Internet jetting
August 13 and August 23 will go down as important dates in Indian air ticketing industry. Both dates saw Air Deccan, India’s biggest discount airline and among the top three carriers in the country, releasing nearly half a million tickets for the September-January period. The rush to lap up these inexpensive tickets ended in confusion not only on the airline’s online counter but also on the country’s leading air ticket portals. Most websites hung and phone lines were jammed for over an hour.
The good news coming out from the chaos was the soaring online demand for airline tickets driven by customers hunting for bargains on low-cost carriers: a growing market online travel portals such as MakeMyTrip, Yatra, TravelGuru, ClearTrip, the travel section of IndiaTimes portal and a host of newcomers waiting in the wings are keen to acquire. India has about 70 million Internet users, according to software trade body Nasscom, and this is slated to cross 100 million by 2010.
Industry insiders say the travel portals have penetrated just 5% of the Indian market. “About 20% of airline bookings are done online. 15% would be directly through the websites and 5% through via travel portals,” says Ankhur Bhatia, managing director of New Delhi-based Amadeus India. Others like Kuoni India’s chairman and CEO Zubin Karkaria predict exploding growth in the coming years. Says he: “With the massive impact the growth in low cost air travel is having on travel e-commerce in India , the estimated average number of online travel transactions has increased nearly fourfold, from 207,000 a month in 2003-04 to 795,000 in 2005-06. With internet usage growing at 50% per year, and e-commerce projected to double by 2007, the opportunities are huge.”
According to Deep Kalra, founder and CEO of MakeMyTrip, the first-mover and market leader among fledgling online ticket-sellers, the total online travel market size in India will top $368 million this year. “Next year,” he says, “the total online market is expected to touch $523 million, with online travel increasing their share to 24% and air-ticket penetration touching 23%.” The company’s revenue target for this financial year is $120 million, more than 2.5-times last year’s $45 million. “In April, May, June we have already earned $20 million,” says an ambitious Kalra, who counts Softbank and News Corp among his backers. Yatra Online, funded by TV18, Reliance and Norwest Ventures, is eyeing the domestic sector as well. “Our focus is on domestic tourists that number about 400 million,” says Dhruv Shringi, founder of Yatra, “States like Andhra Pradesh and Tamil Nadu are promoting Internet kiosks, which is good for us.”
The domestic market may be tiny but players expect it emulate more mature markets like the US and Europe. Online travel bookings in the US constitute about 55% of total tickets sold (domestic 80%) and in Europe about 35%. Travel services provider Abacus International predicts the online travel market in Asia Pacific will grow to $16 billion by end 2006 and 29% of the bookings is expected to be done online.
Given that the margins in the online ticketing business are very slim, players are looking to provide holiday packages as well. Industry insiders say they will be lucky to make 5% profits from online ticket vending, much lower than the 8%-10% margins ticketing agents make when they sell offline. According to G R Gopinath, managing director of Deccan Aviation, which runs the Air Deccan airline, tickets sold on the travel portals are just 0.5%-1% more expensive than sold on his company’s website.
But the online ticket portals hope they will make money as they grow and help travellers with their hotel and resort bookings, which typically deliver margins up to 20%. TravelGuru, for instance, is backed Sequoia Capital which has also backed Royal Orchid Hotels in India. “So, we obviously have preferential inventory in their hotels,” says TravelGuru founder and CEO Ashwin Damera. Travelguru is on course to touch gross revenues of $40 million in 2006-07.
Waiting in the wings to jump into the growing market are newcomers like ClearTrip and EzeeGo1. ClearTrip, funded by venture funds Kleiner, Perkins, Caufield & Byers and Sherpalo, has a beta site up and is testing the market. The portal is targeting 400,000 transactions in the next 12 months, says a senior company executive, who wished to remain anonymous and declined revenue projections. EzeeGo1 is reportedly looking at a business-to-business model, as different from the business-to-consumer approach of all others, and aims for $20 million revenues in the next three years.
As more and more online customers log on for their tickets, online travel portals could reach their ambitious goals. New Delhi resident Payal Saxena, who until recently booked train tickets online with Indian Railways, now uses the MakeMyTrip and Air Deccan websites for her air ticket purchases. “My family went on an all India trip and we spent Rs 50,000 on an India-wide trip through MakeMyTrip,” she says. Online travel portals and their backers hope many more millions of Saxenas will buy tickets online in the years to come.