OTAs say Business Outlook for 2010 is Quite Positive

Going by conventional wisdom, the fall in tourism was most evident in the drop in traffic volume of airline companies and receding occupancy of hotels. This would have meant that Online Travel Agency (OTA) business also came under tremendous pressure. However, surprisingly, the OTA fraternity is presenting a contrarian picture. It is the only segment of the travel and tourism sector claiming that 2009 was not as disappointing for them as it is widely believed.

Online booking of travel products is escalating
According to leading players in the OTA segment, their businesses did not have to bear tremendous pressures because the volume of consumers switching over to online tools for their travel related buying is increasing every year. This trend picked up pace about three-tour years ago and has been consistently multiplying ever since. And while the story began with LCCs, consumers are now getting hotel and rail related options also online. "While the US market is clearly the largest online travel market in the world, the 'offline to online shift' has been the fastest ever in the Indian market, with over 40 percent of all air tickets being bought online in under three years. From $295 million in 2005, the market for online travel bookings is estimated to grow to $6 billion by 2010 and OTAs are expected to corner around 23 percent share of the total travel market," says Deep Kalra, founder and CEO of MakeMyTrip.com. According to him, although discretionary travel has been impacted by the economic slowdown, MakeMyTrip (MMT) has witnessed growth in both, the outbound and inbound divisions, of its holiday offerings.

For Travelocity also, 2009 has been a satisfactory year in the business sense. "We started our journey in India by focusing on the two most lucrative segments of travel - outbound and the hotel segment. We have reached a unique leadership position in both these segments in India in 2009," says Himanshu Singh, managing director, Travelocity India. He believes that Travelocity will continue to invest and grow in both of these segments in 2010. "Our expectations are that both these categories will witness tremendous growth at the rate of more than 100 percent in the next three years," states Singh. Hrush Bhatt, founder and director (Product and Strategy), Cleartrip also has no complains with 2009. "We're very happy with the progress our company has made in 2009. January 2009 was our first profitable month and we've maintained that profitability through the year; December has marked twelve straight months of profitability for Cleartrip," reveals Bhatt. Another player in the industry Ezeego1 commenced corporate travel distribution and added a significance client base in 2009. "In 2010, our focus would be on enhancing product offerings as well as to increase sales of non-air products," Neelu Singh, COO, Ezeego1 says.

Diversification of product portfolio is success mantra
Another reason for their success cited by online players is diversification of their product portfolio as a timely response to the crisis. Earlier, OTAs were focused mainly on the air segment; now the scene is gradually changing. After establishing themselves in the air segment, they have started diversifying into non-air segments. "While the initial growth driver for MakeMyTrip was air tickets, we also made efforts to grow the non-air business by offering holidays and online hotel bookings, since real growth and revenue would be achieved only by making inroads in these high margin categories. We have also added rail bookings to our expansive portfolio of online services," informs Kalra. Singh also expresses immense optimism about the growth in the hotel segment. "We expect the non-air segment to contribute about 30 percent of our revenues in 2010," concludes Bhatt. According to Neelu Singh, Ezeego1 has been witnessing a steady increase in the sales of non-air products since the launch of the website. "We have sold destinations online that generally are not sold even in the traditional travel companies," she informs.

Online hotel bookings to be the main locus in 2010
Much along expected lines, OTAs have identified hotels as the next big-ticket segment to draw consumer volume and enhance the baseline of their businesses. However, a major challenge being addressed by OTA payers are structural imbalances that have hampered the growth of online sales of hotels. With increasing competition for airline bookings in the online travel space, players of this faction are now looking to tap the next big segment which is hotel industry. Travelocity, which recently acquired Travelguru, is already looking to strengthen their position in the online hotel bookings segment. OTAs like MakeMyTrip, Cleartrip have also geared up for an improved the share in the pie.

Changing customer mindset
However, the moot question is: why are hotel bookings on the net not as popular as air bookings? Kalra opines that the success of online hotel bookings rests on influencing buying habits and purchasing behavior. "People are used to driving down to destinations, requesting acquaintances in off-station locations to assist with bookings, making the decision in an ad hoc fashion or walking into hotels to book directly. This will change if travelers are made to realize that it is better to take informed decisions by checking hotel pictures, videos and, reviews by other customers," he says. However, Kalra feels that in recent times, online hotel bookings have started picking up with hoteliers realizing the strength of this segment and partnering with OTAs to market their properties. "Initially, hotels - the budget and 2-3 star hotels in particular were oblivious to the internet as a viable distribution channel. However, with occupancies being low, they are realizing that the bookings they get through OTAs is incremental and the internet is a new way in which they can reach out to more customers. As more hotels list themselves on OTA sites and the end customer receives greater choice of offerings ranging from budget home stays to five-star luxury online, the .online side of the hotels business will pick up," he adds.

Travelocity bought Travelguru to complement its online business and help it access more than 4,000 hotels in India. "We have been constantly striving to provide the best of services and product offerings to our customers. We have strengthened our hotel offering after acquiring India's largest hotel distribution, network Travelguru and Desiya.com. We have had reasonably good success with international flights, hotels and dynamic packaging in 2009 and remain confident of the same " growth and success for
2010 as well," reveals Singh. For Cleartrip, the hotel business produced good results in 2009. "We have been much more active in the area of direct hotel contracting in 2009 and we will continue to do the same even more aggressively in 2010. Hoteliers are very excited about the opportunity to work directly with us due to the tool we provide them to manage rates and inventory on our sales channels," states Bhatt.

Analysts believe that the hefty commission which ranges between 9-25 percent charged by OTAs on every hotel bookings is the main deterrent for hoteliers to come forward and offer their inventories to OTAs. Contrary to this, the commission for air bookings is in the single digit. Secondly, the hotel industry is not as organised and it is difficult for OTAs to aggregate a huge inventory. The period till May 2009, there was a sharp decline in the industry, by almost 40-45 percent. The second half of 2009 has seen a considerable rise in business, demonstrating a 10-12 percent growth. However, it is still not enough to make up for the losses witnessed in HI. We are expecting a 5-10 percent year-on-year increase in the coming months and are bullish that businesses are likely to gain in the first quarter of 2010.

JBS: We did not have a good start this year what with the global financial crisis, the terror strikes the outbreak...of swine flu. The first half of the year experienced double-digit dip in arrivals. However, we are very hopeful for the coming year. The economy is picking up, we are seeing interest in India and, of course, we are looking forward to the Commonwealth Games to spur the boom in the industry.

SOURCE: Travel Trends Today
Date - January 2010
Edition - National