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Business News/ Companies / Start-ups/  MakeMyTrip to widen lead over rivals with Ibibo deal

MakeMyTrip to widen lead over rivals with Ibibo deal

MakeMyTrip's Ibibo deal is likely to give the combined entity more heft to negotiate better deals with hotels and ramp up offerings around tours and packages

MakeMytrip reported an 81% year-on-year increase in revenue from hotels and tour packages against a 30.8% rise in revenue from air ticketing. Photo: Hemant Mishra/MintPremium
MakeMytrip reported an 81% year-on-year increase in revenue from hotels and tour packages against a 30.8% rise in revenue from air ticketing. Photo: Hemant Mishra/Mint

Bengaluru/New Delhi: Online travel firm MakeMyTrip Ltd’s acquisition of Ibibo Group’s India business is likely to help the combined entity widen its lead over rivals Yatra and Cleartrip in the hotels, tours and packages segment, which is touted to be the next growth driver for travel companies, industry experts say.

The $720-million all-stock deal is likely to give the combined entity more heft to negotiate better deals with hotels, as well as ramp up offerings around tours and packages with a service encompassing air tickets, hotels across all categories, homestays and even bus travel through redBus, an Ibibo unit.

Establishing a clear lead in the hotels and packages business is crucial as growth in the main air ticketing business has slowed in the recent past and margins are thin.

The focus for online travel aggregators has shifted significantly from air ticket bookings, which offer a gross margin of about 5-7%, to hotel bookings, where gross margins vary between 10-20%.

For instance, for the quarter to June, MakeMytrip reported an 81% year-on-year increase in revenue from hotels and packages as against a 30.8% rise in revenue from the air ticketing business. The number of air ticketing transactions grew 34% in the same period as against a 260% increase in the number of bookings for hotels and packages.

“Air travel became a hard business to be in but was one of the first to take off because of maximum adoption from customers. But when you have so few carriers, you get very little negotiation power. Hotels is the segment to make money," said Vinod Murali, managing director, InnoVen Capital india.

To be sure, both MakeMyTrip and Ibibo have spent millions of dollars on advertisement in marketing campaigns and television commercials in the past six to eight months, as well as offering attractive offers in terms of cashbacks for hotel bookings to draw consumers.

The merger will not only put an end to such aggressive spending, but also put the combined entity in a stronger position to negotiate prices and commissions, especially with hotels, given that the entity is estimated to command more than 50% of the overall online ticketing and hotel booking market by industry experts, which might put pressure on the likes of Yatra and Cleartrip. “They (MakeMytrip and Ibibo) will have better pricing power because of the higher market share. The ability to get better and exclusive inventory will also increase," said Aloke Bajpai, chief executive at Ixigo, a travel start-up.

MakeMyTrip is betting big on budget hotels and homestays, categories which have seen the emergence of start-ups such as Oyo, Treebo, FabHotels and Stayzilla, among others. While Stayzilla has a greater focus on homestays, Treebo and FabHotels are budget hotel chains while Oyo, which started out as a budget hotel aggregator, has started leasing properties in a bid to ensure a better and standardized customer experience and curb potential malpractices by some hotel owners, Mint reported on 15 April.

To be sure, MakeMyTrip is an aggregator and does not own properties, which, experts say may dampens its prospects in the category. “Budget category is not just about pricing. Pricing is the initial piece; but then, it is about delivering quality and you cannot do that if you don’t get into actual service delivery. It will require shift in business model for MakeMyTrip or Ibibo," said InnoVen’s Murali.

“Other platforms have their strengths and they have different product offerings. Today’s tech-savvy modern travellers explore multiple options before they book online," said Adarsh Manpuria, co-founder at FabHotels.

The likes of Yatra and Cleartrip will need to innovate on services than engage in a price war to attract customers and retain existing ones. MakeMyTrip now counts Naspers and China’s as one of the investors, both capable of writing large cheques.

Besides, the acquisition may also significantly bring down discounts and offers for consumers as MakeMytrip and Ibibo, with their near monopoly, will no longer be required to lure each other’s customers.

“When competitors merge, discounts will come down. In airline tickets, there is no price war. But, in the hotel segment, price difference may decrease. The competition has to spend significantly on improving customer experience because they can’t fight price war," said Sreedhar Prasad, partner, e-commerce and start-ups at KPMG in India.

ALSO READ | Along with Ibibo, MakeMyTrip also gets absurd private market valuation

Cleartrip has raised at least $60 million from Concur Technologies and DAG Ventures, among others.

Yatra, which has so far raised about $120 million from IDG Ventures India, Norwest Venture Partners and Vertex Ventures among others, in July agreed to reverse merge with Terrapin 3 Acquisition Corp at a valuation of $218 million, which will see it trade on Nasdaq and give it the much needed capital to fend off competition from MakeMyTrip.

“Both Yatra and Cleartrip stayed out of the recent marketing mayhem. There is certainly a reason why they did so. Cleartrip has tried local services and activities, but things haven’t gone all well for them. As for Yatra, they needed to invest more and they have the wherewithal now. They will of course have pressure. For Yatra, it was about getting money and also building other segments such as hotels and holidays. Unlike airlines, you have several thousands of hotels. It is work in progress for them," said an investor on the condition of anonymity.

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Published: 20 Oct 2016, 02:24 AM IST
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