The travel distribution business is seeing consolidation as companies seek economies of scale and how to reduce their cash burn.
With the rise in internet and mobile penetration, online travel portals have grown in size and scale. About 44 per cent of all domestic airline bookings take place online. However, the race to grow market share and acquire customers has bled portals.
On the recent deal between MakeMy Trip and Ibibo, Ankur Bhatia, executive director of Bird Group, which has interests in hospitality and aviation, says consolidation is always better. “Two entities together become a large buying house and can negotiate for better margins, due to sheer volumes. This will allow them to offer better prices to consumers. The deal also means MakeMyTrip (MMT) will remain the market leader for a very long time,” he said.
Profits remain a dream, though, for online companies. In 2015-16, MMT's net loss was $88.5 million (Rs 590 crore). It points to “significant investments in ongoing acquisition programmes such as cash incentives and select loyalty programme” as a primary factor. Other companies are making losses, too.
“Travel distribution is highly fragmented, with a low degree of standardisation, which affects economies of scale. Increasing price competition makes economies of scale a prerequisite for viability. Consolidation is inevitable as players race to acquire scale and set standards,” said Rakshit Desai, managing director of FCM Travel Solutions.
“The past 12 months had seen heavy discounting on the hotels segment as competition between MMT and Ibibo had intensified. So, we expect less discounting and more sanity in hotel pricing and, hence, margin improvement for all travel players. Also, this will cause rationalisation in marketing spends and, hence, a lower cost of customer acquisition for other online travel players. Customers and suppliers will benefit from more integrated product offerings but, at the same, concentration of market share might impact pricing negatively for both suppliers and customers,” felt Aloke Bajpai, chief executive and co-founder, ixigo.
He feels companies would focus on innovation than on discounting in 2017. Rivals, too, would look at differentiated offerings to take on the MMT-Ibibo combine, he said. Already, Cleartrip.com is promoting activities and adventure sports; Yatra.com is offering cab booking services.
Hotels remain focused on expanding their online reach, too. “There is an emerging desire among Indians to travel for leisure. Corporate travel is also growing. Online travel channels are becoming more and more aggressive in the hotel space. We continue to work with them, as they expand our reach. But, we also keep enhancing our own technology platform, to enhance booking experience on our website, said Raj Rana, chief executive officer (South Asia) at multinational Carlson Rezidor, which operates 76 hotels in India under brands such as Radisson and Park Plaza.
The Indian travel market has been growing, both inbound and outbound. There have been a series of deals in the online travel space this year. Th travel market offers much growth potential and a large amount of foreign capital is flowing in as investors abroad look to benefit from this growth.
In January, Nasdaq-listed MMT had raised $180 mn from Chinese travel major Ctrip to grow the hotel business. In February, Ibibo secured an investment of $250 mn from Naspers, the South African internet and media company, now one of its main shareholders, along with Chinese internet firm Tencent. In July, Yatra announced a reverse merger deal with Nasdaq-listed American company Terrapin 3 Acquisition Corporation that valued the Indian entity at $218 mn. Yatra will list on Nasdaq.
PACKAGING A HOLIDAY
MakeMyTrip’s brands: MakeMyTrip for air, hotel and holiday packages and Rightstay for alternate accommodation
Ibibo’s brands: goibibo for air, hotel and holiday packages, redBus for online bus booking and Ryde for taxis
- Combined transactions in FY16: 34.1 mn (17.5 mn bus tickets, 9.7 mn air transactions & 6.6 mn hotel transactions)