Thomas Cook India (TCIL), an 115-year old affiliate of the $16 billion Thomas Cook group "" the world's first travel agency "" is India's largest foreign exchange retailer. TCIL operates through 27 locations in 12 cities. It is also a major player in the traveller's cheques market, with about 40 per cent of the market.
In addition to forex and travellers cheques, travel management and leisure travel are major sources of income for TCIL. The leisure travel segment, estimated to be growing at about 20 per cent, is the company's focus at present. And for this, it has tied up with Cosmos Tourama of UK, a well-known name in budget tours.
Coming back to the money changing and forex business, SBI is a major competitor here, while Amex and Citibank pose threat in travellers cheques. Recently, there have been market rumours that Thomas Cook and SBI are planning to join hands and form a 50:50 joint venture company for tourism infrastructure development. The idea is to have a Rs 50 crore company, and thus investors and market watchers believe that TCIL will have to churn out Rs 25 crore from its side. This obviously has been a disturbing point to several investors.
However, company sources have said that though both the parties are game to the concept and the idea has been discussed on the boards, the implementation of this idea has been put off for some time. That's because both the companies are waiting for the government to take some specific step in infrastructure development before jumping into the fray.
More important, the money required need not come only from TCIL and SBI. Attempts may also be made to rope in foreign financial institutions, and the UK parent may also chip in something. But the opportune time is awaited.
Meanwhile, the tie-up with Club Med has proved quite successful for TCIL, which is the sole agent marketing Club Med's products in India. Last year, TCIL organised trips for about 2,000 people, and this year, they are looking at a 100 per cent increase in that figure.Taking on from here, TCIL executive director, Jayram D Ketkar, spoke to R P Jairam on how TCIL's business structure stands to-day, and what he expects a few years later.
Q: Your share in the money changing and forex markets have fallen...
A: Though our market share may have fallen, at the same time, the volume of our market is increasing. Against earlier, our percentage share of the market may be lesser, but in real, rather nominal terms, we are also growing. But it is really difficult to estimate the exact size of the market, as there is no data available with anyone. However, we have estimated that in wholesale segment, we have a share of more than 60 per cent. In case of retail, we have 20-25 per cent of the market. Now, earlier, this retail share could have been 50 per cent.
But with liberalisation, there are supposedly more than 500 licenses that have been issued for this business. But if you look carefully, there are only 20-25 players who have taken this business seriously as their core business.
Q: Whom do you consider your main competitors?
A: In forex you could count LKP, Tradewings, Amex, Wall Street, R R Sen, R N Dutt. But then that's it. Out of the 500 licenses, I can name only 10 or 15 players. So, quite a few players are just there trying to make some money without understanding what the business is all about. That is why, as the market is growing, we are growing nominally, I think. As to the space for players, if all players start doing this business seriously, the competition will become cut-throat. But today, the tendency is: if the license is available, why not take it and keep it? I know quite a few people who don't even know how to start the business, what the risks are and what Fera regulations are.
Q: So what will the final structure of this market look like?
A: I look at it much like leasing companies. There were so many of them some time back, but now, only a few are surviving. Several of those players decided that this is not the place we should be in, and so they're not there now. Similarly, those who have money changing and forex as their core business today will continue, and those who are doing it as add add-ons will have to move out in the future.
Q: What are your margins in this business, and how have they moved over the last few years?
A: With competition, it is true margins are under pressure. But interestingly, over the last three years, if you look at the rupee-dollar parity, the rupee has also depreciated. In view of that, we normally look at the slightly wider coverage. At present, our retail:wholesale ratio in this business is nearly 50:50. Though it is difficult to quantify margins, we have found that in the retail market, our margins vary between 1.5 per cent to 2.5 per cent. And in wholesale, our margins are 0.8-1.2 per cent. Again that depends on the product-mix, the dollar rate, European currency and a whole load of such factors.
Q: So, will you look more at retail to better your overall margin?
A: We had carried out a study by Arthur D Little, and one of the suggestions there was to display getaway locations at the airports to attract retail business. That we have more or less covered, and wherever we have international flights coming in, we'll continue going there. We already have counters at the Mumbai, Delhi, Madras, Trivandrum and the Calcutta airports. And the next one could be Bangalore, if an international flights come there. This means that any foreigner or any traveller coming in knows that Thomas Cook is here. And with many players, he will probably go to a known name for his requirement.
The second thing we are looking at is increasing our network. If you look at the total market, 75 per cent of the market today exists in major 10-15 cities. We have 27 representations (locations) in all these important centres. But even if we increase our presence here, say we have four-five outlets more in Mumbai, we think it will help us increase retail business. So, that is our strategy now. No one, for the moment, knows what will happen when the rupee becomes convertible. At that time, maybe the market volume will go up, and we may need to increase the number of locations.
Q: Cutting across to travel, what is the status of corporate travel management? Has it picked up?
A: Not really. The only change that has happened is that we now have CRS. Also, corporates know better about what we are doing. We have certain big corporates where we could place terminals in their office. So they can look at what are the prices and combinations available. Ticketing can then be done. So we are actually managing their travel budget rather than just being a travel agent. We can also implant people there, if the volumes generated from that corporate require so.
The margins here vary between seven and nine per cent. Officially, we get nine per cent on international tickets and five to six per cent in domestic. No doubt, we also get productivity-linked bonus, which depends on the volume of the business given to the airline, seasonality, sector and a number of other factors. Sometimes, we pass it on to the corporate, sometimes it is retained. So, it's more of a case-to-case basis.
Q: Of every rupee Thomas Cook earns today, nearly 70 per cent is from forex, and about 20 from travel management. Are we going to see a bigger share for travel?
A: Our focus is going to be on forex, travel management, in-bound leisure travel and in out-bound domestic travel. Our aim is to at least try and maintain our share in forex. But we see tremendous scope in leisure travel "" both in-bound and out-bound international travel. The study by Arthur D Little also showed that there is a tremendous tendency among people today to go on holidays. So that is predominantly where we are looking at now.
It could happen that by the turn of the century, the product-mix could look more like 50 per cent in forex and 25 per cent each in corporate and leisure travel.
Q: Your half-yearly profits as on June '96 have nearly doubled over the last year's figure...
A: If you look at the seasonality of the business, it is concentrated between November and March. Our year-end is December. Now, January-June in 1996 were good. But in the same period in 1995, there was a fear of plague, which really pushed business down. Even if it were a normal year however, we would have seen a 35 per cent growth in profits as on June '96 over June '95, but due to the abnormal conditions, it is about 99 per cent now. Again, in 1995 end, if you remember, the rupee became quite volatile, and that's where we really saw substantially better earnings.
Q: In the money changing business, do you plans to team up with SBI?
A: Yes. We have already been looking at that for the last year or so. The Thomas Cook group was owned by the Midland Bank. So, in many of Midland Bank's branches, Thomas Cook was operating its retail foreign exchange business earlier. With State Bank too, which has a 15 per cent stake in Thomas Cook ever since we started, we plan something on the similar lines. We'll have Thomas Cook counters in SBI, and everything will be done under our name only.
But too many approvals are still required, though both Thomas Cook and SBI are mutually agreeable to such a concept. Something should definitely take shape this year. We have already come to an understanding that we can operate together. But in India, till everything is actually has been signed and approved, you can never say yes.
However, the advantages we are looking at is: SBI may have about 400-600 branches where they have the forex business. Even if we can get counters at about 20 per cent of these branches, we are looking at an additional 80 locations straight-away. That's a major reach.
Q: If this tie-up with SBI works out, what kind of a profit-sharing ratio would you prefer? 50:50, maybe?
A: The issue of approvals and profit-sharing are all under consideration. I cannot give you the profit share figures now. Because that will depend on several factors like amount of retail business, traveller cheque sales, currency sales etc. So, one can't just say 50:50. What I can say is that it will depend on the volumes generated.
Also, this is not going to be a short-term relationship that will end soon. And if you really look at it, money changing is not really a core business for SBI, it is only an add-on, more like a service to their customer. I'm sure they'll be looking at it that way. So, a small percentage shift in profit-sharing is not going to make too much of a difference to them.
Consider that in a branch, officials are spending, maybe, 20 minutes for release of foreign exchange to their corporate customers. If this time is spent instead for helping a customer open an LC, we can use the 20 minutes for two transactions. Let SBI do its core business, we'll supplement them with our core business. That's the basic idea.
