More breaks, younger travellers, rising credit are emerging trends: Iyer

Omni-channel travel services firm Travel Cook India on Thursday reported consolidated net profit of Rs. 70.9 crore in the June quarter. The firm had reported a loss of Rs. 6.9 crore in the year-ago period. Its total income from operations grew to Rs. 1,931.8 crore during the first quarter of the current fiscal from Rs. 989.8 crore in the year-ago period. Mahesh Iyer, managing director and chief executive at Thomas Cook India, discusses the drivers for growth, demand trends and challenges in a telephonic interaction with Ajinkya Kawale. Edited excerpts:

What are the emerging trends you have identified in customer choices vis-à-vis their aspirations and the kind of locations preferred?

I think people are looking for more breaks. The second trend that we see is that the traveling population is getting younger. Our age group has already fallen down by about 10 years. Third, for a category like travel, people are willing to take credit. Fourth, they want to have more experiential travel such as adventure or biking.

So I think we are now starting to segment our customers according to their likes and dislikes. Further segmentation will be done as different age groups have different preferences.

What are the key drivers for the company’s growth for the first quarter of FY24?

We have got multiple companies and businesses within India and overseas. If you look at the entities that have performed very well in the current quarter, there is Thomas Cook Standalone, which has the business of foreign exchange, holidays, corporate travel and MICE (meetings, incentives, conferences and exhibitions). SOTC Travel Services mirrors what Thomas Cook does in the form of holidays, MICE and business travel with the only exception that it does not have a foreign exchange business.

As you know, traditionally this happens to be a strong travel quarter for us. Some of the key metrics that we monitor for this business have performed very well for us.

Within the business units of Thomas Cook, foreign exchange, holidays, MICE and corporate travel have done exceedingly well in terms of volume growth, margin management and cost prudence.

Sterling Holiday Resorts has had the ninth consecutive quarter of profitability, with a steady growth in average room rate, occupancy at about 74 per cent, addition of two resorts and more planned, and a strategy shift from timeshare to hospitality and resort auguring well.

We are currently about 66 per cent in terms of room sales. I think these are some of the key levers that have held the performance in the current quarter.

Do you think the upcoming quarter will follow a similar trend?

A word of caution I have is that you must appreciate that we were in a traditionally good season. April to June coincides with holidays, summer vacations and is a peak season for travel.

July to September is traditionally a shoulder quarter. But despite that, our forward bookings look very strong compared to the budgets or the internal targets that we have set for ourselves. They are trending very close to the pre-pandemic level and in some businesses topping it. We expect a good performance.

The Reserve Bank of India (RBI) has taken various steps to internationalise the rupee, allow United Payments Interface (UPI) payments in other countries, among others. As more such steps are taken, how do you see their impact on your core forex business from a short- as well as long-term perspective?

We are one of the largest foreign exchange or retail foreign exchange providers. We are a category two non-bank, but we have a lot of things that we do that are akin to a bank. We are the first non-bank prepaid card issuer in the country. We are members of SWIFT and run our own dealing room, and we have our own foreign currency accounts.

These are things that we have as a part of the compliance framework that we operate under and the RBI is very comfortable to allow us to operate in that space.

As you know, prepaid card is a growing portfolio for us and last year we exited about $550 million load on that prepaid platform. We expect that to end the current year at about close to $800 million. We will represent about 27 or 28 per cent of the market.

The current market share is about 26 per cent. We expect to end the year at anywhere between 27 and 28 per cent of the market. Now, the product that we offer here has five-year validity. This brings the stickiness for the customer alongside.

I think these are more merchant transactions and not necessarily customer transactions on the point of rupee operability.

Now if you look at merchant transactions that are more trade related, I think that’s where the RBI’s focus on bringing the rupee is concerned. Also, currently the focus is on the MTSS platform.

I think these were the operators where they used to do person-to-person transfers and the business prospered in about a decade before this. But over the last three or four years, this has moved as account-to-account payments.

I think the impact on the rupee will be minimal. We are gearing up for it and are in an active conversation with NPCI (National Payments Council of India) for a RuPay branded card. The RBI came out with a circular on the prepaid platform to say that we have to give a choice to the customer to choose a network that he wants to work on.

Currently, we operate both the MasterCard and Visa platform and very soon we will enable the RuPay platform, too. We are extending a rupee prepaid option as well.

Whether we will do it ourselves as a part of our prepaid licence or whether we will do it as a bank is a consideration at this point. (However), over the next three to six months, we will also have a rupee product that we will take to the market. It will be entrenched within the foreign exchange platform that we give to the customer.

So he has the ability to interoperate between his bank account, rupee wallet and the foreign exchange wallet. So that’s our strategy to flank some of the challenges for threats that could potentially come from the interoperability of rupee.

What kind of demand trends are you observing for the upcoming quarter, especially now that the festival season is around the corner?

The demand is split into different pockets. If you look at the domestic side, July was a softer month.

Monsoon was a little more fiery in this part of the world for most of July for that matter. So we had issues connected to that. In the hills such as Uttarakhand, there were landslides that impacted sentiments and some travel-related activity.

But when I look at August and September, customer confidence on domestic holidays has come back. Festival holidays, shorter breaks like the Independence Day break are fuelling the demand for domestic travel and we expect that to continue till the end of this calendar year.

On the international side, the challenges on visas continue to plague us. There are issues relating to Schengen. It takes longer to process a visa. Rejection rates continue to be high.

But despite those challenges, we have transacted with close to 16,000 passengers to Europe in the quarter that went by. Our expectation for the full year is that we will record about 25,000 passengers to Europe. So we see a fair bit of momentum still. As far as international travel is concerned, recovery in those markets is still sub 60 per cent. But if you look at our recovery as a portfolio, we are close to 70 per cent.

We have guided the market to about 70-75 per cent recovery for FY24, and I think we should be slightly higher as we end the year.

How do you view the challenges within the aviation sector such as high airfares, expensive hotel pricing?

People are now used to the higher input costs in the travel segment. We believe revenge travel as a trend is going to continue. We’ll start softening out on input costs in the next three to four quarters.

Airfares are high as they are more driven by supply side constraints. Go First is not flying, and there is a lot of negative news coming out of SpiceJet

So essentially you have Indigo and Air India and the new airline, Akasa Air, which are serving the Indian skies. Internationally it is more about airlines like Emirates, Qatar and others who are flying out of India.

But they have not bought full capacity. Most of the airlines are operating between 75 and 80 per cent of their capacity.

We believe these supply side constraints should disappear. The tailwinds on the holiday business continue to be very strong and we expect that to propel the business over the next 2-3 quarters despite the input costs remaining slightly higher.

There is popularity of BNPL (Buy Now Pay Later), especially among consumers, and you also launched the Holiday first and pay when you return scheme in 2021. How has it panned out?

India is moving from a savings to a spending economy.

Second, per capita income will move up from $2,500 to about $4,000. This is a good tick mark for our category. Third, customers are using more and more credit cards, EMI, BNPL as an option to fund their holidays. This has been triggered by the high-end phones that people are so comfortable buying using their credit cards.

This has had an effect on travel also. When we started offering this (Holiday first and pay when you return scheme) to the market, our penetration was very low.

Today, we are close to 8-9 per cent. Today, close to 9 per cent of the customers who book holidays with us use some kind of a financing option such as a credit card, EMI or a BNPL product. This used to be about 1 to 1.5 per cent (when launched). We’ve got multiple partners whom we work with trying to offer this.

Ease of getting a loan and maintaining a group’s credit score are the two underlying points that will help in terms of the exponential growth that this segment can bring about.

We believe it’s likely to happen over the next 24 months or so as more and more microfinance companies start operating. HDFC Bank talks about a 5-minute loan at an ATM. I think those are the kind of things that will propel this.

This is also a great upselling tool for us, because the customer comes to us with a budget of around Rs. 50,000 for travel. With a little bit of a cushion on credit, the customer will pick up a Rs. 100,000 trip. That is the segment we are trying to capture.

What are your core priorities for the business in terms of expanding services?

Distribution is an important lever. Currently, we are at about close to 200-plus stores. We will look to grow that network to about 15 per cent year-on-year.

Expansion will definitely be in Tier-II and –III markets whereas Tier-I markets are completely penetrated.

In the Tier-I market, our omni-channel strategy will continue to play out. We offer digital services to all our customers, be it foreign exchange, holidays or otherwise.

On the foreign exchange side, roughly about 20 per cent of our transactions are done or assisted digitally. Roughly 11 per cent of our holiday business is done digitally.

So clearly, there is a lot more room for us. This conversation is not about digital or physical. It’s about digital and physical.

I think we should have about 400-plus distribution points over the next 5 years. It's also coinciding with the government’s impetus on Ude Desh ka Aam Nagrik. They are bringing in regional connectivity. There is a lot of focus on domestic holidays coming from Tier-II and –III markets where domestic holiday is seen more in terms of visiting friends and relatives; we want to package that as a holiday programme.

Second, technology continues to be an important investment area for us — be it how customers buy products from us or the backend services that we provide.

We’ve also started to measure customers’ satisfaction score. That’s going to be extremely relevant because a lot of customers choose the brand based on how well it meets their expectations.

Last but not the least, people are an important asset for our business. While technology will play its role, at the end of the day it continues to be a high-touch business, especially businesses like foreign exchange that are compliance-driven.

Between short-haul domestic and long-haul travel, which one do you see as a growth driver in the upcoming quarter? Also, how do you see MICE performing?

MICE is the B2B part of it. I think more and more shorter-duration breaks will be driven by short-haul domestic whereas long-duration breaks, which are like vacations, will be driven by long haul.

One must keep in mind that long-haul holidays have become expensive. Getting into Europe is not a sub-Rs. 100,000 product. It’s close to about Rs. 180,000 per person or in some cases, more than Rs. 200,000.

People are currently preferring multiple breaks, like the Independence Day week. We will see a lot of short breaks including domestic or international depending on the price points. In the long run, customised holidays will drive the trend.

There are a lot of tools in the market that give you an itinerary. Even the chatbots can give you a lot of insight on the kind of itinerary. However, striking that is always challenging. And I think we are trying to solve that problem.

MICE business is the B2B side of holidays, and we have seen a reversal in trends. Earlier the MICE business used to be internationally-driven. In the last 24 months or so, we have seen a lot of demand domestically.

We've also had the advantage of doing a lot of government business. We've penetrated that market. We manage the G20 and the Khelo India programme. So I think the government business is another big area that the MICE segment is going to be investing in.