Forgive me for veering off from the airline world for a moment here, but for the 2nd time in as many years, I’m actually going to do a bit of original work, rather than just passing on stories I read somewhere else along with a too-cute-by-half comment at the end.
With that self-deprication out of the way, I’ve seen a few articles recently about how quickly the online travel agencies are growing in India, and I wanted to put these pieces in a little perspective.
ContentSutra, a website that follows the e-commerce comings and goings in India, has done a nice job passing along statistics from the online travel agencies (OTAs) in India. From the site, we’ve learned that, for example, Yatra.com (1 of the top online agencies) is saying that they’re averaging $5 million in gross sales per month, selling 2500 airline tickets and 150 rooms per day. While this $60 million annualized gross sales seems impressive for a site that launched last year, remember that OTA revenues are really just the commissions they generate, not gross sales. So, taking an educated guess (let’s assume $6 per airline ticket and $10 per hotel room), they’re looking at $6 million in revenue for the year. We can also estimate that since Expedia’s revenues are about 12-14% of their gross sales, we’re probably in the ballpark (Expedia generates more of its revenues from hotels than does Yatra or the other Indian agencies.)
Leading site MakeMyTrip.com does about $120 million a year, or, we can guess, about $12 million in revenue. We’ll assume that Travelguru and Cleartrip are probably somewhere in the that ballpark (let’s say each does about $9 million a year). Does that mean the entire online travel agency industry in India is less than $40 million?
Journalists have gotten a bit taken in by the gross sales numbers (which are fine, don’t get me wrong), but it doesn’t tell any of the story of how these OTAs will survive in a market where they’re barely getting paid for the sales they make. The OTAs are betting that they’ll be able to create loyal customers over time, but this has proven to be mind blowingly expensive in the US. Add to this the growth of the low cost carriers (who typically pay less than $2 –if that much — for a sale, plus the lack of hotel rooms from which to generate the great margins you see here), and it starts to get ugly very quickly.
Already, tens of millions of VC dollars have been poured into the online travel industry in India, and it appears the results will never get near where they’ll need to be to justify the investment. If I’m missing something in my estimate, I’d love to hear about it…
This concludes today’s Obscure Market Analysis ™ from the OTR. Now back to reading about which celebrities are getting caught having sex on planes.