Tuniu To Do $500M Deal With Beijing Hotel Group In Heated Rivalry For China’s Online Travel Market
U.S.-listed Chinese online travel service Tuniu, struggling to reach profitability, is set to take in a strategic investment of $500 million from HNA Tourism Group in December. Once the deal goes through, the Beijing-based hospitality group will own 24% of Tuniu and become the largest shareholder in the online package tour operator.
The deal comes six months after Tuniu raised $500 million through a private placement by e-commerce giant JD.com and several of its existing PE and VC backers, including Hony Capital and DCM Ventures.
The HNA-Tuniu deal also comes less than one month after Ctrip and Qunar agreed to an alliance that set them up to become China’s dominant online travel service, collectively owning 80% of the market. Investors are already betting that the new investment will not be enough to turn Tuniu profitable in the uphill battle against well-heeled players such as Baidu and Tencent (both involved in the Ctrip-Qunar deal).
China’s growing online travel industry is a massive market opportunity: Goldman Sachs has estimated that the industry will more than triple to $200 billion by 2020. Tuniu, with 75 service centers located in 73 centers across China, lags at a “distant third” after Qunar and Ctrip. The fiercely competitive marketplace has meant that companies are willing to burn cash to gain market share – and thus continue to need new funding for survival.