Deep Kalra, the poster boy of India’s online travel industry, has a pile of cash that could land him a large acquisition, but he wants to split the money and buy small firms that will help him add businesses related to his once core activity of selling air tickets.

“We have $88 million in cash for acquisitions. But we are not looking for blockbuster acquisitions. Instead, we are looking at small companies that we can digest and that will be having synergies with our company,” Kalra, chief executive and founder of online travel firm MakeMyTrip Ltd, said in an interview. “We are looking for companies that are bundling hotels and holidays.”

He’s kept with that pattern for about a year now. In May 2011, MakeMyTrip acquired a majority stake in Luxury Tours and Travel Pte Ltd, a Singapore-based agency that provides hotel reservations and tours, for $3.4 million. In July that year, the firm bought a stake in Ixigo.com, an online travel search engine, for $4.8 million, and in November, it bought a 29% stake in Delhi-based My Guest House Accommodations Pvt. Ltd for $1 million.
The purchases helped MakeMyTrip add technology muscle and the ability to offer customers accommodation ranging from budget to luxury rooms. Online ticketing firms are evolving into the larger travel companies they’ve aspired to be, providing travellers with hotel rooms, holiday packages, car rentals and bus and rail bookings. This is also an effort to reduce their dependency on air ticketing, with the airlines industry remaining volatile.

Deep Kalra says MakeMyTrip seeks to diversify its business through acquisitions that allow it to bundle luxury and budget services at one platform

“We are reducing our exposure to the air ticketing portfolio and increasing other verticals such as hotels and holidays. In the next three to four years, we will make it 50:50. Now it is 75:25, compared to 80:20 six months ago,” Kalra said.

“Shifting focus from air to hotels and holidays is a natural evolution all online intermediaries go through. With reducing commissions on air ticketing, the non-air segment offers higher margins and long-term growth for OTAs (online travel agencies),” said Chetan Kapoor, research associate at travel industry research firm PhoCusWright Inc. But “the biggest challenge in this shift is contracting domestic standalone hotel inventory, which is highly fragmented.”

Some hotels can’t even afford the technology they have to adopt to connect to a central booking grid and Indian online travel agencies have worked hard to get them onboard, Kapoor said. “In some cases, OTAs have offered technology for free in order to get properties online. MakeMyTrip claims to have over 8,000 domestic hotels and guesthouses in its annual report, and Yatra, with its recent acquisition of Travelguru, is now a formidable player in the non-air segment,” he said.

On 30 June, Yatra Online Pvt. Ltd, which runs Yatra.com, bought a 100% stake in Travelguru.com, a leading aggregator and seller of domestic hotel rooms. Earlier in January, Yatra acquired event and entertainment promotion portal Buzzintown, and in June last year it bought hotel aggregation firm MagicRooms.

Dhruv Shringi, co-founder and chief executive of Yatra, said the firm bought Travelguru.com to leverage its ability to bundle solutions and widen the range of its products.

Other online travel agencies, including Cleartrip Travel Services Pvt. Ltd and Ezeego One Travels and Tours Ltd, too, are offering customers more content and options other than air ticketing. Response to the hotel deals offered by the online firms, however, has been tepid, say experts.

“Compared to rail or air ticketing, hotels and holidays have limited uptake online because of higher prices (especially international). Although OTAs are offering combined flight plus hotel booking capabilities, dynamic packaging is yet to gain momentum in India because of low credit card limits and general consumer tendency of making cash payments,” said Kapoor of PhoCusWright.

“Travellers also seek personal assistance and customization in booking holidays and OTAs are yet to build scale to address this, compared to major tour operators who have a strong offline presence,” he added.

MakeMyTrip’s Kalra is using Ixigo.com to build technology platforms to launch new services to take advantage of the 4G spectrum rollout in India over the next two years. Recently, the firm launched mobile apps for Android devices and iPhones and an upgraded mobile website for smartphones.

“The real game-changer is going to be 4G. A technology company can emerge from nowhere or from anywhere once 4G is rolled out. We have to be super-nimble to respond to the market,” Kalra said.

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