Online travel agencies boast of high growth; outlook optimistic for 2010 too

Online travel agencies boast of high growth; outlook optimistic for 2010 too

Author | Robin Thomas | Wednesday, Oct 28,2009 8:18 AM

Online travel agencies boast of high growth; outlook optimistic for 2010 too

The growth of broadband and mobile Internet in India speculated a doom for travel agents, however, with several offline agencies now going online, the online travel industry is set for growth. Though this nascent industry’s market share stands at less than 3 per cent at present, it is expected to see double digit growth in two years’ time.

When it comes to individual performance, every agency has boasted of high growth. For instance, claims to have grown by around 88 per cent over the last fiscal, which is said to be 15-20 per cent higher than the industry growth. Cleartrip, too, is eyeing 60-70 per cent growth in 2010-11 as against 2009.

While the US is said to be the largest online travel market in the world, India is catching up with an estimated 40 per cent of the airline tickets being sold online. This apart, many of these online travel agencies (OTAs) are also seeing a significant increase in hotel bookings and train tickets as well. This is despite the broadband penetration in the country.

exchange4media takes an in-depth look at this rapidly growing industry and speaks with industry players to find out the key growth trends, challenges and the tremendous opportunities ahead.

Where they stand
Deep Kalra, Founder & CEO,, pointed out, “While the US market is clearly the largest online travel market in the world, the ‘offline to online shift’ has been the fastest ever in the Indian market, with over 40 per cent of all air tickets being bought online in under three years. From $295 million in 2005, the market for online travel bookings is estimated to grow to $6 billion by 2010 and OTAs are expected to corner around 23 per cent share of the total travel market. The focus for most players is on profitability. Discretionary travel has of course been impacted by the economic slowdown. We’ve seen that people are now taking shorter vacations and in destinations closer to the country. There is also a marked reduction in long-haul destinations, especially towards Europe and the Americas.”

Ashwin Damera, CEO and Co-founder,, noted, “Travel portals are still less than 2-3 per cent of all travel transactions in India. The industry, therefore, is still at a very nascent stage. We will have a better assessment only in the next 2-3 years when the industry has a double digit share of bookings. However, we should see strong transaction growth in the years to come. Online travel is the fastest growing category in the e-commerce segment. Customers are realising the benefits of using online travel portals to book their hotels through online travel portals as it is easy and saves them time. Features like maps (locate the hotels on the map), hotels reviews (read customers feedback of the hotel before they book), amenities, video tour, etc. and also offer great deals/ offers, special credit card promotions and so on.”

According to Noel Swain, VP – Marketing, Cleartrip, “There have been a tremendous amount of adoption of booking travel online over the past three years, and it has become more significant over the past two years, especially by low cost carriers, which started using online as their key distribution networks. We’ve been around three years now and we have grown from booking few customers a month to now booking over 7,000 tickets per day. We have also seen continuous adoption month on month over the past three years, where customers use online channels to not only book airline tickets, but also graduating to other products like that of international and domestic hotels and, most recently, railways.”

Battling the economic slowdown
MakeMyTrip’s Kalra explained, “By the second half of 2008, as demand from international tourists and corporate dried up, most players were facing a downturn – including suppliers (airlines and hotels) and also a lot of intermediaries. The online travel industry was fortunate as it gained market share from the offline players. MakeMyTrip grew over 100 per cent (from 2007 for the first eight months in 2008) and registered over 80 per cent growth in the September-December 2008 period, thus averaging a 90 per cent y-o-y growth.”

“The phenomenal growth is noteworthy as industry has shrunk over the last few months and most of it has come from the fact that more customers are turning online in search of good deals, and within the online space, the competition is becoming less fierce as some players are finding it harder to keep throwing advertising money to buy revenues. Since technology is our backbone, the operating costs for OTAs lend themselves to fewer wastages or components that can drive savings. So, the success of OTAs would be largely dependent on increasing margins from existing products and non-air revenues going up,” he added.

According to Damera of, “The travel industry did get affected by the slowdown, with customers hesitating to spend on their holidays. Travelguru and the hotels came out with great offers this year, like 25 per cent cashback on hotels. We had the magic holiday initiative earlier in the year, wherein customers got the third night free on booking two nights. Currently, there is a similar offer for hotels in Goa. This indirectly led to increased bookings.”

The trends to watch out for
For Kalra, the focus area would be to drive bundled and accommodation products online as well as increase contribution from retail channel. He said, “We are looking towards launching online car rentals and airport transfers soon. It is a natural attach to our various other products, such as air and holiday products. We are also offering bundled products like flights-plus-hotels to incentivise booking for nascent categories like hotels. I see online hotel buying as the big high for OTAs as also new products like buses and railways moving online. Also, for MakeMyTrip, retail is a priority. With our 20 branches, we believe that packages will sell via retail and call centres.”

He further said, “Domestic travel bookings on MakeMyTrip have seen a growth of 127 per cent in FY08. During the current year, we expect strong growth to continue at over 100 per cent. Domestic tourism is a key thrust area as well as packages to SE Asia and Europe. The big growth, however, will occur in the outbound travel segment – more Indians now prefer to travel overseas and with domestic airfares rationalised after the zero-rupee ticket days, we expect domestic travellers to convert into international holidays. Also, we intend to continue our dominance of the OTA market by continuing to grow strongly in the air, hotel and packages business. The share of the hotels and packages revenue mix is much healthier. With our non-air business picking up significantly, we are on track towards our targets.”

Damera, too, is expecting a healthy growth next year. He noted, “We have seen the economy pick up and consumer confidence growing. This has led consumers to start spending on a holidays. In general, the mood is upbeat and we will see growth in hotel bookings next year too. There is increasing focus on profitability and non-air products. Some people are experimenting with trains, buses, etc. Also, the role of Web 2.0 media is being felt and we have to give more importance to the Twitters and facebooks of the world.”

Cleartrip’s Swain observed, “Customers are graduating from buying purely air tickets to other products online as well, and this is one trend that will continue to grow. We will also see new products making a mark, specifically products like domestic hotels and international flights and domestic rails, too, which I believe have tremendous potential.”

One of the challenges, according to industry players, is getting more Indians to buy their traveling accommodation needs and bundled products online. This apart, another big challenge, as the industry sees it, is to make flight-based OTAs more profitable, especially if airline commissions change and Internet penetration in India goes up. And while the online travel agencies are still at a nascent stage in India, industry honchos are very optimistic on the road ahead, particularly as Internet penetration increases.

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