MakeMyTrip on a profitless journey

Paytm poses significant threat to older online travel firms in air ticketing

The growth journey of the country's biggest online travel company is a trip without profit. MakeMyTrip's promotional expenses continue to surge as it doles out offers and discounts to shift offline buyers to online. This is the usual story of all e-commerce players in the country as they burn loads of cash to incentivise buyers to make more and more purchases online.

The Nasdaq-listed company, which merged with rival Ibibo early this year, spent $142.3 million on marketing and sales promotion during the April-June quarter of FY18, marginally higher than what it earned as revenue ($141.2 million) in the three-month period. This happened to be the first full quarter after merger. The new combined entity posted a loss of $52.1 million, 57 per cent higher than loss of $33.1 million (without Ibibo) in the corresponding period last year.

Discounts seem a trap that an online travel firm may not escape anytime soon. This is also because new entrants have turned aggressive in the segment and the only scoring point has been deep discounts. Take the case of the well-funded wallet-cum-e-commerce player Paytm. It poses significant threat to older online travel companies in air ticketing. But its growth is driven mostly by big cashbacks to air-ticket buyers.

Nasdaq-listed Yatra, another Indian online travel firm, is comparable with MakeMyTrip. Yatra incurred marketing and promotion expenditure of Rs 115 crore during the Q1 of FY18 on revenue of Rs 292 crore. The company saw a loss of Rs 312 crore during the quarter. Both MakeMyTrip and Yatra saw a sharp increase in personnel costs due to increase in share-based compensation expenses.

Industry watchers see the discount game as a normal trend. "This is not something unique to India. The biggest global players in the online space continue to focus on expanding market and growing market share with discounts. This strategy is necessitated by competition and you can't afford to lose sight of the competitor's pricing. The loyalty factor is low in this space. I may have done 10 bookings from site A but will go to site B for my next purchase if pricing is better. With multiple players in the field, withdrawal of promotion by one can lead to a loss of market share," said Harish H V, partner at Grant Thornton.

Besides discounts, online travel companies are spending big bucks on brand ambassadors and advertisements. MakeMyTrip has roped in Bollywood stars Ranveer Singh and Alia Bhatt for TV commercials while its partner Ibibo has Deepika Padukone. Yatra has Ranbir Kapoor as its brand ambassador. 

MakeMyTrip continues to attract investor interest in spite of rising losses. In May this year, the company raised $330 million from two investors, Naspers and Ctrip. Ctrip had invested $180 million in MakeMyTrip in January last year. Investors remain bullish on prospects. "The online travel business is still in its early stages in India and we believe MakeMyTrip has a phenomenal opportunity for growth. We are confident that the merger between MakeMyTrip and Ibibo will ensure that the group continues to lead the online travel space," Naspers's spokesperson said in response to queries. 

Johannesburg Stock Exchange-listed internet firm Naspers has so far invested almost $200 million in MakeMyTrip, besides being an investor in Ibibo before merger. 

"MakeMyTrip has ample liquidity and a clear strategy to invest in growing and expanding the share of its portfolio of brands with increasing efficiency of spending. With online hotel penetration being less than 15 per cent, MakeMyTrip has significant runway and its market-making efforts are delivering significant share gains in the largely offline hotel market," Naspers's spokesperson said, declining to comment on MakeMyTrip's financial performance.