In-House Inc.

Corporate travel accounts for a major portion of the travel agency business and industry sources claim this segment is growing at more than 20 per cent annually. Travel budgets among the large business houses are often more than Rs 5 crore.

Prospects like this have encouraged some corporates to diversify into the travel business. The numbers are still small but the motive is clear. This business brings fast and easy profits with minimum of infrastructure, says Deepak Mathur, manager, Balmer Lawrie, Calcutta division, one of the oldest companies in the business.

Public sector Balmer Lawries travel division is fairly typical. The division initially functioned as an in-house agency and developed into a profitcentre over the years. Other than Calcutta, the travel division has five branches at Delhi, Banglore, Hyderabad, Chennai and Mumbai with plans of opening more branches at Ranchi and Bhubaneshwar. The yearly turnover of the company on all-India basis is roughly Rs 100 crore, which accounts for around 10 per cent of the companys profits.

 

Crucially, however, Balmer Lawrie did not restrict itself to the in-house business but developed as a separate profit centre. The company currently has the travel accounts of SAIL, Andrew Yule and Shipping Corporation.

Profits alone, however, are not the only reason corporates diversify into travel. There are less flattering reasons too. S Ramchandran, chief executive, Futura Travels, an Essar group company says, The unprofessional approach of the travel agencies was the only reason Essar set up its own in-house travel agency.

He adds, Though Futura is a separate profit-making company, it would have to look at outside clients in future. The company has not yet decided when to enter the business in a big way.

Similar reasons were given for setting up Viking Travels, a Rs 12-crore Ashok Birla company (now a Yashovardhan Birla group company). Sudha Trivedi, general manager, administration, says, In the seventies, the expanding Ashok Birla group realised that activities such as procuring visas, tickets, making travel plans especially last-minute plans, were not being catered by the industry according to their satisfaction and needs. By investing in this venture, the group could get flexibility as well as control over the means to their ends.

Unlike the Essar company, Viking has not restricted itself to in-house business. Viking is just not a service-providing unit of the Ashok Birla group but also a profit centre catering to other clients, adds Trivedi. Considering it has been around for 20 years, its business is still fairly small.

Petrochemical major Reliance made the same decision for the same reason. Reliance Transport & Travels, a Rs 5-crore company was set up in 1986 to cater to the needs of the Reliance group. S Krishnan, manager, domestic, says, The reason for the Reliance group to enter this segment was not to cut its travel expenditure but to overcome the unsatisfactory and limited services provided by the travel agency industry. Agents cannot cope with the needs of this multidimensional group; where travel plans just crop up any minute, it will be fatal to rely on a third party.

Krishnan claims that the needs of the group are so huge that since incorporation the company has been catering to in-house clients and has no plans to look beyond them.

But synergies do help too. For instance, the Rs 1 billion Travel House a group of four companies is a member of the ITC group and has a fit with the groups hotel business. So does Delhi-based Mercury Travel, an associate of the Oberoi group,. The group has a major presence in hotel and related activities and travel agency business is a logical extension.

Not everyone in the industry agrees on the wisdom of diversifying into the travel business. The travel business is a glamorous business to be in, but in-house business is not enough to support it, says Madan Nayar, vice president-northern region, Sita Travels.

Adds Ramchandran says, For this type of activity a sizeable amount of funds is required which could be only possible with big corporates like Essar.

But competition should not be much of a problem. If the government is able to put together a coherent tourism policy, many more people will be travelling in India. Meanwhile it is wait and watch situation. We are actually waiting for the industry to get more professional before we take a plunge, says Ramchandran.

By Vinay Pandey

(Additional reporting by Papiya Pal and Vikram Bhat)