India’s online travel market on an upward trajectory

India’s online travel (OTA) sector is growing at an annual rate of 16 per cent, with foreign players flocking to the market and existing majors bolstering their technological capabilities to boost local business as well as expand into international markets

September 28, 2018

The Indian tour and travel market has been targeted by several other global companies, including Expedia (USA), Agoda (Singapore), Airbnb (USA), Trivago (Germany), TripAdvisor (USA), among others

The online travel market in India, led by flight and hotel aggregators, is expected to touch US$13.6 billion by 2021, accounting for almost 43 per cent of the total travel category in the country, as per Praxis Global

The overall travel market is projected to grow at 11-11.5 per cent to US$48 billion US by 2020, with the biggest contributor from among the offerings -- air travel -- expected to grow at 15 per cent to US$30 billion

As competition hots up and players race to handhold a traveller across their journey from planning to buying and booking, large firms such as Google, Amazon, Alibaba, Facebook and Microsoft are eyeing this space

In May 2018, TUI Group, an Anglo-German travel and tourism company, changed their business strategy in India to become a digital travel services provider. Today, TUI’s online travel platform in India offers flight and hotel bookings to compete with local market leaders such as MakeMyTrip and Yatra.com, Cleartrip and Japan’s SoftBank Group-backed online hospitality company, OYO Rooms. Such has been the growth momentum in the Indian tour and travel industry that seven-year-old OYO Rooms, an aggregator of budget accommodation, has already amassed a valuation of US$5 billion after receiving a fresh round of funding in September 2018.

 

Meanwhile, TUI has stated that their business has now been realigned to reflect India’s expanding Internet usage and “significant growth in online travel bookings”. The Hanover-based company further said that the year-on-year growth in this market has been triggered by the growing affluence of a sizable population. Similarly, Amsterdam based Booking.com, an online tour and travel company, in India since 2012, is targeting the market to make it one of its top five. Booking.com, which offers hotel, homestays, car rentals, restaurant reservations and airport taxi facilities along with travel booking, has listed over 47,750 properties in India.

 

Fast-paced growth attracting players

 

The Indian tour and travel market has been targeted by several other global companies, including Expedia (USA), Agoda (Singapore), Airbnb (USA), Trivago (Germany), TripAdvisor (USA), among others. These players are logging onto India with promises of fast-paced growth. The online travel market in India, led by flight and hotel aggregators, is expected to touch US$13.6 billion by 2021, accounting for almost 43 per cent of the total travel category in the country, according to a report by consulting firm Praxis Global. India’s online travel market stood at US$5.7 billion in 2015. The report pegged the growth rate at 16 per cent over 2015-2021.

 

Online Travel Agencies (OTAs) have become popular because they offer a combination of travel, accommodation and transportation deals, including airport transfers and holiday packages with attractive discounts thrown in for price conscious Indian customers. Meanwhile, boosted by travel-hungry millennials, the travel market in India is growing leaps and bounds. According to a 2017 report by Boston Consulting Group (BCG) and Google, the travel market is projected to grow at 11-11.5 per cent to US$48 billion US by 2020, with the biggest contributor from among the offerings — air travel — expected to grow at 15 per cent to US$30 billion.

 

Hotels, meanwhile, will grow at 13 per cent to US$13 billion by 2020, and railways will remain US$5 billion. The OTAs essentially serve as an intermediary between the user and travel booking websites and earn a commission on each booking made. The typical, average fee charged as a percentage of the ticket value is 4-7 per cent for flights, 8-10 per cent for hotels and 5-10 per cent for cabs and buses. The other part of revenue, which is lower than transactional revenue, comes from selling ad space on its website and apps. The platforms have also started offering various integrated packages, along with flexible pay options to attract customers.

 

Strategic deals to drive sector growth

 

Market leader MakeMyTrip, an 18-year old Indian company with offices in New York and San Francisco, holds a 45 per cent share of the Indian OTA space. In 2016, they created a ripple in the market, when they merged with their rival, the Tencent (China) and Naspers (South Africa) backed Ibibo Group, raising the value of their combined entity to US$2.2 billion. Touted to be the biggest acquisition in India’s online tour and travel space, this merger also brought a bouquet of prominent consumer travel brands, including Goibibo, redBus, ride share app Ryde, accommodation platform Gostays and alternate homestay Rightstay under one umbrella.

 

As competition hots up and stakeholders race to handhold a traveller across their journey from planning to buying and booking, large conglomerates such as Google, Amazon, Alibaba, Facebook and Microsoft too are eyeing this space

 

In the past two years, the OTA market has been witnessing a lot of activity in form of consolidations and transformation in business models. In 2016, Yatra Online merged with USA-based Terrapin 3 Acquisition Corporation (TRTL). Simultaneously, AirBnB expedited its expansion in the Indian subcontinent with the launch of its new platform Trips. This will give customers a chance to book specially curated local experiences, a value adition for the home stay aggregator.

 

In March 2017, a significant player entered the OTA space. China’s Alibaba-backed digital wallet firm Paytm tied up with Booking.com to facilitate bookings on their platform. Through this move, Paytm signalled its interest in this booming market. IT services firm Amadeus in a report ‘Online Travel 2020 — Evolve Expand or Expire’ noted that metasearch players such as TripAdvisor were edging into transactions, while OTAs seemed to be getting into planning. For example, MakeMyTrip picked up an 18 per cent stake in travel planning venture Inspirock and a 28 per cent stake in travel information and hotel review portal HolidayIQ to expand their offerings.

 

Investments to boost technology

 

The OTA sector has always attracted investors. In fact, in 2017, Indian online travel startups had received a total of US$ 796 million in fresh investor funds. India’s ixigo, similar to Trivago and UK’s Skyscanner, aggregates information from different platforms such as online travel agencies, flight operators, hotel chains and offline tour operators. It compares prices for the same flight or the hotel room from different portals and redirects the user to book directly from the travel provider’s webpage. This model has drawn particularly strong interest from customers in India.

 

Last year, ixigo raised US$15 million in a funding round by Sequoia capital. Meanwhile, Fosun RZ Capital, the investment arm of Chinese investment conglomerate Fosun Group and Handset maker Micromax too have invested an undisclosed amount in the venture. The funds were to be largely used on product and tech enhancement and market growth. Most of the OTAs are currently investing in boosting their technological backbone to improve customer experiences. In line with this, Makemytrip picked up 25 per cent stake in travel tech startup Simplotel Technologies.

 

In February 2018, TravelTriangle, an aggregator of travel agents had raised US$10 million in a funding round led by Singapore based RB Investments. The funding round also saw the participation of existing investors such as China’s SAIF Partners and USA’s Bessemer Venture Partners. Amid strong funding, innovative startups are emergingin the online travel space. For example, there is SeekSherpa, a mobile platform that connects travellers to locals (sherpas) at a given place. Tripoto, a social travel platform which provides holiday packages and hotel booking through partners and acts as a platform where travellers can connect and contribute content.

 

As competition hots up and stakeholders race to handhold a traveller across their journey from planning to buying and booking, large conglomerates such as Google, Amazon, Alibaba, Facebook and Microsoft too are eyeing this space. With average travel per person increasing daily, this sector promises to be robust and active in the years to come.

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