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Editor’s Note: Skift is publishing a series of interviews with online travel CEOs talking about the Future of Travel Booking, and the evolving habits and device preferences of travel consumers. Check out all the interviews as they come out here.
As CEO, Marina Kolesnik has choreographed the evolution of a leading Russian online travel agency, Travel.ru, through a transformative period which has seen a rapid shift from offline to online and mobile, and a dramatic upswing in independent and domestic travel in 2014 following the collapse of major tour operators, the devaluation of the ruble, and political strife, which has seen the U.S. and Europe impose economic sanctions against Russia.
Taking the helm of online hotel booking site Oktogo.ru in 2010, Kolesnik led the acquisition of content portal Travel.ru in 2013, and views it as a way to answer travelers’ needs throughout the travel cycle, from research to booking to post-trip reviews.
As part of its CEO interview series on the future of travel booking, Skift discussed with Kolesnik the specific trends under way in the Russian market, including the advantages accruing to local players because of the increasing importance of domestic travel; the relative lack of importance of any Millennial trend within Russia; the possibility that the Russian government might impose restrictions on international players in travel, and what it’s like to be a woman CEO in the male-dominated global C-suite of online travel.
An edited portion of the interview follows:
Skift: Oktogo acquired travel information and review site Travel.ru in 2013. Can you explain your multi-brand strategy, the role of reviews and destination information, and the implications it all has for the fuure of travel booking?
Marina Kolesnik: Let me take one step back and tell you why we acquired Travel.ru. I’ve always felt that research, shopping and then booking takes quite a bit of time. It can be time-consuming. There are great content sites, they give ideas, but they generally don’t make a very smooth transition as to where do you book your experience that you just enjoyed reading about. There are issues around mapping the data and how do you get to the desired destination.
So that all takes additional research. We have seen that metasearch has mastered the shopping component, but very often they are handing off the customer elsewhere, especially when we are talking about a market that is not as mature as the U.S. Handing off the customer elsewhere could present challenges at times.
Our solution was to acquire a terrific content site like Travel.ru, and to integrate the entire travel cycle, including the research phase when the customer is looking for destination information such as where can I go without a visa or how easy is it to get a visa to a particular country. This is something Russians are always concerned about.
Then there is shopping and booking, plus continuing with pre-trip and post-trip. So we integrated the content, both editorial and user-generated with the transactional model.
Skift: For the post-trip, as well, such as for in-destination activities?
Kolesnik: We are working on that. Post-trip is reviews and feedback, and it’s not just the hotel review. So that is the reason [for the Travel.ru acquisition]. And, as far as the dual-brand strategy, Travel.ru is the main brand. This is the entry-point for customers wherever they are in their trip-planning.
Are they still just researching and getting ideas? Are they ready to transact and book? Or maybe they already booked everything and they want to know how do I get to the airport for a particular destination. It is fine. We are there for all of them, and now our idea is to engage them and retain them and let them come back.
Skift: What about the Oktogo site?
Kolesnik: Oktogo is a focused hotel booking site. And Travel.ru is more of general travel portal.
Skift: What is the status of online and mobile adoption in Russia and how does it fit into your strategy?
Kolesnik: Russia is a big market. It is quite advanced technologically. Broadband penetration is pretty high. As far as Internet usage it is very high. It is the largest among the European countries in terms of Internet users. As far as how mobile, of course, it is picking up. Smartphones are very popular in Russia. Sixty percent of handheld devices are smartphones, and Android has 80% market share. iPhones are now at 10%. Tablets are growing in popularity.
Because Russia is substantially more affluent than China and India, we haven’t seen such a major dominance of tablets. Still a lot of people have a computer and use a laptop or desktop. But, the tablet share, I think, will be growing, as well.
Skift: And for smartphones, as far as booking goes, do you have mobile apps?
Kolesnik: We have apps and we have a mobile website. We’ve seen that it’s particularly valuable for our existing customers, the frequent travelers’ segment, they are the ones who book through the mobile phone. They are the ones who the next time will book through their computer.
So connection between the different devices is important. Unlike, in India, for example, where the customer may not have another device to get to the Internet and book, we see that our customers may have both a smartphone and also a computer for the most part.
Skift: So what are you doing to mix devices together in terms of customers starting to search on one device and finishing on another?
Kolesnik: It has to be a smooth experience as far as a seamless log-in even if they didn’t finish the transaction on one device they should be able to pick up on the other. So we are working towards that, and improving that experience further.
Skift: So what are some of the biggest challenges in acquiring customers and converting lookers, including those mobile lookers, into bookers?
Kolesnik: It’s like other markets. On the one hand you have the competition. We have marketing channels that could become more competitive, more expensive, more difficult to work with. Although Russia is a similar country to China in that the largest search engine is a Russian one, Yandex, with 70% market share. We have two local social networks that are much bigger than Facebook. So there are a lot of local marketing channels, local instruments.
Skift: Do your competitors, such as Booking.com, play aggressively in those search engines?
Kolesnik: They do. They play in search engines. That’s what they do around the world. Social networks is a different story. So one of the reasons for the Travel.ru acquisition is that we acquired a fairly large monthly audience that’s loyal. We have a very strong competitive balance in that particular marketing channel. It [social] is a big point of growth for us.
Apart from marketing channels, there is customer trust. I don’t know if you have been following it for the last couple of months, but we’ve had a series of traditional tour operators going under. And the issue of trust has really become very big.
Skift: The trust issue isn’t about data breaches or anything like that, but about tour operators going out of business, right?
Kolesnik: That is correct. Of course the company that already has the reputation in the market and is able to communicate well with its customers, Travel.ru, has taken advantage of the current situation and we’ve seen more customers flocking to independent travel and away from the packaged tours.
The packaged tours used to be cheaper, but now with the risk of losing the entire principal that you paid people are willing to take a little more effort and maybe pay a little more money, but to be more confident that they know exactly what will happen with their money.
Skift: What role do packaged tours play in the Russian market relative to independent travel?
Kolesnik: Russia is probably like Germany; it has always been very big for packaged tours because Russians love traveling abroad. Until 1990, it was hard for Russians to travel, and after that they wanted to go and explore the world. With that comes a number of things — the language, if you don’t speak a foreign language you might be struggling.
There comes the issue of the visa. Pretty much anywhere you go, except for a handful of countries, you require a visa. The tour operator could take care of all of it for you.
Over the past five or six years, we’ve seen a transition to independent travel now that people have been a few times with a tour operator they are looking for different experiences. They are more confident travelers now.
Now, I believe after what we’ve seen this year, the share of the tour operator business will decline dramatically. I wouldn’t be surprised if it would decline by 40% to 50%. With the balance shifting to independent travel, a lot of people are switching to domestic travel.
Russia is one of the few countries where domestic travel, leisure travel, has been smaller than outbound. I think Brazil, maybe is one of the very few. But there are several forces playing to stabilize that to grow the domestic market versus outbound.
First of all, the infrastructure has improved significantly in the last few years with the Olympics, the FIFA cup, and with lots of private and government money going into building the travel infrastructure. On top of that you have the ruble devaluation of about 20%. For sure, going abroad is more expensive. Local players like Travel.ru are well-positioned to work with the trend. Over the last two months, we’ve seen the shift from international to domestic.And we believe that trend will continue for the next several years.
Skift: I want to ask you about the Millennial trend that we see in places such as the U.S. and China. Is that a big trend in Russia for travel and how does it play out?
Kolesnik: Sure, we have the younger generation, and if they have wealthy parents who pay for their travel then that becomes relevant. And sure they consume technology differently. Yet I have to say that we have such a big market, which is still so much offline. We are still working with the mass market.
Skift: What percent would you say is offline?
Kolesnik: For flights 80% is offline, 20% online penetration. For hotels probably 90% is offline. So I would say the Millennial trend is not on the very top of the priority list for us. The core focus right now is the mass market, those people who now transition from offline to online. The localization that we are offering, including the customer care component, and our offline presence through partnerships, and localized payments options are very, very important.
Skift: Do you have your own call centers?
Kolesnik: We have our own call centers and the share of business for call centers has actually increased over the last six months.
Skift: Is that something you are happy about?
Kolesnik: Well that is the state of the market. The market is in a state of confusion and concern when a tour operator goes bankrupt. If before you were comfortable booking online, now you want to talk and you want to ask several questions about the guarantee, the payments and what are the options and this and that. It hasn’t increased our cost basis and it is a significant point of differentiation from more online-focused international players.
Skift: I’ve seen different hotel booking options on Travel.ru, including pay with points and pay at the hotel. How does that fit together?
Kolesnik: We are the entry point. There are people with different preferences. Of course booking with Travel.ru points is relevant for someone who travels frequently. We have seen a strong increase in retention, an improvement of about 20%. Pay at the hotel is an option that has a lot of interest. For most of the hotels we offer both.
Travelers can prepay on our website, which is the merchant model, and the agency model is pay at the hotel. Pay at the hotel requires a credit card. With prepayment you can choose to pay through the bank or we have those electronic kiosks that people can go and pay there with cash.
Skift: Electronic kiosks where?
Kolesnik: In Russia we don’t have checks, for example, and online banking is still developing. So for a customer to pay their utility bills, their cellphone, they are leveraging those electronic kiosks. They have been in existence for more than a decade. Now they can pay for our travel, as well.
Skift: The majority is pay at the hotel?
Kolesnik: The majority is prepayment, about 70%.
Skift: How do you assess the competitive landscape in Russia, including Booking.com, Ostrovok, Skyscanner and Momondo?
Kolesnik: The answer is short: We have a large market, and it’s growing very fast. Sure there will be competitors. There will be local competitors in any market. There will be international competitors. They all will have their own strengths. The current trends are such that it will probably favor domestic players rather than international.
Skift: Because of the political climate?
Kolesnik: Also including the actual change in travel patterns and more people now traveling domestically. The decline of outbound leisure travel this year is about 20%. That is significant. That is most attributable to the tour operators and the ruble weakness, but the domestic market is growing and it will continue. It will grow and it will have its own new answers that will be much easier to address by local players.
Skift: Where does Travel.ru stand in terms of size in the market? Are you number two? What would you say is the pecking order in the Russian market?
Kolesnik: For the domestic market, we are the number one hotel online travel agency among the local players. Booking.com has always been strong in outbound.
Skift: And where do you stand in terms of Ostrovok?
Kolesnik: To the best of my knowledge we are the leader.
Skift: I read a report that the Russian government plans on building some kind of official travel site? How would that impact you?
Kolesnik: There are two things in place. One is that the Russian government is working on a Russian global distribution system for flights. That has a strategic importance for the country. That is in the works. That’s a real project. The government travel site is more of an idea, a concept, that has not become a real project yet. It has less strategic importance for the country than the GDS for obvious reasons. As a local player, we will be happy to support the government’s efforts.
Skift: But it’s not reality yet.
Kolesnik: Well, if you give me a good example of a very powerful government travel site somewhere in the world then I’d be very curious.
Skift: But if the government launched an official travel site would it curtail any of your activities?
Kolesnik: There is absolutely no information whatsoever on that matter. I do not believe that the government would decide to take on the local players. If anything they may look to limit the scope of business for international players.
Skift: Which could benefit you?
Kolesnik: Yes, it may or may not benefit us. We don’t know.
Skift: But Travel.ru isn’t advocating limits on the foreign players?
Kolesnik: Our modus operandi is always stay out of politics. The politicians do their job. Business people we do our job. We have never been into lobbying. We have never been into things of that nature. In the current geopolitical situation, the best we can do is to continue growing the business, continue bringing jobs to our employees and providing great service to our customers.
Skift: How do the U.S. and European sanctions against Russia impact your business, if at all?
Kolesnik: We work with Russian travelers so anything that impacts the confidence of Russian travelers would for sure ultimately impact any business, including ours. What we have seen in the short term is more Russians focusing on domestic travel. That has been a benefit to us and we have seen strong growth. Indirectly we have seen a big shift in customer behavior, it has been a positive consumer shift, and so we have to work with what is there.
Skift: What is it like being a woman CEO of a large Russian online travel company? I’ve interviewed for this series on the future of travel booking CEOs in China, in India, all over the U.S. and Europe, and they have all been men. How do you view the situation?
Kolesnik: In other words, what is the life of a woman CEO [laughter]? We’ve seen a lot of women CEOs in Russia, much more than in the U.S.
Skift: Just in travel or in general?
Kolesnik: In general. Probably in travel, as well. One of the reasons for that is surprisingly, but Russia has always been very egalitarian between men and women. And what I mean by that is for a number of generations women have had to go to university, they have to go to work, they have feed the family. So I think that is something that we have been born and raised with.
You are on your own and you don’t do anything different than a guy. Surprisingly because Russia has this reputation as a macho society, which on the one hand it is, but if you stand on your feet and you don’t let those strange ideas clutter your mind, you do what you do.
It’s also important to have a good team, and on my team I do have more men. I have a terrific board, which is comprised of both international and Russian investors. I am the only woman on the board, but you just have to do your thing.