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Chinese Travel Agencies’ Shares Drop After Air China Cuts Commissions

Jun 25, 2014 3:00 am

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Other airlines will likely follow Air China in cutting commission fees, hurting OTA revenues from the still growing outbound air travel market.

— Samantha Shankman

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Ctrip's English-language website. PlaceIt by Breezi


Qunar Cayman Islands Ltd. dropped to a one-month low, leading a decline in Chinese online travel agencies trading in the U.S., after the country’s largest airline reduced commissions for ticket sales.

Ctrip.com International Ltd., China’s biggest online travel agency, fell to a one-week low. Elong Inc., whose biggest shareholder is Expedia Inc., sank for a fourth day.

Air China Ltd., the country’s biggest carrier by market value, has told ticket sellers that it is lowering its base commission rate to 2 percent from 3 percent, Sohu.com Inc. reported on its website, citing a notice from the company. The move stoked concern that others will follow suit, reducing industry profits.

“The commission reduction is more negative for smaller online travel agencies like Qunar than the bigger player Ctrip,” Henry Guo, an analyst at JG Capital, said by phone from San Francisco. “Qunar is an online platform for small travel agents who may not be able to handle the rate cut, which reduces traffic on its website.”

A phone call and an e-mail to Lillibeth Bishop, Air China’s U.S.-based press official, seeking comment on the Sohu.com report weren’t immediately returned.

Stifel Nicolaus & Co., in an e-mailed research note to clients, said it’s “likely that other Chinese airlines will follow Air China’s example.” Analysts led by George I. Askew cut their recommendation on Ctrip to hold from buy.

Qunar, which is controlled by Baidu Inc., declined 3.4 percent to $23.09 as of 2:14 p.m. in New York. Ctrip slumped 1.9 percent to $57.93. Elong slid 2.3 percent to $15.85.

The Bloomberg China-US Equity Index climbed 0.4 percent to 104.19. The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., declined 0.1 percent to $36.79. The Standard & Poor’s 500 fell 0.1 percent as investors weighed reports of escalating violence in the Middle East and sifted through data on the U.S. economy.

The Hang Seng China Enterprises Index rallied 0.5 percent, the most in a week, to 10,250.16. The Shanghai Composite Index added 0.5 percent to 2,033.93.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Richard Richtmyer.

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