Skift Analysis: Amazon's Travel Strategy Comes Into Focus

So why would Amazon choose to reenter the travel industry through a seemingly loss-generating proposition, hawking already low-margin airline tickets via a Cleartrip partnership in the domestic Indian market? It sounds crazy, but Skift Research believes that airline tickets are a sensible entry point for a new Amazon foray into travel. Flights is a fairly commoditized product with far fewer suppliers to tangle with — hundreds of airlines worldwide versus hundreds of thousands of hotels, for example. But the challenge of selling airfares is that it is a low-margin offering, typically the least profitable product for online travel agencies. In its most recent fiscal year, MakeMyTrip, India’s largest booking site, earned an aggregate commission of 7.3 percent on the airline tickets it sold. That is before up-front cash discounts, a common travel marketing tactic in India. Given that margin, there is already little room to maneuver, and this conundrum is compounded by the fact that India has some of the lowest domestic airfares in the world, meaning that fixed rupee discounts can quickly translate into high discounts as a percent of the total booking value. MakeMyTrip in aggregate provides a promotional up-front discount of 6 percent on the value of travel products it sells. Hotels are more heavily discounted and that airfares tend to be discounted by smaller amounts or less frequently, amounting to about 2 percent in aggregate. We should note, though, that the aggregate cash discount figure is skewed downward by customers who purchase full-fare products. With that baseline in mind, Amazon’s initial promotional discounts on flights in India range from 4 percent to 10 percent for non-Prime members. That leaves us with some tricky margin math for Amazon: a mid-to-high single-digit commission, presumably a revenue share agreement with partner Cleartrip, and cash back discounts to boot. To that end, it should be noted that all three major Indian online booking sites, namely MakeMyTrip, Yatra, and Cleartrip, produced a loss in their latest fiscal years. Amazon Cash Back on India Flights Source: Amazon Amazon’s international retail operations (though not India-specific) are also in the red, but we would argue that Amazon has advantages over its Indian travel rivals, namely its Prime membership program and broad product offering. Amazon Prime members stand to