China's long border closure forced its entire travel industry to redirect its resources towards the domestic market. Between spring 2020 and January 2023, OTAs rethought their business models by growing their customer bases in lower-tier cities, supporting user-generated content and investing in smart booking, marketing and member benefits tools.

China entered the pandemic as the world's largest outbound market, with 170 million cross-border trips in 2019. While outbound travel grabs the headlines, the domestic market boasts exceptional numbers. China is a mainland-sized nation of 1.4 billion people with 6 billion domestic trips in 2019. The magnitude of domestic demand underpins China's status as the world's second largest air market, which it retained comfortably during the pandemic. 

The three-year journey undertaken by the OTAs was transformative. China's experience with SARS in 2002-03 and other coronaviruses since, as well as the government's refusal to accept foreign vaccines, discouraged a quick resolution of COVID-19. The Chinese tourism industry clung to its leading position in the fight against the pandemic. China's tourism sector dug in for a long period of isolation. 

The suspension of the profitable outbound sector forced OTAs to make inflexible decisions. Ensuring short-term competitiveness by cutting costs was paramount. At the same time, they had to invest in smart technology and diversified products to stimulate the return of travel to China, whenever that might be.  

But above all, they needed to optimise revenue from Chinese domestic travellers as competition intensified. Here are some of the measures they took:

• All mobile: OTAs knew that the key to survival and prosperity was mobile. China is a mobile-first economy, and consumers expect smartphone-based travel and lifestyle apps to evolve frequently and offer new experiences. For travel bookings, China's exceptionally high mobile penetration rate before the pandemic was expected to accelerate, but only if travel products and services adapted to unprecedented circumstances. And so it has. By 2022, Trip.com reported that 90% of its bookings were made via mobile devices.

• Local and short-stay: During the darkest days of COVID, some Chinese cities required a negative test for visitors from other provinces. Domestic flights were frequently cancelled. Traveller confidence was fragile. OTAs developed new strengths to meet the demand for weekend stays within a small travel radius. They added boutique glamping, camping and hiking products to meet the changing appetites of people making short trips close to home.

• Targeting lower tier cities: Chinese cities are grouped into tiers based on size, population and economic output. Beyond the first- and second-tier cities are hundreds of lower-tier cities that comprise nearly 70% of China's urban population. Consumer spending increases in these cities, but the scarcity of international flights made them less attractive to OTAs. Since 2020, OTAs have intensified their customer acquisition strategies in these cities, targeting a young population that has developed a new taste for travel. "Lower tier cities are underpenetrated, but they hold colossal potential. We optimised products and services and persistently penetrated the lower tier cities, which withstood the pandemic and outperformed the overall market recovery," said Wu Zhixiang, Co-Chairman of Tongcheng.

• Livestreaming across the board: OTAs have adapted their sales channels to better anticipate new demographic trends. Livestreaming is a good example. In the late 2010s, it became a shopping phenomenon in China. Ambitious young salespeople stand in front of banks of backlit smartphones to sell discounted consumer goods streamed on platforms such as Douyin, Kuaishou, WeChat and Taobao Live. Part of the appeal of live trading is attributed to the desire of China's Generation Z to learn new things while shopping online. OTAs used livestreaming to sell discounted flights and hotel rooms. Ctrip chairman James Liang launched a series of livestreams to attract customers across China. Tuniu deployed livestreaming to sell new travel packages and product updates, and Meituan is investing resources in "short-form broadcast video". 

• User-generated content: Chinese consumers avidly use social media and short-form video apps of their own. During the pandemic, these platforms enhanced their social commerce offerings with new interactive content. Travel, a major driver of social activity, followed suit. Chinese travel bookers are looking for up-to-date product information. This influenced the strategies of OTAs, which developed their own mobile content platforms. They encourage travellers to share their own content - such as travel videos, destination tips and hotel recommendations - on the OTAs' apps, rather than on social media. This drives stronger consumer engagement, generates large streams of proprietary data, and creates new cross-segment advertising and sales opportunities for travel providers and partner brands. 

• Multimodal ticketing: Although China has the world's second largest air market, business and leisure travellers are increasingly taking to the world's longest high-speed rail network, which connects most of the country's cities. During the pandemic, faster trains were put into operation on key routes, with improved on-board services such as flat beds and mobile food ordering. Before the pandemic, OTAs had expanded mobile train bookings. Since 2020, they have launched new train, car rental and flight booking options to give travellers more freedom in planning their trips. Chinese airlines, such as China Eastern, followed suit.

• Car travel: Demand for car rentals accelerated as a flexible and cost-effective way to customise short trip itineraries. In 2022, Fliggy partnered with Zuzuche, China's largest mobile car rental service platform for outbound travellers. Zuzuche reacted quickly to China's border closure in 2020. It created a nationwide car rental portal from scratch, with 3,000 providers in 600 cities. This allowed it to tap into the growing appeal of car travel. "The demand for car rental and road travel in China, even during the difficult circumstances of the past three years, exceeded our expectations," says Ben Li, CEO of Zuzuche. 

• Making the last three years profitable: Anticipating the next phase of China's travel recovery is tricky. It is a difficult market to predict and the distribution landscape is fragmented. Trip.com's 2022 annual report noted strong competition "from hotels and airlines, which are increasing their direct sales efforts or establishing partnerships with other travel service providers, as well as from content and social media platforms entering the travel industry". This threat is crystallising. In May, social video app Douyin (parent of TikTok) introduced a new hotel booking service.

Meanwhile, international air capacity is rebuilding, exceeding 50% this summer compared to the 2019 level, and is forecast to reach 80% by the end of the year. Unleashed pent-up domestic demand is helping OTAs benefit from their pandemic focus on building more diversified domestic customer bases and enhanced travel offerings. As Ma Heping, CEO of Tongcheng, commented, "2023 is about capitalising on the investments of the past three years."