It could take more than that or the use of new delivery mechanisms for online portal companies to turn profitable. For one, it could take time. Deep Kalra, the chief executive officer of Makemytrip.com Pvt. Ltd, says, “It takes around two-and-half to three years for a start-up to reach the break-even mark.” He adds his company will get there “by the end of the year.” Makemytrip.com Pvt. Ltd was one of the earliest online-travel firms in India and launched its outbound travel operations in 2000. It claims that the business broke even by 2003. The company launched its domestic operations in October 2005, and expects this to break even within the next two quarters before the year end.
The portal’s top-line or gross billing from sales was Rs550 crore for the year ended March. It expects this number to increase to Rs1,100-1,200 crore by March 2008. Its income, largely from commission from airlines and hotels, was $10 million for the year ended March. The company expects this to increase to $25 million by March 2008. On Monday, Makemytrip.com announced that it, too, would be offering customers an opportunity to book tickets and travel packages over their mobile phones.
The emergence of low-cost airlines—at last count there were four low-cost airlines and five full-service ones operating in India, up from a total of seven in 2005—has helped travel portals, but the head of one says that companies need to look beyond air tickets if they wished to break even.
Cleartrip Travel Services Pvt. launched its site in July 2006 and expects to break even in the next 12 months. According to the company, 60-70% of its revenue comes from booking (air) tickets; the rest, from selling hotel bookings and holiday packages. Cleartrip says that it is focusing on looking beyond high-volume and low-commision air tickets, at lucrative car rentals, hotel bookings, and cruise and holiday packages. “The best way to break even quickly is to focus on higher margin products such as hotels and packages. One needs to get into high-margin areas and we are beginning to make that shift now,” says Sandeep Murthy, chief executive officer of Cleartrip Travel Services Pvt. The company’s gross sales per day stand at Rs1.5 crore. By July this year, the company aims to complete 5,00,000 transactions on its Website. By March 2008, it is targeting 1.2 million transactions.
High-margin business
Most online travel portals currently make money from commissions they earn for the services they provide. On an average, commission from air tickets which account for the bulk of the business are the lowest and range from between 2% and 9%. For hotel bookings, the commission is much higher and varies between 8% and 25%, again, depending on whether the customer is travelling during the peak-season or otherwise. For holiday packages, the rate varies between 10% and 20%.
Hotels and holiday packages figure prominently in the strategy of Travelguru.com, which launched its portal in 2005. The company says that its operations would break-even in the next six-nine months and that its monthly revenue is around $10-$13 million. “We will touch the break-even mark when our revenues reach $20 million in the next six-nine months,” says Ashwin Damera, chief executive officer at Travel Guru. “Though the flights business is important, we will increase focus on the hotels and holidays business.”