“They have the world’s largest call-centre, while at the same time their customers tell us the website still has glitches,” said Mr Rein.

The £1.4bn purchase will be made mainly in cash, and has been agreed with a majority of Skyscanner’s shareholders.

The acquisition is the first under the leadership of Jane Sun, who was appointed Ctrip chief executive last week. Ms Sun, who has worked in Silicon Valley and attended university in Florida, has been widely expected to broaden Ctrip’s focus to include an international audience.

“Jane is the one who goes on CNBC and who can make deals with foreigners,” Mr Rein said. “There’s a generational shift within Chinese corporates. It’s not about who has the Communist party contacts any more, it’s about building a global relationship.”

Mr Towson said: “The biggest opportunity for Ctrip is to connect two massive groups — Chinese consumers, and international airlines and hotels. What they really need next is a hotel network. That’s where the real power is, with tens of thousands of hotels across Europe and Asia as potential clients.”

The deal is expected to be completed by the end of the year. Skyscanner’s operations will continue to be managed independently as part of the Ctrip group.

Skyscanner was valued at $1.6bn during its fundraising round in January, placing it in the small club of British “unicorns”, or tech companies worth over $1bn. At the time, the Silicon Valley tech investment group Sequoia took a stake. Neil Shen, Ctrip’s co-founder, founded Sequoia Capital China in 2005.

James Jianzhang Liang, co-founder and executive chairman of Ctrip, said: “Skyscanner will complement our positioning at a global scale, and we will leverage our experience, technology and booking capabilities to help Skyscanner.”

Gareth Williams, Skyscanner’s co-founder and chief executive, said there was a “huge amount” that the company could learn from Ctrip, the market leader in China.

The deal adds to the $191bn worth of Chinese overseas acquisitions that were announced during the first nine months of this year.

But some deals in tourism are heading in the other direction, with Airbnb in talks to buy China’s second-largest home booking service, Xiaozhu.

Ctrip shares ended 2.1 per cent lower on Wednesday but were up 7 per cent in after-hours trading on the Nasdaq.

Via FT