New Delhi: Online travel agencies are looking at expanding their offline presence through franchises to gain a greater share of the overseas holiday market that remains largely dependent on traditional bricks and mortar agents.
With margins narrowing for air travel, online agencies are shifting to segments such as hotels and holidays to take advantage of an increasing number of Indians going abroad for leisure. Outbound travel grew at a compounded annual growth rate of 10.3% between 1997 and 2011 and remains one of the fastest-growing Indian travel segments. Indians made as many as 14.21 million international trips in 2011—data isn’t available for 2012.
Meanwhile, the rupee’s devaluation didn’t seem to impact the growth trend in the segment. According to industry estimates, spending by Indians travelling overseas crossed Rs.1,500 crore in 2011. The number of travellers going overseas is set to touch 20 million by 2015, according to the United Nations World Tourism Organization.
The offline presence is aimed at increasing the comfort level of those wary of booking online.
“There is a whole segment of consumers who are not comfortable with procuring online yet. They may not believe in the do-it-yourself culture, may not have access to broadband, or they may not have access to credit cards,” said Pratik Mazumder, head of marketing and strategic relations, Yatra Online Pvt. Ltd. “To combat this challenge, we need the offline presence.”
Yatra, which owns about 40 travel shops, has opened 70 franchises in the last six months. Another 100 such franchises will be opened over the course of the year.
“Our focus is on international holidays for franchised shops, but services are available across the products. We are targeting not only in tier II and tier III cities, but also metros and tier I cities, where there is an SME (small and medium enterprise) base that primarily depends on offline travel agents,” said Mazumdar. “Our branded stores will compete with established offline agents head on.”
The company said it gets around 10% of revenue from offline shops.
MakeMyTrip Ltd considers the franchise model to be a profitable one.
“Even as more people are coming online to book tickets in tier II, tier III cities, franchisee shops are doing well for the company when it comes to the holidaying segment,” said Deep Kalra, founder and chief executive, MakeMyTrip.
The company has opened 38 franchised store in India since 2011.
“Going the franchising route has given us flexibility and agility to scale up and spread out faster. We will continue to scale this up as per market demands. East and south-east India is an under-utilized market and we will concentrate on tier II and III towns going forward,” Kalra said.
Online travel agencies will shift their focus to higher margin hotels and packages to reach $3.4 billion in gross bookings in 2013, which will include business from both the online and offline modes, according to PhoCusWright Inc., a travel research firm.
Industry experts see the offline presence increasing as online companies continue to move from air ticketing to products such as hotels and holiday packages.
“Now that airline commissions are declining and domestic airlines are facing some trouble, online travel agencies are looking at beyond air tickets to higher margin products like hotels and holidays,” said Chetan Kapoor, research analyst, Asia Pacific at PhoCusWright. “As you go deeper into a travel funnel, online travel agencies will need offline existence, in order to cater to those who are not online or not comfortable online.”
“There are several reasons for this like low credit card penetration, credit card limit that might not be sufficient when it comes to international holidays and processes like visa assistance and customization, which need offline assistance,” said Kapoor. “Traditionally, Indians are not comfortable booking offline for the high-end products (that cost) lakhs.”
Yatra’s Mazumdar said the offline approach will be the way forward in the short-to-medium term.
“It will continue to grow in a country as vast as India. Franchised shops are definitely being opened with the horizon of three to five years to increase profitability,” said Mazumdar.
This story has been modified from the original to reflect the correct designation of Deep Kalra.