Venture Sprout

This decade is THE decade the major brands will be built in China travel.

So what’s so exciting about the China travel industry?  Between you and me, it’s a question I get from my Silicon Valley-based wife! (and no, just to be crystal clear, I don’t have any other wives based anywhere else!)

Whenever I get the chance, I ask Chinese friends and acquaintances about what they think about travel.  I hear curiosity, somewhat unformed impressions about places, a desire to explore, a strong desire to buy authentic luxury brands at a good price (and iPods and milk powder too), and a desire to get away from the crowds.  In other words: independence, individuality and freedom.  Travel has strong, emotional power with Chinese consumers.

Because of this emotional power, I believe that THIS DECADE is when major brands will be built. Hotel brands will be built.  Online brands will be built.  Destinations will become branded.  Theme park brands will be built.  Car rental, cruises, outdoor/recreation equipment brands, you name it.

It’s already starting.  One Founder of a prominent travel Website in China shared that they get 65%-70% of their traffic directly; a similar Website in the US probably only gets 25-30% direct traffic.  Seven Days Inn (NYSE:SVN) surprised the industry by announcing in December 2009 that it would shut down all external points of distribution by end of 2010…because SVN feels it can grow entirely off of their social network and their loyalty program.  Something like that could never happen in the West.

China travel companies are putting up some good growth results.  Ctrip (NASDAQ:CTRP) announced 46% year-on-year Q2 growth in net revenue, and 48% year-on-year Q2 net income growth (see earnings call transcript on SeekingAlpha, and Tnooz commentary) We’re seeing some great growth results from some of the listed companies in the travel industry in China.  China Lodging Group (NASDAQ:HTHT) announced 39.2% year-on-year Q2 revenue growth (Yahoo), and Home Inns (NASDAQ:HMIN) grew 26% year-on-year in Q2 (see earnings call transcript on SeekingAlpha).