Ctrip.com Tumbles As Chinese Internet Travel Services Take Big Hit

The share price of China’s top online travel website, Ctrip.com, tumbled almost 14% today as word leaked that Chinese airlines were slashing commissions to Chinese travel agents.

Ending the trading day on Nasdaq at USD32.81, shares in Ctrip.com International Ltd. lost USD5.26 today as investors were rightfully worried that commissions paid by carriers Air China and China Southern to travel agents like Ctrip.com could drop by as much as 50%. For Ctrip.com, 40% of its planned 2010 revenue was to come from these commissions, so the airlines’ decision puts huge pressure on Chinese travel websites who depend on the commissions as a large part of derived revenue.

Why are the Chinese domestic airlines now making this cut? A few weeks ago international carriers cut commissions to travel agents in China for flights in and out of the Middle Kingdom, so this latest move is a mimic of the international carriers.

In addition, the online landscape for travel in China has changed dramatically over the last decade. Ten years ago, Ctrip.com, and later its top rival eLong.com and other online travel search engines, could reliably aggregate the best airline deals for travelers in one place. But now travelers can often go direct to the airlines’ own websites for the best deals and specials on fares around China, so online travel sites likes Ctrip are often seen as rivals by the airlines.