China's travel market and Internet-based travel consolidators will experience strong and steady growth in the next few years, driven by increasing independent travel and China's robust economic growth, Deutsche Bank said.

China's leading online travel consolidators, Ctrip and eLong, currently hold two to three pct of the travel market but are poised to capture the lion's share of market growth.

'We believe that the leading travel consolidators are well positioned to eventually dominate the entire travel industry in China,' the brokerage said in a research report.

Ctrip, which Deutsche Bank estimates holds 50 pct of the market for hotel bookings, and rival eLong which holds 20-25 pct, will dominate the market due to their control of hotel supply and air ticket and hotel room demand as well as an industry-wide move from tour-group travel to independent travel.

The brokerage estimates China's spending on domestic tourism will reach around 500 bln yuan this year and it expects China's travel market will grow at 12.3 pct compounded annual growth rate from 2003-2006.

The market will also see a 40-50 pct year-on-year growth in travel during this year's peak travel season.

But Ctrip and eLong should post higher growth than the overall market.

'We expect both Ctrip and eLong to grow faster than the travel overall consolidator market, taking share from the multitude of local consolidators that have fewer hotel relationships, no guaranteed allotment and much smaller marketing budgets,' the brokerage said.

Given the current size and fragmented state of the travel market, Deutsche Bank expects both Ctrip and eLong to emerge as winners though risks remain.

The travel market depends on the economic health of the country, and a downturn in China's economy would directly affect leisure travel.

But the brokerage expects the Chinese economy to achieve a 'soft landing' and the market for travel services to see annual growth of around 10-12 pct.

The market could also face a downturn following an unforseeable event such as a terrorist attack or an outbreak of a communicable disease.

But the brokerage noted that while bookings fell drastically during the 2003 outbreak of SARS, hotels were also willing to pay higher commissions to consolidators.

Management execution remains a risk for both companies, but the brokerage is positive about the companies' management.

'In our view, Ctrip and eLong are currently being valued at below fair value because the market is too heavily discounting both the growth of the industry as well as the two companies' ability to execute and exceed the travel industry growth rate,' Deutsche Bank said.