Yatra Deal Stalls Consolidation in Online Travel
With this, the three major Indian online travel agencies have become well capitalised
The online travel space has moved away from consolidation with the announcement of a reverse merger deal between Yatra and Nasdaq-listed American company Terrapin 3 Acquisition Corporation (TRTL) last week.
With this, the three major Indian online travel agencies have become well capitalised and there is no need for any near-term consolidation in the sector.
With this, the three major Indian online travel agencies have become well capitalised and there is no need for any near-term consolidation in the sector.
“The well-capitalised players will remain in the market. It is a good development for the travel space. The top players will continue to compete and there will be more options for consumers, leading to growth in market,” said Aloke Bajpai, chief executive officer and co-founder of metasearch travel firm Ixigo.
Yatra, valued at $218 million, will list on Nasdaq. The money raised in the process will enable Yatra to continue its growth efforts and compete with other players.
In February, Ibibo secured an investment of $250 million from Naspers, the South African internet and media company, now one of its main shareholders, along with Chinese internet firm Tencent. MakeMyTrip raised $180 million from Chinese travel major Ctrip in January. This means all three leading players are positioned to grow and compete. However, Cleartrip has not announced any large funding in the recent past.
Ankur Bhatia, executive director of Bird Group, which has interests in hospitality and aviation, said while there were no consolidation triggers, the foreign online travel agencies like Expedia could be looking for a target to expand in the Indian market.
Last year, Nasdaq-listed online travel firm Expedia acquired Travelocity, another international player in the space, for $280 million.
In their bid to acquire more customers and market share, companies like MakeMyTrip and Ibibo have been offering steep discounts on hotel bookings, flight tickets, and travel packages.
In the process, all have been burning cash. Yatra incurred a net loss of Rs 88.9 crore on revenue of Rs 354 crore in FY15. The FY16 numbers were not available.
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“They are yet to make money. But, this is true for all online players. Players have not been able to make profit as they try to acquire customers through discounts. It is not a sustainable model. Whatever cash has been burnt, it cannot be recovered from future profitability,” said Bhatia.
The cash raised by these travel companies will primarily go into expansion of online hotel booking and technology to enhance user experience. While bulk of air travel booking (almost 60 per cent) has shifted online in India, the share of online hotel booking is still about 15 per cent. The hotel booking space typically offers a much higher margin of 10-12 per cent against airline ticketing margin of 5-6 per cent.
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