India enters ‘golden age of innovation’ as local giants merge
With the proposed merger of MakeMyTrip and ibibo, India’s nascent digital travel market looks set to go mainstream. David Benady reports
The October merger of India’s two largest online travel agents MakeMyTrip and ibibo Group will in the words of Ashish Kashyap, founder and chief executive of ibibo, “boost the country’s nascent digital travel market and create a golden age of innovation and expansion for the sector”.
It certainly sets the scene for an online travel group with a strong presence across all travel sectors from hotels to packages, airline ticketing, bus ticketing, car sharing, alternate accommodation and rail. Indeed, it brings a number of brands under one roof and unites Goibibo.com, bus booking service redBus.com and car sharing app ibibo Ryde with MakeMyTrip.com. However, it seems that the new merged company will adopt a Priceline style strategy – speaking recently at EyeforTravel North America Todd Henrich, SVP Corporate Development, Priceline said their strategy is to allow newcomers brought into the Priceline stable to compete with each other.In a similar way, Kashyap says the brands under the new MMT-ibibo umbrella are expected to continue operating as separate brands but they will be “built out”.
The move will boost the country’s nascent digital travel market and create a golden age of innovation and expansion for the sector
Not only will the combined group strengthen the network and allow them to scale more easily, Kashyap argues that it will provide the catalyst needed to take the Indian travel market from offline to online. “This will not just benefit the newly combined group, MMT-ibibo, but also the online travel market in general,” he says.
Kashyap, a onetime head of Google India, founded Goibibo in 2007 and has attracted funding from South African group Naspers and China’s Tencent. From this point, the business stormed into second place behind India’s market leader in online travel MakeMyTrip. The all-stock merger values the combined entity at between $1.8bn and $2bn. Kashyap will join the management board of the merged business as president, while MakeMyTrip co-founder Deep Kalra will be group chief executive and his fellow co-founder Rajesh Magow will continue as India CEO.
Monopolistic madness or market for innovation?
However, in a deal of this size, there are concerns that the merged group will result in a monopoly in India’s online travel market. Speculation is that it will account for over half of airline and hotel room bookings made online, which could put rivals such as Cleartrip and Yatra at a disadvantage. As such, the deal still needs to be cleared by the Competition Commission of India.
Kashyap plays down these concerns. “This is an absolutely incorrect way of looking at it. The way to look at it is that the total travel market is worth over $30bn. The consolidated MMT-ibibo will stillbe less than 10% of this market so there is huge room for various players to innovate, including us. Increasing innovation velocity is in fact one of our intrinsic motivations to do the deal.”
The consolidated MMT-ibibo will stillbe less than 10% of this market so there is huge room for various players to innovate, including us.
Profitability has been elusive for both companies due to intense competition in the market, mainly between the two of them. MakeMyTrip’s mobile app has been downloaded 27.5 million times compared to 24 million times for the Goibibo app. Meanwhile, Ibibo is expected to oversee a total of 23.7 million transactions in 2016, some 17 million of these for bus tickets. Some analysts believe the merger will pave the way for profitability.
According to Kashyap there is huge potential for online travel in India. The hotels market, for one, is under-penetrated with less than 15% booked online. Says Kashyap: “There is no one size fits all answer for the marketing of hotels. This will need to be looked atby slicing and dicing categories, sub-categories and locations.” On the hotel score, however, some worry that the combined group will drive down margins for the hotel sector by promoting discounting which could hit profitability.
It’s not just hotels, however, where Kashyap spots an opportunity. “One of the key focus areas will be to further develop outbound air ticketing as this is one online sub-category which is underdeveloped in India,” he says.
There is also plenty of room for growth in the ground transportation space. “Under a fifth of bus journeys are booked online while sectors such as intercity cabs and alternative accommodation are still only scratching the surface,” Kashyap adds, who is optimistic that the merger will bring benefits to India’s travel and hospitality markets and to the nation’s consumers.
“The OTA market presents a significant long-term opportunity,” he says. However, whether rivals will also be in a position to make the most of this opportunity with the merged juggernaut on the scene remains to be seen.