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Friday, 22 September, 2017, 15 : 42 PM [IST]

Era of OTAs, Disruptive Influence

The technological revolution in the e-Commerce space and the success of OTAs in the travel & tourism in India has clearly changed the landscape of travel bookings. Disha Shah Ghosh throws light on this development of the decade.
over a decade ago, the brick and mortar agents often termed as ‘offline agents’ were an indispensable part of the travel ecosystem in India. Travel booking requirements like air, bus, rail ticketing, accommodation reservation, tour packages and land transport were all the bastions of an offline agent. In fact, the situation was such that the traditional travel agent was the sole point of contact for all traveller segments like group bookings, corporate travel, family tours, honeymooners as well as FITs (Free Individual Travellers). As a result, the travel pyramid was clearly demarcated from the airlines and hotels at the upper crust, followed by consolidators and wholesalers and the agents and the sub-agents. However, the years 2005-2006 saw the advent of the Online Travel Agents (OTAs) in the Indian travel industry, which completely changed the dynamics of the business for all existing and established players.

Initially, the traditional agents were sceptical about the survival and impact of OTAs. However, as consumers started getting more comfortable with the online space and gaining confidence in the concept of e-commerce bookings, OTAs were able to create a dominant position in the market. Another reason for OTAs to have established a strong foothold in the industry was they became aggregators, bringing live content directly to the consumer, which allowed them to compare rates. According to Ajay Prakash, Chief Executive, Nomad Travels & former President, TAFI, “Initially, when the OTAs entered the Indian travel business, the brick and mortar agents didn’t believe how impactful the influence could be. However, when the traditional agents started noticing the consequence, they started considering OTAs as a threat.”



Growing Clout of OTAs
One may recall that MakeMyTrip was among the early entrants in Indian travel industry in 2005, followed by Yatra.com and Cleartrip in 2006 and Ezeego1 in 2007. During this period, India was witnessing a multi-fold growth in outbound travel because of the rising middle class, increase in disposable income, rapid penetration of the internet, influx and growth of low-cost carriers, and cheaper cost of short-haul vacations. This allowed the OTAs to cash on the opportunity and offer heavy discounts on airfares, thus creating a loyal base of customers of leisure and business travel alike, initially on the domestic front, eventually capturing the market for outbound. According to the Bureau of Immigration, India recorded an upswing in Indian nationals going abroad from 8,339,614 in 2006 to 20,376,307 in 2015.

Commenting on the role of OTAs, Deep Kalra, Group CEO, MakeMyTrip, says, “What changed for travel in India were two big developments—first, Indian Railways went online. IRCTC (Indian Railway Catering and Tourism Corp. Ltd) got the average Indian to buy online. People trusted it because it was a government enterprise and it got people appreciating its convenience. Second was the advent of low-cost airlines. Traditional travel agents did not get their inventory and we saw that as a huge opportunity to leverage technology and give to customers what they wanted. So we aggregated all of it and at the back-end built direct connect with these airlines. The real take-off for MakeMyTrip was in 2005, when we launched in India. Democratization of the internet has meant that our travel products are now accessed by customers across the length and breadth of the country. Proliferation of smartphones juxtaposed with low-cost data access has meant that there is increasing category comfort with buying travel products online.”



Driven by demographic dividend, increasing Internet penetration and relative better economic performance, India’s e-Commerce revenue is expected to jump from USD 30 billion in 2016 to USD 120 billion in 2020, growing at an annual rate of 51%, the highest in the world, according to a joint ASSOCHAM-Forrester study. This data clearly demonstrates the growing popularity of OTAs among Indian consumers. Sharat Dhall, COO (B2C), Yatra.com, explains, “A country which is now armed with laptops, smartphones and tablets, witnessed the emergence of OTA’s almost a decade back. While several factors have bolstered the growth of the OTAs, the surging internet, mobile broadband and smartphone penetration have been major drivers. Increasing digitization and faster mobile adoption have also been a key factor in the growth of OTAs. These factors are today bringing in a new generation of customers from Tier-II and III markets and also enabling better connectivity at tourist locations in the country, thus, catalyzing domestic as well as inbound tourism.”

Such was the impact of the OTAs that the traditional agents started feeling the heat and the realised that they need to revise their strategy and business models to stay relevant at a time when revenues from ticketing started dwindling. Air and rail ticketing used to be major sources of revenues for agents in India, and realising the might of OTAs, airlines, especially full-service carriers started directly approaching the OTAs and slowly moved towards adopting zero commission policy. This created a greater divide in the industry, with traditional agents fighting for their rights, while OTAs were expanding their reach in the Indian market. As a result, OTAs threatened the very existence of the traditional agents. “India is a price-sensitive market and acquisition of a customer is always a challenge. The OTAs were able to create a mark because of heavy discounting as they had backing of investor funding. This allowed them to capture the market. As a result, customers started making their research online and bargain for lower rates than OTAs with the traditional ones, which continues even today. With massive undercutting by the OTAs, traditional agents have started purchasing airline inventory from them and selling them with their own mark up,” states Prakash.



Diversification of Business
It is a fact that businesses need to revisit their strategies and innovate to survive and OTAs are no exception to this rule. While some stood the test of time, many players in the online space have shut shop because of intense competition and fare war. The OTAs that have survived despite all odds have diversified their offerings to include accommodation, car rentals, tour packages, foreign exchange, etc. This led to hotels partnering directly with the OTAs, further negating the need for a brick and mortar agent.

Talking about diversification, Neelu Singh, CEO & Director, Ezeego1.com, says, “The online travel industry has gone beyond providing just online travel ticketing services to the customers. OTAs have the entire inventory under one roof and are clearly the preferred shopping channel, especially for the leisure travellers, pushing travel providers to adapt and innovate as per the changing times and trends. OTAs have also opened new opportunities for hotels to market their products. Today, a sizeable share of hotel inventories are sold online and the trend is catching up in a big way as awareness about the online tools is growing in the market. In fact, online portals have helped most small business independent hotels to promote and advertise their properties to leisure and business travellers worldwide; helping them reach customers that otherwise would not reach by themselves.”

Echoing similar sentiments, Kalra says that there has been a growth in the internet penetration and with the growing usage of smartphones, more and more people are booking their trips online. “While there are people who repeatedly book rooms with a particular brand or hotel through the hotel websites, there is a large majority of customers who make their bookings through OTAs and these are the people looking for best deals and prices whether booking for business or leisure and hence are brand agnostic. At MakeMyTrip, there has been a 47% increase in four- & fivestar bookings as compared to 32% overall yearon- year. Hence, OTAs will continue to play a significant role,” he states.



A Deutsche Bank AG report predicts the online hotel segment to generate about USD 2.3 billion in gross bookings by 2020 for MakeMyTrip Ltd, Yatra.com and Cleartrip.com. According to the report, gross hotel bookings, which stood at USD 7.2 billion in 2016, are poised to grow to USD 10.9 billion by 2020, while the percentage of bookings made online will increase to 28% from 19% in 2016. As much as 78% of the overall online hotel bookings will be routed through OTAs, throwing up a USD 2.3 billion opportunity for such businesses, it said. According to the report, MakeMyTrip, the largest OTA in the country, commands a market share of 41% in the online travel space as it has started focusing on tours and hotel bookings that have higher profit margins. 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 (CARG) of 14.7% between FY14 and FY17, while hotels and packages grew at a faster clip at CAGR of 19% during the corresponding period, the report said.

Manmeet Ahluwalia, Head-Marketing, Expedia India, says, “According to Expedia Millennial Survey 2017, great deals and customisation are the keywords for millennials. Over 56% register with online travel agencies to avail exclusive discounts and 47% millennials do so to receive personalised packages and deals. The cash and deal savvy Indian millennial is also eventually moving towards loyalty programs, where-in 33% have used loyalty points for bookings and over 45% would like to use it in future.”



Shift in Business Model
The emergence of OTAs led to the travel business shifting from a B2B model to a B2C platform. This led to customers having direct access to live content that allows them to compare rates and meta search sites giving them a detailed overview of the destination, hotel, restaurant, attractions from across the world through visuals, putting them in a commanding position. It is a common experience among traditional agents of customers demanding revision in itineraries and hotels because of the research undertaken online, not to forget the demand to lower down the final cost. The earlier set pattern of a travel agent having a greater say in designing a tour package is slowly but gradually changing. Prakash believes, “The industry doesn’t enjoy a level-playing field anymore and OTAs are a reality today. Therefore, in order to succeed, an agent needs to find a niche and offer the right pricing to the customer besides invest in technology.”

The growth of OTAs in India cannot be solely linked to one factor alone. However, a major driving force ensuring their survival is the investor funding, which allows them substitute their marketing funds to undercut rates on all products, thus creating a fare war among players in the market, both offline and online. Most of OTAs players haven’t really recorded any profit, but the very pace at which online penetration and mobile bookings are growing in India is it clear that the percentage of players in the industry will be further skewed. Despite the benefits that a traditional agent has in terms of rescheduling and cancelling bookings and offering personal touch, the next decade seems to belong to the OTAs. Travel purchases being made online will continue to grow and the future of traditional agents clearly seems to be bleak.

disha.shah@saffronsynergies.in
 
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