The travel diaries

Updated: Jun 30 2009, 07:14am hrs
The online travel market surpassed US$ 2 billion (Rs 8,000 crore) by 2008an almost seven-fold increase from the US$ 300 million market in 2005. This is expected to grow to US$ 6 billion (Rs 24,000 crore) by 2010. This unprecedented growth has been made possible by a new generation of urban Indians researching and booking travel on the internet and the partnership between the low-cost carriers (LCCs) and the online travel agencies. LCCs account for close to 40% of Indias domestic travel market. In addition to Air Deccan (now Kingfisher Red Airlines), which has been the pioneer, and Jet Lite (earlier Air Sahara), the opening of the sector has seen the emergence of six new airlines (Go Air, Spice Jet, Paramount Airways, Indigo, Indus Air and MDLR). These LCCs offer short-haul, point-to-point services on a no-frills basis. Most of them have single seating arrangements (all economy, no business or first), their fleet consists of a single aircraft model, and they do not pamper their clients with fancy cuisine. Their objective has been to reduce their cost by 35% to 40% as compared to legacy carriers.

With reduced operational costs, high passenger loads and low staffing, LCCs have aimed to break even within two to three years of their operation. On account of their emphasis on cost-optimisation, these carriers have vigorously embraced the internet and made online travel agencies their logical partners.

Several demand and supply side factors propel this growth. On the demand side, Indias sustained economic growth has resulted in an expanding middle class and a cultural disposition attuned to travel. On the supply side, travel-supplier partnerships with the banking industry have promoted online payment; the information technology sector has allowed homegrown online solutions; the immense growth of online bookings of Indian railways and now the low-cost carriers have acted as a catalyst and the influx of venture capital in the online travel agency sector has given it greater momentum.

One of the biggest contributory factors has been Indias leadership in information technology and business process outsourcing. This has enabled online travel agencies and LCCs to host solutions, build technology platforms and customer service capabilities and provide secure booking engines. Another critical factor has been the huge opportunity available in the internet space, where permission from government agencies is not required. This has led to young entrepreneurs raising resources from venture funds and launching operations.

For instance, Makemytrip.com, has had three rounds of funding amounting to almost US$39 million from Tiger Fund, Gabriel Venture Partners, Sierra Ventures etc. Clear Trip.com has recently received its third round of funding, bringing the total investment to US$30.2 million from venture funds such as Draper Fisher Jurvetson, Sherpalo Ventures, Kleiner Perkins, Caufield & Byers (KPCB) and Gund Investment. Travel Guru has raised a seed investment of US$ 25 million from Battery Ventures and Sequoia Capital India. Other leading players are Travel. Indiatimes.com backed by Bennett and Coleman, Ezeegol.com driven by Cox and Kings and Travelocity India with Sabre as the key investor. These travel portals are aiming for profitability in 2010 with an initial public offering in the next two years.

The trend was earlier set by the Indian Railways, which runs the countrys largest e-commerce platform. It sells Rs 1,700 crore worth of online tickets per year and almost 78,000 tickets on a daily basis every day. Its online sales are growing at over 200% on a year-to-year basis. The railways have tied up with petrol pumps and Sifys cyber cafe to make online railways ticketing services available across their networks. The use of technology by the Indian Railways has been responsible for radically reducing queues at railway stations.

The Indian online market is likely to expand to US$ 6 billion by 2010. Its potential can be gauged from the fact that the US-based Expedia, the worlds largest online travel company, recorded transactions worth US$ 19.6 billion in 2007, earning US$ 2.67 billion in revenues and US$ 296 million in net profit. As Expedia and Travelocity set up shop in India , the market is likely to explode.

At present, the OTAs business model relies heavily on air bookings. This is similar to matured markets like the UK and the US, with their high online penetration and competition between airlines. It is quite unlike other APAC markets, where a duopoly of airlines exists and the intermediaries have largely been hotel consolidators. The classic examples are those of Mytrip.net in Japan, Ctrip in China and Wotif.com in Australia. A recent study by PhoCus Wright has termed India as the most dynamic APAC aviation market in terms of consumer choice. For example, the Indian traveler has options among eight airlines on high traffic routes like Mumbai-Delhi. The tendency towards price wars in markets with multiple competitive routes provides a major opening for online travel agencies to add value. The lack of a competitive air offering in more sophisticated markets such as Australia, Japan and Korea has prevented online travel agencies from achieving traction.

This is, however, likely to undergo a radical change as air booking margins and commissions get squeezed. The next major opportunity will be for consolidation in the lodging industry and enhancing yield management by booking hotel rooms online. Travel Guru, which markets itself as hotel ka guru, has tied up with more than 4,000 hotels across the country with an inventory of over 2,000 rooms. It is today booking over 1,000 rooms a day.

This dynamic growth in the Indian travel and tourism industry has to be viewed in the background of various innovative trends. The PhoCusWright study has projected the idea that online channels would continue to outpace the total travel market growth and online penetration would surpass 23% in the total travel market by 2010. The supplier direct channel would dominate the online distribution with a market share of 65% in 2008, while online travel agencies would have increased their share to 25% from the present level of 7%. This growth would be at the expense of the traditional travel agencies, whose share would declined from 32% in 2005 to a mere 10% in 2008. According to the report, traditional agencies would neither have the scale and financing, nor the brand equity and knowhow to compete with the venture fund backed startups and subsidiaries of multi-billion dollar international conglomerates.

Now let me turn to the role played by information technology in promoting and marketing India. The ministry of tourisms outlays for information technology were being utilised as Central Financial Assistance to assist state tourism departments in computerising and procuring hardware. Most states prepared project reports for installing Hark systems and kiosks. These were never updated and upgraded and in most states, the equipment lay collecting dust. In many ways, this was a classic case of poor utilisation of assistance provided by the central government.

In 2002, with the launch of the Incredible India campaign, this radically changed. Since then, outlays for information technology have been utilised for branding, positioning and marketing India as a destination of choice on the worldwide web.

Reprinted with permission from Collins Business

Book: Branding India:

An Incredible Story

Author: Amitabh Kant

Price: Rs 499