MakeMyTrip, India’s largest online travel company, was supposed to have defeated its rivals and cruised to profitability by now — if you had believed the predictions of experts about five years ago.

Investors have been enthusiastic. In 2017, India was the second-largest country for travel startup funding after the U.S., according to Skift Research’s Venture Investment Trends and Startup Opportunities in Travel 2018 report.

But India has not repeated a middle-class expansion at the same pace that China did. While hundreds of millions of Indians have improved their fortunes, most are still are not yet feeling flush enough to spend heavily on online travel.

In fact, the overall move from offline to online sales has slowed. In 2016, the country’s e-commerce sales for all types of goods was almost no higher than the year before. While things have picked up in 2017, the pace has not been torrid.

Against that backdrop, MakeMyTrip shines for its relatively fast pace of growth. On Thursday it released its financial results for the third-quarter ending December 31, 2017.

The company, which operates the MakeMyTrip, Ibibo/Goibibo, and Redbus brands, saw revenues rise to $172.5 million, a 36 percent increase from the same period last year.

Yet profitability is not in sight.

For the third quarter, if one excludes expenses related to its merger a year ago with online travel company Ibibo, losses on an ongoing operational basis essentially narrowed from $45 million a year ago to $33.9 million.

But a couple of investment analysts struggle to see MakeMyTrip achieving sustained profitability for years to come. A look at the trend over the past year shows that the company has been ramping up its marketing and promotion expenses — an alarming trend.

In a recent report, Goldman Sachs equity research analyst Manish Adukia forecast that the earliest MakeMyTrip will achieve profitability is 2021. Management is more optimistic, having told an Indian publication last August that it forecasts profitability by 2020.

The reason? MakeMyTrip faces well-funded competitors — Paytm, Booking.com, Yatra, Cleartip, Oyo Rooms, Treebo, and Fab Hotels — who are willing to effectively operate at losses to afford price wars to gain share.

Rajesh Magow, co-founder and CEO of MakeMyTrip India, conceded the point in part on today’s call. “Price disruption in this category only means that plans for profitability will be pushed out further.”

War of Attrition

MakeMyTrip has a few arrows in its quiver that will enable it to slay its foes and ultimately emerge victorious from the price wars.

Cash is one. Goldman Sachs estimates that MakeMyTrip “has enough cash on its balance sheet to sustain more than two years of its existing burn rate” — unlike most of its competition.

Ownership savvy is another. About 53 percent of the company is owned by Naspers, the South African media and internet group, and Ctrip, China’s largest online travel agency.

Both have practice at outwitting rivals in emerging markets, and they can share their expertise with MakeMyTrip’s executives.

A third factor is technology. On the call today, executives said that, thanks to the company’s cash cushion, they are able to afford to invest steadily in their technology development which enables them to be more efficient.

Exhibit A: Chief executive and co-founder Deep Kalra said the company already has the ability to look at India’s hotel market as about 50,000 sub-markets. It can identify when heavy discounting is happening in, say, 900 of those markets, and only target matching sales in those markets, Kalra said.

Competitors without such tech savvy have to resort to broad-brush sales that hurt their overall bottom lines, he said. MakeMyTrip is about four times the size of next-largest homegrown competitor Yatra in airline tickets sold.

It is about ten times the size of Yatra on domestic hotel rooms nights booked. By driving more traffic to hotels, it encourages suppliers to work more closely with it.

Less than 15 percent of India’s hotel supply is affiliated to chains, according to estimates by Softbank, compared with 70 percent in the U.S., according to STR market research.

Fourth is marketing segmentation. Kalra has repeatedly said that MakeMyTrip is cannier than its competitors, particularly foreign ones, in segmenting the Indian market and offering different marketing campaigns, pricing, and inventory depending on the nature of customer segments.

At a broad level, MakeMyTrip’s flagship brand is targeting mid- to high-end customers, while Goibibo is going for the more budget-conscious. But the digital marketing campaigns for each brand further divide the various potential customer groups by preference and spending potential.

Fifth is its domestic ground transportation play.

A key problem that online travel companies, particularly foreign brands like Booking.com, have is repeat user engagement. Indians do not book online travel enough to develop strong loyalties. But MakeMyTrip has aggressively pushed the sale of book and rail tickets, and now leads in online share of inter-city bus sales.

This repeat usage cements the brand identity in consumer minds, executives argued. Already they are rolling out cross-selling programs, such as offering hotel discounts to rail ticket buyers, to give the customers an incentive to come back to its platform.

The early word is promising. In the past year, the company said it has incrementally increased its share of overall online sales of air tickets and hotel stays. The company claimed to have more than 50 percent online share in those two segments and that it will get to more than 60 percent by gross booking volume by 2020.

As a caveat, the estimates of three investment bank analysts for the company’s share position were somewhat more modest by several percentage points.

Loyalty Effort

Executives conceded that Booking.com has been “aggressive” in finding 10 percent off discounts for members of its Genius program at high-end properties.

But MakeMyTrip believes its loyalty programs, introduced last summer, will provide a defensive moat there.

MMT Black Loyalty lets travelers earn vouchers redeemable for future MakeMyTrip bookings by reaching certain spending levels. More than 135,000 people have joined, roughly double the 73,000 that had joined by end of the second quarter.

The company also debuted MMT Double Black, where consumers pay an amount — of about 1000 to 1,500 rupees (about $20 to $25) — to get access to members-only benefits, such as no fee for canceling trips under typical conditions. About 20,000 people have enrolled so far.

The company said it is still testing. But it will expand the marketing of that program this year.

Not a Winner Takes All Market

India is enormous. While the middle-class elephant has been slow to wake, it will. Playing the long game matters. But the market is big enough to support multiple players.

One “X factor” is Priceline Group, whose Booking.com and Agoda brands are interested in the market. In September, news publication The Hindu said that Booking.com had 28,000 domestic hotels on its platform compared to about 45,000 on MakeMyTrip.

The company has made signs that it wants to avoid price discounting to gain share. In an interview with TravelBizmonitor.com, last year, Oliver Hua, managing director for Asia Pacific at Booking.com, said the company wanted to woo repeat customers by branding and superior customer experience rather than on price.

The company has an advantage over MakeMyTrip in being able to offer a globally tested user interface that is effective at persuading customers to book.

Might Priceline Group consider buying MakeMyTrip? One negative factor is the relative lack of precedent public company mergers and transactions in the India internet space and national sensitivity to foreign involvement in its markets.

Looking ahead, Goldman Sachs forecasts that MakeMyTrip will process $4.7 billion in gross bookings in the fiscal year 2018, netting revenue of about $585 million. That will make it the largest homegrown player.

Now if only it can get its sales and marketing costs as a percentage of revenue to continue to drop and thus increase its profitability. To do this, it may copy backer Ctrip’s China playbook and seek more investments in, or mergers with, competitors to reduce damaging price competition.

Yet take any straight-line projections of India online travel growth with a dose of skepticism. Recent trends suggest India is not the next China and MakeMyTrip is not the next Ctrip.

Photo Credit: The famous Taj Mahal is India's signature tourist destination, although this picture was taken before scaffolding was recently put up to clean the structure this year. MakeMyTrip is India's largest online travel company. MakeMyTrip