According to the report, gross hotel bookings, which stood at $7.2 billion in 2016, are poised to grow to $10.9 billion by 2020, while the percentage of bookings made online will increase to 28% from 19% currently.
As much as 78% of the overall online hotel bookings will be routed through OTAs, throwing up a $2.3 billion opportunity for such businesses, it said.
No wonder the likes of MakeMyTrip, Yatra and Cleartrip, as well as accommodation start-ups such as Oyo and Treebo, among others, are stepping on the gas to grab a lion’s share of the market.
MakeMyTrip, the largest OTA in the country, commands a market share of 41% in the online travel space, according to the Deutsche Bank report; it has started focusing on tours and hotel bookings that have higher profit margins.
According to industry executives and experts, air ticket bookings offer a gross margin of 5-7% as against 10-20% hotel bookings offer.
According to an investor presentation by MakeMyTrip in April, the firm’s air ticketing transactions grew 28% and tours and hotel bookings by 126% in 2015-16. Net revenue in the air ticketing grew 14% while that from tours and hotels business rose 45%.
Similarly, for Yatra.com, air tickets grew at a compounded annual growth rate of 14.7% between FY14 and FY17, while hotels and packages grew at a faster clip – a CAGR of 19% -- during the corresponding period, the report said.
“As we penetrate deeper into tier II/III cities, budget hotels and homestays will be important," Rajesh Magow, co-founder and chief executive officer, India, at MakeMytrip, told Mint in an interview in May.
Magow’s observation finds resonance in the report, which states that almost two-thirds of India’s rooms supply in 2020-21 will comprise of budget hotels.
The report said MakeMyTrip faces competition from Yatra.com, which has a 16% market share. The likes of Cleartrip and Expedia are significantly lagging, with 7% and 5% market share, respectively.
MakeMyTrip, backed by Naspers and Ctrip among others, is one of the first homegrown consumer Internet companies to have listed on Nasdaq. The company bought rival Ibibo Group’s travel business in India in an all-stock deal in October 2016 for about $720 million. The combined entity is said to be the largest online travel firm in the country at a valuation of $1.8 billion, according to a note by Morgan Stanley.
Both MakeMyTrip and Yatra, however, faces stiff competition in the hotels segment from accommodation start-ups such as Oyo, Treebo and Fabhotels among others, that have steadily increased their presence in smaller towns.
They are also well-capitalised. Oyo, for instance has raised at least $160 million from SoftBank, Greenoaks Capital and Lightspeed venture Partners while Treebo has mopped up about $23 million from the likes of Bertelsmann India Investments, Matrix Partners and SAIF Partners.
“Hotel bookings are bound to be the next growth driver for the OTAs, especially because the margins are higher. If you consider the $2.3 billion projection in gross booking value and take at least 15% as commission, the revenue opportunity is huge," Abhishek Goyal, the founder of start-up tracker Tracxn, said over the phone.
“However, accommodation start-ups have a better chance at grabbing market share because they are creating a brand, unlike the marketplaces. Brand recall matters in this case," he added.