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Wednesday, 11 October, 2017, 11 : 56 AM [IST]

Compulsive Consolidation:Time for Industry to consolidate or perish!

Disha Shah Ghosh


In the past few years, where players in the travel & tourism industry in India have struggled to maintain bottom lines and keep operations profitable, companies across verticals like tour operating, aviation, technology and hospitality have undertaken strategic consolidations to remain relevant and increase their market share. Considering the number of consolidation deals that India has witnessed in the past few years by overseas companies as well as local players creating a new world order by acquiring foreign brands, the trend of Merger & Acquisitions seem to continue unabated in the coming time.

In this context, it is important to understand that companies across each of the above mentioned sectors have been reeling under various issues like heavy taxation, increasing competition, which is cut throat, dwindling revenue as well as influx of newer players with strong investor funding and sound technological support. Therefore, larger companies believe the only way to stay afloat in the current competitive business environment is through inorganic growth.



An M&A creates economies of scale and allows diversification across newer markets. This negates the need to start business from scratch and brings in consumer knowledge and product expertise in a new market. Take the example of Sabre acquiring Abacus in 2015 or Louvre Hotels consolidating its position in the Indian market with the acquisition of Sarovar Hotels in 2016. In 2015, having acquired Starwood Hotels & Resorts, Marriott could overtake Taj Hotels Resorts and Palaces as India’s biggest hotel chain with close to 100 hotels in the country. According to Madhavan Menon, Chairman & Managing Director, Thomas Cook (India) Ltd, states, “Thomas Cook is a classic example of the consolidation; this strategic move over the years has helped us expand our presence across various established markets across the world.”

Deep Kalra, Founder & Group CEO of MakeMyTrip, believes that consolidation and emergence of global players in the India market has in fuelled the growth of Indian OTA (Online Travel Agent) segment.



As far as smaller players in the market are concerned, with sporadic acquisitions across the industry, the need of the hour is to find a niche to stay relevant in the business. The current trend of consolidation is just the tip of the ice-berg, states Paramjit Bawa, Country Manager - India, Destination New South Wales. “If the trend continues it would become very difficult for the smaller players to be sustainable in terms of taxation and benefits. They need to remain competitive and survive. In India, to remain competitive, volume is very important. Therefore, it is a difficult situation for smaller players whereas for larger companies it’s a win-win situation because they can enjoy good bargain,” he adds.



For any company, organic growth is a long-drawn process. Therefore, consolidation seems to be a strategic choice to bring expertise to the business besides an expanded presence portfolio. Joseph Fernandes, General Manager, AVIAREPS India, says, “Earlier tour operators could work with individual suppliers like airlines and hotels for preferential rates. But, with the trend of M&As, it is easier for hotel chains and airlines to undertake a large deal with a consolidator to meet all the criteria. As a result, a consolidator has to consider the value it brings to the partners in the group to maximise earnings. The negotiation power for a consolidated product is higher with a larger offering. It gives the trade also more options because they now have bigger portfolio of products and services to sell. On the other hand, it means higher targets and greater challenges. For representation companies, larger players in the consolidation deal are usually the decision-maker, which can affect the smaller partner. Therefore, as far as consolidation is concerned there is a grey line between competing and collaborating.”

Increasing competition and plunging bottomlines across travel verticals are a reality today, and a substantial percentage of the Indian travel industry still continues to remain fragmented. Therefore, there is an opportunity in the organised segment for travel players to grow by expanding their brand umbrella and product profile across geographies to stay relevant in the business in the long term. For smaller players, it is time to reinvent themselves.

disha.shah@saffronsynergies.in
 
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