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Thursday, 14 June, 2018, 14 : 15 PM [IST]

The battle for Net Profit!

New found enthusiasm for market share that made its presence in the Indian travel industry close to a decade ago has now reached alarming proportions. In the process there are disruptions in net profits making it a cumbersome task of survival for service providers - mainly local travel agents across the country.

Simple business economics tells us that cost + profit will finally determine the selling price of a product be it an airline ticket, room night at hotels or vehicles for transfer & sightseeing. However, with the travel business migrating to the Internet space (e-business) the desire to get a larger share of client’s has increasing greater penetration in international markets. At what cost? No, its not the traditional business model anymore, instead its offering services at prices which are below cost prices, in many cases!

From experiences of fellow travellers, a service provider like a hotel for example are reluctant to offer rooms at prices visible on the electronic domain and more often not to request them to purchase on websites. This ultimately benefits the consumer; what is detrimental to the industry is the unfair playing field that’s being created or has already been created. It’s not unheard of bulk discounts for buyers of `x’ number of tickets to certain international sectors. With commissions dried up on many domestic as well as international airlines, brick-n-mortar (b & m) travel agents are hard pressed to match these offers and this ultimately leads to a net loss on services. When these net losses pile up `b & m’ agents are left with no option, but close shop.

Secondly with lower profits `b & m’ agents who have taken loans from banks & financial institutions will find it difficult to service these loans, & could lead to these loans becoming non manageable & non-performing. Many will lose their appetite for risk & refrain from increasing exposure to banks & capital markets in future, as they themselves know within themselves its a un-level playing field out in the industry.

Some may call it a sign of the times, others may say - `reinvent yourself,’ or go into vertical integration, the crux of the problem lies in the fact that India being the second largest populated country in the world with close to 1.3 billion people, can least afford to dismantle existing business platforms, where entrepreneurship and local employment play a major role in preserving the local fabric and sustenance of society & its commercial values.

Are there any visible solutions? Brand building will help `b & m’ agents as would forming of conglomerates would, customer loyalty will be an enabler in supporting these businesses as vertical integration of owning services rather than being a distributors. Fixing the amount of service charge for different services provided will not be out of place. Finally it is pertinent for trade bodies and associations to address these issues on right platforms and on a regular basis. Ultimately our country needs to be not just a `nation of consumers’, but also a `society of earners’.

Hector Dsouza
President - L’orient Travels

(The views expressed within this column are the opinion of the author, and may not necessarily be endorsed by the publication.)
 
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