What’s NextBigWhat for Indian OTAs? Consolidation, we say.

As more people spend time and money online, the online travel category should logically take off in a big way.

But the truth is that big OTAs, i.e. online travel agencies are facing growth challenges, green_travel_search.jpgwhile smaller players are battling thinner margins and most face a huge distribution challenge. Many need volumes to survive and access to large, relatively large stable businesses like bookings for buses/trains. Given the specialized approach of many travel players, and the need for growth amongst the bigger, established names, consolidation is inevitable.

We might just begin to see a wave of mergers and acquisitions in this space very soon.

Indian OTAs: A Quick Recap

MakeMyTrip went IPO after a pretty amazing startup journey. And has been struggling since. There’s been a few investments, acquisitions and partnerships to find the holy grail to better margins, and growing the substantial but stagnating topline. In April, they’ve made clear their intentions about growing inorganically by acquiring niche, specialized travel outfits. And hotels, a higher margin business thus far, is a major target.

Speaking of margins, flight bookings have none left in them. Airlines are promoting their own sites. Case in point – Spicejet’s massive price cuts recently! A lot of the OTA business was initially built around this – the easiest – option. Obviously there’s a need to move on.

Similarly, Via.com played with several models like a deal site etc, acquired Travelmasti and has now gone back to its original mojo, i.e. booking

And as the folks at MakeMyTrip rightly surmised, niche, experiential travel is growing rapidly, and a majority of travellers making plans online are doing it themselves rather than “picking a package”. The players in this space are small, fragmented but where more and more travellers are headed! Obviously, the big guys want in on the game; playing an intermediary between a large audience, which no individual niche player might ever be able to (or want to) reach directly, is one way forward.

What’s NextBigWhat for Indian OTAs

So what really might work for this industry works at scale? Amongst the low hanging fruit – hotel aggregation, bus ticketing, trains – tough one to crack but huge, outstation cab bookings are all huge, relatively steady businesses.

Today, they’re still largely online – though RedBus, TravelYaari and the likes have aggregated large segments within buses, and ClearTrip has taken a crack at trains while numerous players such at Olacabs and TaxiForSure take on the seriously tough task of organizing taxi operators.

These businesses are also uber-competitive, low margin and not really typical OTA businesses right now  – OTAs aren’t particularly used to a deep connect with the operational details of the segments they work with.

But the size itself is worth going after. And reach and distribution are tough and expensive – which is a reason those with a head start in these may well be good acquisitions for the bigger, relatively loaded guys. In fact, now that the few early players have shown some consolidation of the bus ticketing and cabs space, non-traditional players might want a piece of the action as well. PayTM jumped into bus ticketing and typically, companies are bringing in margins of Rs. 50-100 on each bus ticket sold (~5% of the value). This might well be where the action is in the coming days.

Amongst the niches, there’s experiential travel – wine tours, adventure trips, nature and wildlife travel and pick-a-skill ones like photography trips. As disposable incomes are growing, the usual checklist of “places to see” does not satiate, and folks are happy paying for the experience, not merely focused on the cheapest, best deal for the same old 15-point trip. Unfortunately (for the OTAs), there’s hardly any sizeable player in India who has aggregated multiple such offerings under one umbrella. And getting deeper than that into the vertical itself may not be in their comfort zone for now. But this is surely a space worth watching.

What will OTA consolidation enable?

A few thoughts (both from the point of view of the OTAs as well as the travel industry itself).

Comprehensiveness.

The big players address the mainstream market, and as more and more niches become popular, there will be a need to sell them to a larger audience.  Despite a less than consistent travel experience – from what one hears anecdotally – MakeMyTrip is still a popular mainstream choice.

Owning the end to end user experience.

For one, travellers typically like dealing with a single point of contact, once trust  (or what passes for it as a transient working relationship) is established. Also, merely having access to information – inventory, an API, or suchlike – cannot be a value add that can be made money off too long. Hotels, cabs, air tickets, destination experiences – ‘owning’ it all and making the money off the profitable bits even as one provides the whole experience might make more sense.

Scale.

Even a small margin/fee on a business that already has scale is a major, short term win for OTAs. Bus ticketing, cab services and the mid-level hotels businesses are already lucrative, in this respect.

Survival.

The industry has many bit players serving specific categories and niches. In a growth market it all works well, but each of these is too small, fragile and in some cases, working on too think a margin to survive competition or even a mild slump. Consolidation might provide the much needed muscle for larger reach and, eventually, survival.

Who do you think will move first? Will large, traditional travel players such as Thomas Cook, Cox n Kings also jump in to pick up good online offerings? Or will those already comfortable with online channels lead the consolidation march?

Ed. : Isn’t the bus travel industry already ripe for picking? Isn’t it high time that OTAs acquire one of them and grow the offering? If OTAs answer a simple question, i.e. ‘What Business AM I IN?’ (selling ticket inventory VS. travel), they might get some forward looking answers.

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