Skift Take

Expedia CEO Dara Khosrowshahi couldn't have been more vehement in recent months about his company's long-term investment in and commitment to eLong. Well, there goes that.

In a major about-face, Expedia Inc., which previously emphasized that it was committed to China for the long haul through its majority stake in money-losing online travel agency eLong, sold its 62.4% stake to Ctrip and other investors.

Ctrip, which competes with eLong and Qunar among other players in the take-no-prisoners Chinese travel market, acquired a 37.6 percent stake in eLong for $400 million.

As part of the transaction, Ctrip and Expedia “agreed to cooperate with each other to allow their respective customers to benefit from certain travel product offerings for specified geographic markets.”

But the agreement appears to be somewhat of a Ctrip snub of the Priceline Group, which in August 2014 agreed to invest up to $500 million in Ctrip and has a deal where it can hold up to 10% equity in Ctrip.

Priceline Group CEO Darren Huston said at the time that Priceline and Ctrip were “almost second cousins,” although in Priceline’s first quarter of 2015 earnings call Huston said the expected hotel integration between the two companies has been taking longer than envisioned.

Priceline doesn’t see the new Ctrip-Expedia relationship as a snub.

“Ctrip is a market leader in China, and has been a key partner for the Priceline Group since 2012,” says Leslie Cafferty, a spokesperson for the Priceline Group. “That partnership continues as Ctrip strategically aligns itself for further success in China.”

With Expedia entering into a new relationship with Ctrip, Priceline’s three-year old ties with Ctrip may be evolving, as well.

Second cousins have been known to get cozier as they mature. We’ll see.

The Expedia-Ctrip Partnership

That Expedia and Ctrip will now be cooperating isn’t necessarily great news for the Priceline Group, though, but the extent of that new partnership remains to be seen.

Expedia won’t detail the nature of its new partnership with Ctrip but by some accounts it is limited in nature and relegated to collaboration on vacation packages and not the larger opportunity, standalone hotels.

In a note to investors, Morgan Stanley puts it like this: “In addition, Expedia and Ctrip have entered into an agreement to cooperate with each other and share inventory across sites in certain geographic markets. We believe this sharing arrangement is primarily related to air and package tour inventory, as Priceline – which owns 4.66% of Ctrip and has the right to appoint an observer to Ctrip’s board – will remain Ctrip’s primary non-China hotel partner. That said, we believe Expedia and eLong will continue sharing hotel inventory with each other.”

Expedia’s strategy in China becomes an open question. It is doubtful that Expedia, which sold its stake in eLong, a company it controlled that was a big drain on its earnings, would have no back-up plan for participation in such a huge and important market.

If the Expedia-Ctrip partnership indeed turns out to be very limited in nature, the announcement about it could be a way for Expedia to dampen criticism that it is withdrawing from a country that one day soon could be the world’s largest travel market.

Expedia Downplays Its China Exit

A spokesperson for Expedia downplays the transaction’s impact on its China strategy.

“Expedia’s longstanding commitment to and focus on the opportunity in China, including domestic and international inbound/outbound travel, has not changed and our commercial relationship with eLong remains in place,” the Expedia spokesperson says. “In addition, we are excited about our new commercial relationship with Ctrip to allow our respective

As part of Expedia selling its stake in eLong to Ctrip, eLong CEO Guangfu Cui resigned from the eLong board of directors as did six members of eLong’s board who have Expedia ties.

Subject to eLong shareholder approval, they will be replaced on the board by May Wu, Shengli Wang, Maohua Sun, Nanyan Zheng and Liqun Wang.

Expedia CEO Darren Khosrowshahi couldn’t have been more vehement in recent months about his company’s long-term investment in and commitment to eLong despite heavy losses.

In the first quarter of 2015, eLong’s net income losses increased 408 percent to $40.1 million.

“[eLong’s] efforts in mobile and supply additions are bearing fruit with mobile growing triple digits overall and representing more than 65% of eLong brand room nights for the quarter,” Khosrowshahi said April 30. “We’re very supportive of the eLong management team, are pleased to see our investments start to bear fruit and remain confident that we can create real shareholder value through this asset.”

Expedia’s stock price was up more than 5 percent to $111.21 on the news that it dumped its stake in eLong. Priceline’s stock price was down by noon EST less than a percentage point.

The transaction sets up Ctrip, already the dominant online travel player in China, to be a stronger player in the country with eLong as a partner, especially as Qunar keeps nipping at Ctrip’s heels.

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Tags: ctrip, elong, expedia, priceline

Photo credit: Ctrip acquired Expedia's stake in fellow Chinese online travel agency eLong. Pictured is Ctrip co-founder Min Fan (left) and Vincent Lo, Chairman, Shui On Group, at the Fortune Global Forum 2013. Fortune Live Media / Flickr.com

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