MakeMyTrip eyes start-ups, more m-commerce for growth
The travel firm also plans to maximize revenue from non-flight businesses such as selling hotel rooms and holiday packages
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Online travel agency MakeMyTrip Ltd is buying travel-related start-ups in South-East Asia as it rolls out strategies to take on rivals in the growing travel market.
The company has three strategies: increasing its business through smartphones; maximizing revenue from the high-margin non-flights business such as selling hotel rooms and holiday packages; and buying up more early-stage start-ups in travel-related space. It is already in negotiations for such acquisitions.
MakeMyTrip co-founder and chief executive officer (India) Rajesh Magow said the firm has been transitioning rapidly from personal computer (PC)-led Internet business to mobile-led Internet business since its launch in 2000.
At present, MakeMyTrip claims it has close to seven million app downloads.
“We are getting 40% of total business from mobile phones, compared with 20% in 2012,” Magow said.
Mobile contribution to traffic grew from 20% in 2013 to 33% in 2014. Mobile users contributed more than 34% of total online domestic hotel transactions in the last quarter.
With increased smartphone penetration in India, Magow said the company is investing in the mobile platform to bring in innovations and enhance user experience.
The company is also changing the revenue mix of its business.
“We have also been able to grow our hotels and packages business to about 45% of net revenue,” Magow said.
MakeMyTrip derives around 50% of its revenue from non-flights business currently, compared with 20% in 2010-11.
The company plans to increase the proportion of non-flights business, which include high-margin verticals such as hotel bookings and holiday packages, to 70% in the next two to three years, he said.
Founded by Deep Kalra, India’s largest online travel agency (OTA) has survived a financial slowdown and the 2003 SARS (severe acute respiratory syndrome) scare, which grounded many travel and dotcom companies.
In 2002-04, venture capital firms pulled out of MakeMyTrip, and the company couldn’t pay its employees for 18 months. But MakeMyTrip ploughed on and successfully listed its US unit on the NASDAQ in August 2010. On listing, the scrip trebled from its issue price of $14.
The company is now in the process of rebranding to reflect its focus on smartphones and the hotels business.
Saujanya Shrivastava, chief marketing officer, said the brand repositioning campaign seeks to partner new customers to help with their growing travel ambitions. “This will be a high-decibel, 360-degree campaign running on print, television, outdoor and other digital mediums. We have mandated Publicis Capital for developing the campaign, while the television commercial is produced by Early Man Productions. The launch TVC will have (Hindi film and theatre actor) Naseeruddin Shah’s voice-over. The campaign will launch starting Monday,” Shrivastava said.
However, experts see some challenges ahead.
Chetan Kapoor, a research analyst at travel industry research firm Phocuswright Inc., said the biggest challenge for MakeMyTrip in growing its non-flights business is the all-round competition from not only its online peers, which still remain more focused on flight ticketing, but also offline tour operators, who dominate the travel packages market.
MakeMyTrip has a market share of 15% in the domestic flights business—up from 8% in 2010.
“Despite continued traveller shift from offline to online channels, MakeMyTrip—like other OTAs—has to invest extensively in technology to support and scale its non-air business. Customer acquisition through discounts and loyalty programmes also adds to costs, challenging OTAs’ bottom line,” Kapoor said.
“When everyone is wooing customers with deep discounts, MakeMyTrip needs to fight it out with a differentiated strategy,” he added.
Another challenge comes from the fact that there are as many as 30 travel and holiday-related start-ups in India focusing on niche areas, wooing travellers with more options and discounts.
Magow said he is aware of these challenges, adding that small acquisitions of destination management companies in South-East Asia have helped grow the organic holidays business in India.
Magow said the company set up a $15-million innovation fund in September and made a few acquisitions, including those of Simplotel and Mygola.
“And we will continue to evaluate interesting early-stage start-ups. The objective is to participate in new disruptive innovations happening outside of MakeMyTrip. Currently, we have earmarked about $15 million for the innovation fund, with an open mind to increase the size if needed in future,” Magow said.
Between 2011 and 2014, MakeMyTrip had either completely bought out or acquired stakes in five companies in South-East Asia and India.
Early this year, MakeMyTrip bought a 25% stake in Bengaluru-based digital hotel marketing solutions firm Simplotel from its innovation fund.
As recently as 22 April, it acquired certain assets of travel planning website Mygola.com as the second acquisition financed from the fund.
India’s tourism and hospitality industry is valued at $135 billion.
The World Travel and Tourism Council estimates the global e-commerce industry at $16 billion, of which 70%, or around $11.2 billion, is represented by travel transactions.
“The concern area remains the pace of infrastructure development in the country—in mobile ecosystem including quality bandwidth to most cities of the country, more airports, improved infrastructure in tourist destinations. etc.,” Magow said.
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