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Travel portals fly to non-airline businesses

By A Correspondent
May 22, 2008 01:38 IST
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With commissions from domestic airline ticket sales falling victim to lower fares over the past two years, online travel portals like Travelguru, Cleartrip, Yatra and Makemytrip are increasingly exploring non-airline business avenues like hotel bookings, car and bus rentals and holiday package tours to boost revenues.

 

Travelguru, which recently acquired Desiya, one of the largest hotel consolidators in the country, now derives 90 per cent of its revenues from hotel bookings and holiday packages. This is in sharp contrast with last year when airline bookings accounted for 70 per cent of revenues. 

 

"We have found that the airline business is not economical for us so we have shifted focus to the hotel business," said Ashwin Damera, CEO and founder of Travelguru.

 

Air travel used to account for 95 per cent of Makemytrip's business two years earlier. The ratio between its airline business and others has since changed to 70:30.

 

For Yatra, hotel, holiday packages and other non-airline ventures constitute 17 per cent of revenues. The portal estimates this share will go up to 30 per cent in a year.

 

"While our airline business has grown around 50 per cent, our hotel booking venture has grown 100 per cent over the last six months. One of the primary reasons for the higher growth rate is also greater focus on that area," said Dhruv Shringi, CEO of Yatra.

 

Likewise, travel portal Cleartrip expects non-airline enterprises to account for 20 per cent of revenue against the current 5 to 6 per cent.

 

Lower fares have impinged on margins. "The pressure on margins in the airlines business is definitely there and it can only increase. It is, therefore, wise to diversify the product portfolio beyond air," said Deep Kalra, CEO of Makemytrip.

 

Portal executives said airline ticket sales offer a margin of less than 5 per cent against 15 to 20 per cent for other avenues like hotel bookings.

 

Online portals get a commission of 5 per cent on the basic fare of each air ticket sold. Other fare components like fuel surcharge are outside the ambit of the commission. Basic fare accounts for roughly 30

per cent of the ticket fare.

 

But with several airlines like GoAir, SpiceJet, IndiGo and Deccan cutting basic fares to as low as Rs 0-99, the value of the commissions has also steadily declined, even as the surcharge component has risen as high as Rs 2,350.

 

"The commission of 5 per cent that we get is only on the basic fare. We then have to pay 2 per cent of the entire fare (including surcharge) to the credit card companies that facilitate the online transactions. So there is basically no margin left for us on air ticket sales," Damera explained.

 

"Hotel tariffs have a smaller tax component, which also contributes to better margins," added Noel Swain, vice- president (marketing), Cleartrip, which has over 4,000 hotels in the country on offer on its website.

 

This apart, travel portals are also occasionally allowed to sell rooms at a 7-8 per cent premium, which makes margins more attractive.

 

Other factors like the focus on services provide scope for greater customer loyalty, making businesses like hotel bookings more viable.

 

"A customer can go to any portal offering lower air fares, but while booking for hotels,  a portal can, for instance, offer a preview of rooms and services and allow the customer to exercise his discretion on the location of the hotel and so on," said Kalra.

 

"Once provided, these services lead to greater customer loyalty," he added.

 

Portals are also increasingly eyeing other forms of transportation like roads and railways. For instance, on May 19 Ezeego.1 announced a tie-up with Redbus.com, a consortium of more than 270 bus operators across the country, to facilitate bus bookings for more than 3,600 routes.

 

Makemytrip is also in talks with bus consolidators like Redbus, Ticketwala and Raj National Express to start bus service bookings.

 

Most portals are also in talks with the Indian railways to provide alternative online platforms for booking railway tickets.

 

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A Correspondent
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