Problems and prospects of online travel agencies in India


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Problems and prospects of online travel agencies in India

  2. 2. PrefaceGone are the days when one went about calling multiple agents for travel information. Today,the World Wide Web allows one to access a plethora of information, 24/7, from the comfort ofhis/her home. So, whether it is information on hotel, tickets, local travel or even the sights andsounds of a particular destination, its all available at just the click of a button. Across the world,consumers are increasingly turning to the internet to satisfy their travel needs. From trip researchand price comparison to shopping and booking, consumers are finding the convenience of theweb vital to their personal and business travel needs.The constantly evolving consumer has mandated travel companies today to perpetually re-inventthemselves. The emergence and power of the internet has made it vital for travel companies tohave an online and mobile presence as well as market themselves through the medium. Nowonder, the online travel industry has grown by leaps and bounds in the last ten years. As per arecent IAMAI report on online commerce, almost 80% of the market share of the current onlinecommerce industry is dominated by travel businesses, while the remaining 20% comprises non-travel businesses.Travel companies across sectors are adopting technology to reach consumers. The onlinepenetration of OTAs is increasing in India and they have expanded their product offerings andservices. Most OTAs have expanded from airline ticket booking to rail and bus bookings as wellas hotel and vacation package bookings. Additionally, ancillary services such as insurance arealso being offered to customers. Some Indian OTAs are also opting for a hybrid model, believingthat an offline presence is necessary in order to provide better service and value to customers.Mobile technology is also being adopted in a big way with mobile users surpassing those of theInternet in India.The purpose of this report is to highlight the current scenario of online travel trade in India. Thisreport is based extensively on secondary data that was available during its development as wellas direct interactions which were possible within the stipulated time limit with selected travelagency employees. Any faulty conclusions and sweeping generalizations would be entirely mymistake and I beg pardon for the same. 2
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  4. 4. 1.1 IntroductionOver the last five years, the Indian travel sector has adopted innovative trends, technologies andgiven a whole new dimension to this industry. The sector has always been one of the mostcrucial ones of the economy as it is not only a significant contributor to GDP and the foreignexchange reserve of the country, but also generates widespread employment. It is estimated thatthe Indian travel industry will generate about USD 42.8 billion by 2017, thus creating hope for avery optimistic future.India, a country with a lot of diversity, cultural heritage and scores of languages and dialects,presents unique challenges and opportunities for Online Travel Agencies (OTAs). It was lessthan a decade ago when the concept of planning and booking travel online was born in India andit was the pioneering effort of Capt. Gopinath of Air Deccan that ushered in this revolution in theIndian travel industry.India has the advantage of always being ahead of the curve and has had quickly learnt frompractices in developed countries and adapted well. The travel boom, evolution of the internet,growing acceptance of e-commerce and the emergence of low-cost carries, have been key factorsthat have contributed to the emergence of this sector. Today, consumers have understood theimportance and benefits of using technology to book air, train, and bus tickets. They have movedfrom traditional over-the-counter booking to online ticketing. And with the internet literacy rateincreasing in Tier-II cities as well, the sector will surely be booming immensely in the comingyears. 4
  5. 5. Therefore, Indian online travel market is growing at a steady rate due to increase in awarenesscoupled with confidence among the customers to make online transactions. The Indian customeris aware about online travel portals and is ready to pay for the convenience and better service.Today, the online travel industry is the driving force in the e-commerce segment and itsimportance is likely to increase in the future. Various offers and deals from the OTAs have madethe market very lucrative for the customers, thus driving competition. 5
  6. 6. 1.2 Materials and methodsThe following project is based upon: Primary data gathered on-spot through interaction with the respective employees of, MakeMyTrip and Akbar Travels of India Pvt. Limited Secondary data gathered from books, publications, websites, journals, previously published reports etc. 6
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  8. 8. 2.1 History of OTAs in IndiaThe growth of OTAs has been most fuelled by the growth and penetration of the internet in thecountry. The history of the internet dates back to early 1950s and 1960s with the development ofcomputers; the Indian internet story began in 1995 with VSNLs introduction of dial-up internetin six cities. While we got off to a slow, stuttering start with a mere 0.1% penetration till 1998,the last 10-12 years have been exciting to say the least. In 2010, we were looking at 8.5%internet penetration; online bookings have also witnessed a surge. A recent study by comScorein early 2011 reinforced the fact that more and more people are opting to book their travel online. Fig. 1: Online Travel Market in India (Source: IAMAI Internet in India Report 2011) 8
  9. 9. 2.2 Internet Usage in IndiaWith a rising number of web sites offering a variety of services at the stroke of a few fingertips,the internet delivers inimitable value to its users all across the country. As of 2011, a healthy87% of people use the internet at least once a week in India. Fig. 2: Internet Usage in Urban India (Source: IAMAI Internet in India Report 2011) Fig. 3: Internet Usage in Rural India (Source: IAMAI Internet in India Report 2011) 9
  10. 10. Fig. 4: Increasing penetration of Internet into smaller towns in India (Source: IAMAI Internet in India Report 2011)The smaller towns continue to showcase grouped dominance over the top eight metros (Fig. 4).From 29% in 2006 to 37% in 2011, towns with a population of less than five lakhs, today have infact, the highest contribution within the Urban Groups. The soars in numbers for smaller townshas impacted the socio-economic penetration too; in the Internet User Breakup across top eightmetros and the rest of India, Mumbai leads among all top eight metros. Of the total claimedinternet users, 34% reside in the top eight metros with the majority in Mumbai closely followedby Delhi and NCR.In March 2011, India witnessed an 18% rise in Active Internet Users among urban cities,amounting to 65 million across the country. People who have ever used the internet and arecomputer literate have also grown to 82 million and 114 million respectively (Fig. 2) Thisgrowth is expected to continue and in September 2011, there were 119 million PC literates and88 million claimed internet users – of which there are 70 million active Internet users who accessInternet at least once a month. Among rural villages as of March 2011, there are 18 million 10
  11. 11. claimed Internet users and 14.3 active Internet users (Fig. 3). It is expected that the growth inrural villages will be higher compared to urban cities. Continuing trends from previous years, theinternet has been constantly impacting the lives of small town residents in India. 11
  12. 12. 2.3 Indian OTAs ScenarioWith the advent of the internet and the rapid advancement of technology, the face of travel inIndia is rapidly changing. More and more Indians are taking to the internet to satisfy their travelneeds (Fig. 5). Among the top visited sites in India are several online travel agents such asMakeMyTrip, ClearTrip, Yatra and Ezeego1. Online bookings have been rapidly rising too.While airline ticketing has traditionally seen the most number of bookings online, hotels andvacation packages are also seeing an increase in numbers. A comScore study in 2010 revealedthat OTAs reach 45% visitors to travel sites (Fig. 6). 12
  13. 13. Fig. 5: OTAs reach 45% of visitors to travel sites (Source: comScore MediaMetrix – Key Measures Report) 13
  14. 14. Fig. 6: Travel visitation grows faster than overall growth (Source: comScore MediaMetrix –Media Trend Report)A study released by comScore in June 2011 found that the number of visitors to travel sitesincreased 32% in the past year to 18.5 million visitors as more Indians turned to the web for theirtravel needs (Fig. 7). In April 2011, 18.5 million online users of ages 15 or older visited a travelsite from a home or work location, an increase of 32% from the previous year. Each of the top 10websites in the category experienced strong growth in the past year. Indian Railways led as themost-visited travel destination with 8.4 million visitors, an increase of 8% from the previousyear. Online travel agent sites (OTAs) secured the remainder of the four top spots in thecategory. MakeMyTrip reached nearly 3.9 million visitors (up 63%) followed by Yatra Onlinewith 3.5 million visitors (up 82%) and with more than 2.1 million visitors (up80%). US-based Expedia Inc. secured the 5th position with 1.8 million visitors (up 12%). 14
  15. 15. Fig. 7: Top sites in the Travel Category by Unique Visitors April 2011 vs. April 2010 (Source: comScore MediaMetrix)Traffic to the travel category grew to more than 14 million visitors in April 2010, an increase of50% from the previous year, as growing number of Indians turned to the convenience of the webin search of travel deals and accommodations. Of the 7.1 million people visiting the top threeOTAs – MakeMyTrip, Yatra Online and in April 2011, more than 2 million users(29%) visited two or more of the three sites. The remaining 71% of visitors checked in at onlyone of the three sites during the month, demonstrating strong brand loyalty among the topplayers. 15
  16. 16. Fig. 8: Audience Duplication Report for MakeMyTrip, Yatra Online and April 2011 (Source: Hitwise Category Report)Hitwise India recently conducted a study to understand trip planning behavior exhibiting how theinternet is used as an information source for planning travel. The study indicates that the typicalIndian traveler does not like to make spontaneous decisions and plans the trip in advance. Anevolved traveler starts planning the trip 3 months in advance by visiting travel related blogs,forums, travel related videos/photographs, travel review sites, etc. Online travel reviews aretravelers’ experiences which help other travelers learn about a destination and narrow down theirchoices. The study identifies that an online traveler evaluates his holiday destination options andthen initiates the trip booking process by visiting OTAs and accommodation sites to evaluate,compare and book. This indicates that most travel purchases take place well after a consumer’sinitial search. The study indicates that the Indian internet consumer uses emails after visitingairline websites. The study also indicates Social Media is now a marketing tool used bymarketers to engage with the target audience through online communities to generate exposure,opportunity and sales. Social networking sites helps users plan their trips by getting tips fromusers, by browsing photos and videos, suggestions on itineraries, etc. 16
  17. 17. Fig. 9: Comparison of the popularity of the top travel information sites (Source: Hitwise Category Report)Fig. 9 shows the custom category of top 23 travel information sites providing travel-relatedinformation based on visits to these sites and are non-transactional. TripAdvisor, the world’slargest travel review site, commands the highest market share of 24.89% within this customcategory. The study indicates that cosumers, before choosing their travel destination, conductextensive research and leverage the travel experience of other travelers before making theirtravel decision. 17
  18. 18. Fig. 10: Top 5 Online Travel Agents’ Websites Visited after Top Travel Information Sites (Source: Hitwise Category Report)The top 5 Online Travel Agent’s websites visited after visiting sites which provide travel-relatedinformation are given in Fig. 10. As can be seen, Expedia is most preferred for online travelbookings while MakeMyTrip is gaining preference in the travelers’ booking consideration setafter Expedia. Fig. 11: Top 5 Accommodation Websites Visited After Top Travel Information Sites (Source: Hitwise Category Report)Fig. 11 shows the top 5 accommodation websites visited after travel-related websites. ClubMahindra is most preferred for planning the holiday stay. The table also indicates that Ginger, 18
  19. 19. which is an economy hotel range, draws considerable visits indicating preference for low-costaccommodation. Fig. 12: Comparison of popularity of the Top 10 Accommodation Websites (Source: Hitwise Category Report)Fig. 12 shows the top 10 accommodation websites and their respective market share in terms ofvisits to their websites by Indian internet users. Club Mahindra commands the highest share ofvisits of 45.67% when compared to the direct competition. Club Mahindra is able to attract theaverage Indian internet user looking to travel, better than its competitors. There could be manyreasons for the same which could include a focused digital marketing strategy or it may beproviding a delightful online experience.Fig. 13 shows the top 10 airline websites and their respective market share in terms of visits.Indigo, Jet Airways and Spice Jet are neck to neck and their relative rankings change week onweek. This could be due to search, promotions or email marketing campaigns. 19
  20. 20. Fig. 13: Comparison of popularity of the top 10 Airline Websites (Source: Hitwise Category Report) 20
  21. 21. 2.4 Reasons behind the popularity of OTAs in the Indian Travel Market1. Penetration of internet and mobile broadband services is on the rise in India, the number of smartphone users has increased exponentially and so has the usage of smart apps. Today there is an app for just about everything and the benefits of these apps are being experienced in various ways. Travel apps by OTAs help to connect with customers on an additional platform other than the web portal. They also provide convenience and enable travelers to make their booking while they are on the go or even at the last minute.2. Social media, digital networking, YouTube are the buzzwords at the moment. Social media is an effective platform to connect and engage with the target audience. It is important for OTAs to monitor and participate in consumer conversations on social 21
  22. 22. networking sites to manage and leverage their brand. Consumers read reviews, posts, recommendations, etc. shared on social websites which actually influence their buying decision. Also brands can engage with their audience through innovative and interesting activities on social media to create stronger recall for the brand.3. It is important to have an engaging website which is customer friendly and easy to browse. It should seem like a two way conversation wherein the customer has space to post his views or recommendations on the portal. The website carrying destination pictures, hotel views and a city map or similar information makes it easier for the consumer to take a decision. Also, unbiased content on the website helps travelers take an informed decision.4. Consumers like to be spoilt for choice. Very often booking process comes to a startling halt due to lack of payment options. Providing multiple payment options gives travelers the freedom to choose the mode of payment they are most comfortable with. This also leads to more travelers making bookings through the website and helps expand the customer base. 22
  23. 23. 5. Having a loyalty programme helps to further connect with customers and encourage repeat bookings. Additionally, OTAs must acknowledge that Indians still prefer phone interactions over the internet. Hence, adding that personal touch is necessary. 23
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  25. 25. 3.1 Trends identified in the Indian Online Travel Industry Plate No.1: Recent Trends in the Indian Online Travel IndustryTrends identified are emergence of value added services among various OTAs includingdiscount vouchers to woo customers and gather a large market share. Emergence of corporatepackages is another trend identified. Many OTAs are following a hybrid model constitutingonline and offline stores to penetrate the market even further.OTAs are also moving towards better technology so as to cater to the increased traffic and offer auser friendly experience to its clients. They are also becoming more responsible and addressingcustomer queries and complaints swiftly through social media interfaces. It has been identifiedthat OTAs are also a means of information verification and cross checking among customers.One more trend identified includes an increase in PE/VC investments in this sector. 25
  26. 26. 3.2 Prospects of the Indian Online Travel Industry1. With high disposable incomes, global aspirations and the constant need for work-life balance, Indians are looking at travelling with a new-found zest. This, coupled with little to no time for planning or visiting travel agents, has helped online travel portals build a strong niche in the travel industry. Online portals are being seen as a hassle-free, one- stop-shop for customized travel solutions.2. Technology has played a major role in the exponential growth of the online travel industry. Earlier, the travel and tourism industry had a high degree of opaqueness. However, the scenario underwent a sea change with internet penetration. Various advanced information and communication technologies are being employed in the 26
  27. 27. tourism sector around the world. These technologies are used for tourism product development, marketing, distribution and training of personnel in the tourism sector. They are also indispensable in order to know and satisfy the ever-changing demands of the consumers.3. Meta search engines are the latest innovation in online travel. These search engines help consumers find the best travel choices easily by searching data from hundreds of travel sites at once and aggregating the results onto a single platform.4. The secured payment mechanism has also led to a broader recognition of online bookings among the Indian population. With improved security for online and IVR transactions, the government is playing its part in emphasizing the safety of e-commerce transactions 27
  28. 28. by creating awareness on the ways, means and measures used to curb frauds. Initially there was some apprehension about transacting online, sharing confidential details like credit card numbers, etc. But today with safer avenues for transacting online and secure gateways being installed, there is increased faith in the medium. Today, the willingness to transact online rather than offline, coupled with the ease and convenience offered effectively lends to maximization of OTAs. 5. Mobile service is one more segment that is supplementing the OTAs with considerable growth in the past few years as people have begun accessing the internet through smart phones.Therefore, the drivers for the growth of the online travel industry in India include factors such asproliferation of the internet, especially broadband, which has increased online trafficconsiderably. Rising disposable income has also acted as a driver for online travel portals. Indianrailways online portal has proved to be extremely efficient and user friendly, instillingconfidence among people to book tickets online. Other drivers identified include rise in low costairlines which has paved a way to travel by air for the large middle class segment in India thusincreasing traffic to these online portals. Secure payment mechanisms have given people thedesired confidence to carry out transactions online. On the other hand tremendous rise in medicaltourism has led to influx of foreign travelers to India which again gives rise to increased traffic. 28
  29. 29. 3.3 Challenges of the Indian Online Travel IndustryPreviously the online travel market was marked by several challenges. Low internet penetrationwas the major one. Another challenge was habit. The habit of buying an air ticket was through atravel agent and booking a hotel room was always through calling the hotel directly or byshowing up. So it was a habit change that OTAs were dealing with and changing a habitobviously takes a long time. Also, there was limited confidence on online transactions.But eventually, online travel industry grew impressively. The travel boom, emergence of lowcost carriers, proliferation of internet and the growing acceptance of e-commerce, are key factorsthat have contributed to the emergence of this sector.Nowadays however, the online travel industry, in the current market situation is facing numerousnew challenges, namely rapidly rising costs, meeting customer expectations and enormouseconomic pressures. Online travel is the driving force in the e-commerce segment, with a globalcontribution of 70 per cent of all e-commerce activities. While the internet availability,broadband penetration and the prevalence of online banking and credit/debit card is very low inthe country, the primary challenges are the external environment in the travel industry. Thevolatility in the aviation industry not only impacts the inventory and pricing but also theconsumer sentiment while buying a travel product. 29
  30. 30. Lastly, the e-commerce laws in India are still evolving and e-commerce stakeholders in India arenot aware of cyber law due diligence in India. Neither the online travel companies nor the onlineconsumers are aware of the consequences of online transactions entered in India in an impropermanner. As a result, online travel companies and other e-commerce companies and websites areoperating in India with great disregard to the cyber law of India. Further, at times their activitiesare also suspicious. Numerous complaints have also been lodged in this regard with the onlinetravel companies and agencies of India. One example would include the controversial practice ofselling “opaque charges” where the name of the airline is not disclosed till the ticked is booked.Many airlines of India have openly protested against this practice and have either withdrawntheir business completely from online travel portals or have reduced it to the sub minimumlimits.There is an urgent need to formulate dedicated laws for online travel companies and agencies ofIndia. Till then the customers have to bear the irregularities and unfair practices on the part ofairlines and online travel companies and agencies operating in India. However, they can takesufficient legal actions against both airlines and online travel companies and agencies where thesituation and circumstances warrant so. The challenges of the Indian OTAs in a nutshell are:  Problems in deciding the distribution of products through multiple on line and off line sales channels while managing inventory  Pressure to up sell and proper management of the seats sold out 30
  31. 31.  Difficulty in deciding whether to use a system that charges a flat fee or a commission  Changing economic conditions  New financial regulations 31
  32. 32. 3.4 The Future of the Indian Online Travel IndustryThe advent of Online Travel Agencies (OTAs) revolutionized how travel is planned and boughtin India. Travel portals have introduced convenience and ease of operators while expanding thegamut of choices available. And travelers can simply surf the internet to look up a destination ofchoice, evaluated the available options and arrive upon a decision. Travel portals have emergedfrom being mere ticketing agents to becoming a one-stop shop for all travel and holiday relatedneeds. The future of OTAs is marked by consolidation; with new and niche players making aforay into the sector, collaboration will certainly hold the key to success in the online travelindustry. 32
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  34. 34. ConclusionIndian E-commerce is dominated by one sector namely “Online travel” which commands over80% of the market. Globally, India now has the fastest growing population of Internet users, onethat has increased by over 40 percent in 2012 alone. The number of broadband users in India hasbeen growing by well over 1 per cent per month. China and Russia are the only other countries tocome even close to Indias figures for growth of Internet use.Online users in India have exhibited a willingness to make purchases over the Internet, which isevident from the increasing awareness and growth of the e-commerce industry. The first-timetraveler may require the handholding and comfort of a packaged, escorted tour, but withexposure and experience comes confidence to charter ones own course. So the shift topersonalized travel is a natural corollary and a percolation of the customization trend to the tier 2and 3 regional markets in the next three years is expectedThe growth of the Internet and transparency in the booking process with the consumer being ableto easily book all his travel needs are the primary reason for the growth of this category. Cheaperand discounted options are being made available by all OTAs and growth in low-cost carriersoffering affordable fares can also be cited as another reason for this sector’s growth. An increasein numbers and usability of credit cards online on account of secure payment mechanisms hasalso helped.According to IAMAI, of the Rs 14,953 crores online travel market, domestic air travelcontributes 63% followed by Railway tickets contributing 28% while others such as internationalair travel (Rs 543 crores), hotel bookings (Rs 308 crores), bus tickets (Rs 294 crores), tour 34
  35. 35. packages (Rs 86 crores) and travel insurance (Rs 52 crores) contribute the remaining 9%.Withthe increased convenience of paying online and the facilitation from the regulators, the segmentis expected to grow at a much higher rate in the next few years. 35
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  37. 37. BibliographyI. Books:1. Maurer, Ed., 2002, Internet for the Retail Travel Industry, Delmar Cengage Learning2. Berger, Sandy., 2007, Great Age Guide To Online Travel, Que3. Zhou, Zongqing., 2004, E-Commerce & Information Technology in Hospitality & Tourism, Delmar Cengage LearningII. Publications: Travel Monitor India ( A Statistical Guide to the Indian Travel Industry, March 2012 ) by KuoniIII. Magazines: CN Traveller India – Conde Nast India Private Limited India Today Travel Plus – The India Today Group Outlook Traveller – Outlook Publishing India Private LimitedIV. Websites : 37
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