How Air China Ltd (ADR) (AIRYY)’s Commission Cut Will Impact Qunar Cayman Islands Ltd (QUNR) And International, Ltd. (ADR) (CTRP)?


Air China Ltd (ADR) (OTCMKTS:AIRYY) has decided to slash down the fixed portion of the commission fee from 3% to 2% to air travel agencies that book domestic tickets. Following Air China’s decision, CNBC took some clues from Qunar Cayman Islands Ltd (NASDAQ:QUNR) Co-founder and CEO, Chenchao Zhuang, about the probable impact of the commission cut on its business.

Air China Ltd

Benefit Regional Wholesalers

Zhuang said that the decision is of great importance to them as Qunar Cayman Islands Ltd (NASDAQ:QUNR) is the largest airfare distribution platform in China. He added that the company is currently contributing 22% of the overall Chinese aviation market, which means that it is leading the market by 4%. With this commission cut off, the Chinese airline and the China’s sales in airline will follow very quickly.

Further, Zhuang mentioned that the commission cut is with the aim to shape the agency market, where mid-sized companies are wanted more because of their influence in the market. Moreover, the cut would take out the commissions from leading OTAs, who have a way much power over the airlines. Thus, Zhuang feels that the move will help regional wholesalers, which are more present on Qunar Cayman Islands Ltd (NASDAQ:QUNR) platform. Nearly 80% of regional wholesalers are on their platform.

Ctrip Might Not Feel Pinch

Zhuang also highlighted how the majority ownership in the company by Baidu Inc (ADR) (NASDAQ:BIDU) helped it to drive the business. He said that Baidu gave the company brand awareness, which made it easy for them to hire. Secondly, the company’s special relationship with Baidu helped it to gain the confidence of the Chinese users easily.

Meanwhile, other travel agencies like International, Ltd. (ADR) (NASDAQ:CTRP) is not likely to have much impact from the commission cut, according to analysts at Barclays. They feel that Air China will fill the gap with a bonus commission for the largest travel agent.

Disclosure: none