Hotel aggregators like OYO Rooms, ZO, Fab Hotels, Wudstay and Tribo are eating into the online booking space, with just-in-time (same day or a day in prior) booking, especially in the low-end hotel business
Online travel agency Makemytrip (MMT) is likely to make losses for at least another two years in order to acquire customers for its hotel business. The online travel agency (OTA) has made a conscious decision to increase its revenue from the hotel and packages business as a percentage of its total business plans to take its hotel business to 70% as a part of its overall revenue in the next couple of years.
The online booking for hotels business in India stands at 10-15% penetration of the overall internet penetration. “Our burn rate will increase every quarter. We plan to have aggressive growth by acquiring customers,” said Rajesh Magow, co-founder and CEO (India) at MMT said.
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The burn last quarter was Rs 2 crore, which was miniscule, he said. It will only grow due to heavy discounting, like it happens in the e-commerce space.
Magow expects 200-300 basis points margin dilution to achieve 75-100% growth in the hotel business. “Discounting is happening to get people from offline booking to online booking — transaction growth is not resulting into revenue growth,” said Magow.
A large part of transaction growth will be due to the increasing number of mobile phone users. MMT gets 50% of its traffic, and 45% of its bookings through mobile phones. Hotels and packages made 45% of its revenue of $94.8 million in the first quarter of FY2016.
Standalone hotel bookings for MMT increased by 78.1%, while bookings through mobile went up by 216.1%, during the same period.
Meanwhile, the airline business, which still contributes to a large part of MMT’s revenue has seen declining margins — from 7.5% to 4% in two years. After three years of profitability, MMT turned loss making in FY2013. So, it decided to focus on the hotel business as the margins are three times higher.
Since 2012, MMT, to boost its hotel business did four acquisitions and one stake buy. The acquisitions were mostly in the international market to get a share of the outbound traffic. Luxury Tours and Travels and ITC Group helps with inventory in the Singapore market. Hoteltravel.com gave MMT an international inventory of 2,05,000 hotels.
Easytobook was a technology company in the hotel space, and HolidayIQ is a TripAdvisor competitor for reviews.
As a result, international or outbound hotel booking contributes 20 percentage points to MMT’s overall hotel business. There are 25,500 hotels on MMT’s platform.
With the growth in start-ups in the hotel business, experts said that it might be a threat to MMT’s hotel going forward. Hotel aggregators like OYO Rooms, ZO, Fab Hotels, Wudstay and Tribo are eating into the online booking space, with just-in-time (same day or a day in prior) booking, especially in the low-end hotel business. However, Magow said the real competition is from OTAs like GoIbibo, Yatra.com and Cleartrip, as most of the start-ups supply the inventory to the larger OTAs.
Magow said that there are a lot of hotels in the tier-II and tier-III market that are not yet online. These are hotels where booking either happens over the phone or as a customer walks in. “The number of hotels are much more. A lot of the walk-in market is being converted to be bookable online,” he said.
However, MMT is not the only company that is looking at expanding its hotel business. The market is quite competitive. GoIbibo, Yatra and Cleartip are also offering heavy discount to undercut each other to gain market share. The trick of the trade is in getting the maximum number of hotels on the platform and offer the best prices.
But it comes at a cost. MMT reported loss of $6.93 million in the first quarter of FY2016, compared to $3.96 million, last year.