Why Are Travel Companies That Started Online All Getting Into Ground Services?

"Nobody in independent travel used to want this job, but it's part of the upgrade travelers want once they're on the ground. You can't just hand them off to some cookie-cutter local agency with terrible service, the way it used to be done."

Flight plus hotel: 8,000. Diving on a local day tour: 1,500. Shopping: 6,000. Gifts to bring home: 1,000. A Michelin restaurant: 2,000. Seafood places and street stalls: 3,000. Gambling: 100…

That is the rough tally Yu Lu kept after she and a friend spent ten days in Palau and Macau last year.

Unlike the young people who like to "travel on the cheap," she is fussy about a great many things on a trip: she wants to eat well and play well. If a place offers something you can only do there, she has to try it. In Singapore her visit happened to coincide with a run of Les Misérables, a musical she loves; the 800-yuan ticket, she thought, was money well spent.

She doesn't do much planning before she leaves, but that never stops Yu Lu from enjoying herself on the road. Colleagues at the office who also love to travel can be asked for tips; a scroll through Moments turns up other people's trip notes and photos; street food can be tracked down with Dianping and Google; show tickets can wait until she arrives. None of it has much to do with the online travel sites she uses to book flights and hotels.

For a long time, what China's online travel companies fought hardest over — hard enough to sustain price wars for years — was just those two bookends, the flight and the hotel. What happens after you "arrive" — the local spending that accounts for more than half of a trip's cost — is, in one sense, a series of decisions you make yourself. Seen another way, it is because independent travel has become too independent: the service you could have been getting along the way simply isn't there.

You no longer plan the trip on the computer at home and carry the plan to your destination. You arrive first and improvise, searching your phone anywhere, anytime, for local food, drink and entertainment. To Fliggy vice president Zhou Zheng, going mobile is the key to the shift. Fliggy is the name Alitrip gave itself just before Double 11; in 2016 the company expected close to 100 billion yuan (RMB) in sales on its own platform.

"Mobile has made information unbelievably easy to get, so planning is no longer the bottleneck it once was. In our data, travelers used to start preparing for an outbound trip two months ahead on average. Last year that shrank to 23 days, and this year it's 15. For closer destinations, like countries in the Asia-Pacific, a week is enough."

That appetite for the immediate has also broken the old, complete travel package into "fragment products" sold separately: visas, SIM cards, local day tours, admission tickets, even guide services. A third of the users on Fliggy's platform have bought something of the kind, Zhou Zheng says.

The other trend he sees on his platform is that users born in the 1980s who care about the quality of what they buy on a trip, people like Yu Lu, now make up more than 70% of the total. Every Double 11 puts their spending power on concentrated display:

Gao Xinyi, a product manager in Beijing, bought a round-trip ticket to the U.S. East Coast this year for about 4,000 yuan. She had no specific plan for the trip either. She simply compared the price against what colleagues had paid for similar trips, decided it was a bargain, and dropped this big-ticket item into her cart.

"White-collar, 25 to 40, traveling as a family or a couple, reasonably educated, a bit of English, travel is a necessity they buy at moderate frequency, independent travel is their only option, they want quality and some assurance, and they pay some attention to value for money." That is the overall picture Faxian Lüxing founder and CEO Wang Zhenhua has of his own users.

Following those needs, Faxian Lüxing sells what it calls "independent travel with none of the homework." Its packages contain no red-eye flights that leave you waiting for an airport bus, no youth hostels and no low-star hotels. Airport pickup and drop-off and a local SIM card come as standard, and a local "butler" is on hand for whatever goes wrong.

Beginning with short trips close to home, independent travel has been growing in China for more than a decade and long ago became the mainstream of the market. By the China Tourism Academy's statistics for the first half of 2015, independent travel already accounts for 97.8% of domestic tourism and 66.7% of outbound travel.

That much penetration also means the big online travel sites have a harder time fighting for users. Never mind that in the price wars of the past few years they have squeezed the profit out of "standardized products" like flights and hotels themselves. Even knowing that "deep destination travel" is a large, barely tapped market, the traditional ground-service agencies they deal with are used to run-of-the-mill group tours and know next to nothing about what these young travelers actually want.

The best method is still to do it yourself. So over the past few years, from big companies like Trip.com Group, Alibaba and Tongcheng down to nimble startups of every kind, you will find nearly every online travel company rolling up its sleeves and taking on the hard, thankless work of ground services.

"People now demand more of the product and of the service, especially in the non-standardized market built around leisure travel, where whether you can serve the person well is becoming the core factor in the purchase decision," Tongcheng Travel said in an emailed interview with QDaily. That, it said, is why it has set up six regional centers across the country and more than 300 company-run experience stores.

Tongcheng is a big player in the domestic market: it runs both a website and an offline travel-agency business, and it is the second company in the industry, after Trip.com Group, to make money at scale. It expected 2016 revenue of 6 billion yuan, serving more than 100 million traveler-trips.

"On the surface it may look as though Tongcheng is walking the old road of the travel agencies. It isn't," the company said. It won't use these company-run experience stores simply as shopfronts for selling agency products; it wants to use them as a combined "showroom, information center and departure meeting point" in each city.

Faxian Lüxing prefers the opposite of a shopfront: it hides most of its service at the back end. The local butler is also what Wang Zhenhua considers the biggest difference between his service and the rest of the industry.

"Nobody in independent travel used to want this job, but it's part of the upgrade travelers want once they're on the ground. You can't just hand them off to some cookie-cutter local agency with terrible service, the way it used to be done."

As for what these young people, now the mainstream of independent travel, actually want, it can be summed up like this:

It is not the thrifty, friend-making backpacker business, and they don't want an agency taking their itinerary out of their hands from start to finish. They want experiences at their destination that match their own interests, but they also want a safety net, and ideally a small sense of being looked after.

That is the real meaning of "consumption upgrading," the phrase every online travel company now moving into ground services stressed in its interview with QDaily.

So the online travel companies competing for this market are finding that the radius of their service has to widen: not only from online to offline, but from the few dozen sights along a single route to every city and country the trip touches.

Fliggy thinks this could become an advantage for it in outbound travel: besides its own business-development team, it can draw on the offices Alibaba Group has opened in many countries and on local merchants, and plug them all into its own platform.

Zhou Zheng sorts destination services roughly into these categories:

— Emergencies. A lost passport or wallet, or a hospital stay abroad, can be handled by a local partner who reacts fast enough.

— "Instant planning." For consumers who prepare little and figure it out when they land, service can be offered right at big transit points such as airports and train stations.

— Local day tours. Diving, shows and other things particular to a destination, bought before departure or at any point during the trip.

— Transport. A better class of airport pickup, for instance, with a driver who can hold a conversation. Zhou Zheng is also weighing whether, in some destination cities, they could buy a few shuttle-bus lines for independent travelers that "leave as soon as you show up."

— Shopping, which can lean on Alipay, already expanding into airports and shopping districts in a number of countries.

In short, his goal is to "treat the whole city as one tour group, and try to offer service in every direction."

Alibaba's platform model suits this big-and-comprehensive approach, covering most kinds of service need at least roughly. When it comes to travelers' finer, more personal wants, Qyer, which grew out of a travel community, may have the sharper ear.

Qyer began as a forum for Chinese students abroad, and for a long time it was only a travel content community, a large crowd of young users swapping guides of every sort. Apart from the main site, its most popular phone app was also a planning tool: Trip Assistant, which could recommend a whole route before departure and export a one-tap itinerary convenient for visa applications.

But because it is an app people open for reference while they are actually traveling, Trip Assistant added instant local services in 2015, including one-tap Uber rides and recommendations for things to do nearby based on location. A traveler in Chiang Mai or Kyoto, two big tourist cities, might even run into the company's local service outpost, Q-Home.

Like the company-run experience stores Tongcheng has spread across China, Q-Home can be read as a combination of information center, specialist ground agency and overseas office. Travelers can ask about routes there, leave their luggage, join a chat or a movie night put on by the staff, or buy City Walk, the city walking tour Qyer designed itself.

According to Lin Yi, who runs Qyer's overseas business, City Walk — a small-group tour of about ten people — is one of the most important product lines in the company's push to make money. It now has close to 30 routes in China and abroad and has taken more than 5,000 travelers in all.

For a company whose only experience was running a community, and which came late to making money, an in-house product like this is a real test of its ability to buy and assemble a product: a single route means posting staff overseas and spending two or three months designing the route, recruiting leaders and buying up local resources.

And to leave any margin at all in a low-priced product, the industry's long traditional procurement chain has to be compressed into direct buying. Qyer, for instance, bought out 100,000 attraction tickets in one go at the start of the year; beyond selling them through its own channels, it can pass them to other channels to distribute and pocket the difference.

So the mobile, piecemeal way independent travelers now buy things also means a change in travel companies' business models and supply chains: buying and assembling products has to be more flexible, and the "product inventory management" the online sites talk about gets harder.

Travel sites such as Trip.com Group and Qunar used to sell flights, hotels and routes on what is called a wholesale-retail model: buy resources in bulk from suppliers — airlines, hotel groups, ground agencies — put them in your own product inventory, sell them off the website, and adjust stock as sales come in.

Besides the savings of buying in bulk, these sites had another problem to deal with: flight routes and destination resources were scarce and relatively monopolized by the big travel agencies. Now those resources have opened up almost entirely to the individual traveler. To meet a wider, richer range of demand, companies have had to take up what they call "destination direct buying," assembling products straight from capable local suppliers. It also lets them react faster when demand shifts.

In an interview with 36Kr at the end of 2015, Pan Fei, CEO of Trip.com Group's local experiences business, said that more than a decade ago, when Trip.com Group was building outbound independent-travel products, it had already begun bolting on fragment products like airport transfers, tickets and day tours. "It's only that the supply chain was shallow then. Each destination had one or two core suppliers, and they offered just a few of the most popular activities."

But as more suppliers came on board, the non-standard nature of destination products, and the job of turning them into data, made inventory management much harder. "A destination product is like a department store — you can break it into more than a dozen categories. Big ones like cars, Wi-Fi and day tours, small ones like skiing and boat trips, are all separate categories, and each one wants a different information structure."

For much the same reason, Qyer chose not to put City Walk into the product inventory of a big site like Trip.com Group. Concentrating on its own users also lets it attempt long trips a traditional agency would struggle to run, such as an expedition to the Kamchatka Peninsula.

The fuller, more detailed user data a trip generates is another thing traditional agencies either lack or don't know how to use.

Tongcheng argues that the data it gathers through its company-run experience stores and local tour products helps it respond quickly to what users want, draw a sharper picture of them, and build products suited to different groups of consumers.

All of it is preparation for offering service with more character, tailored to the individual.

"We were backpackers ourselves, and we thought group tours were seriously uncool. Looking back, it's because the agencies in China ruined the service — that isn't what a good group tour should feel like. Even now, when we travel independently, if the destination is obscure and off the beaten track we still end up on a tour once we're there. It's like rafting the Amazon jungle, where you have to go with a local ecological outfit, or going to Antarctica, where you have to take a ship. Good ground service is bound to take the shape of a tour group. So City Walk is really an attempt to get back to what travel service is for: it's the group tour, in fragments," Lin Yi said.

But that also means heavier operating costs and service preparation down to the last detail. Even Airbnb, which once threw the hotel industry into confusion, ought to have thought about the same problems as it enters this field. At the host conference that just ended in Los Angeles, Airbnb said it would treat its two new businesses — Experiences, its local tours, and Places, its guides — as no less important than the short-term rental service the company was built on. We analyzed that in detail in this article.

As a strategy for making money from local food, drink and entertainment, ground services are a difficult business. Because they rest on the offline experience, they depend on people more than any other travel product does, and people are the hardest link to control.

And because these young independent travelers are after leisure rather than adventure, Wang Zhenhua believes that "professionalism and a guaranteed standard of service matter more than novelty."

Service also calls for a sense of proportion, of course. "You know when you should appear, and when you shouldn't."

It bears repeating: a destination product with real character is harder to copy and harder to scale, and the commercial payoff may not arrive any time soon.

Graphics: Wu Lingwei

Cover image from: Wikipedia, Pexels.com