Mondee's acquisition of fast-growing CTS (Cosmopolitan Travel Service) makes the group North America's largest airfare wholesaler by market size. Notably, Mondee could afford the deal thanks to fresh backing by TCW Group, a giant asset management firm. Lots of institutional money is seeking opportunities in travel this year.
Institutional money is betting that technology can squeeze out new profits from an old business model: ethnic travel agencies. They’re doing so via investments in Mondee, a tech platform provider that has rolled up several airfare consolidators that primarily serve ethnic travel agencies.
In the past year, TCW Group, an asset management firm with $217 billion under management, has joined earlier investor Morgan Stanley Private Credit and Equity in financially supporting the expansion of Mondee. On Tuesday, Mondee said it had used some of this money to acquire, for an undisclosed price, CTS (Cosmopolitan Travel Service), a 50-year-old airfare wholesaler based in Detroit.
This year, the combined Mondee group will generate about $3.5 billion in gross bookings for airfares, said Mondee CEO Prasad Gundumogula. The deal makes Mondee, based in Foster City, California, the largest airfare consolidator group in North America.
Gundumogula conceded that CTS was growing faster than any of the airfare wholesalers that it has rolled up since 2013.
“CTS has a very good execution team focused on traditional sales, superior to any other player in the market in showing value to airlines and agents,” Gundumogula said. “But legacy tech had put a limit on the potential growth of CTS, and our tech platform, TripPro, will help the brand pour jet fuel on its growth.”
CTS drives high volumes on transatlantic routes, which is something Mondee Group lacked. Mondee hopes to apply some of CTS’s best practices to its portfolio, which includes SkyLink, ExploreTrip, C&H International, TransAm, and Hariworld Travels.
Gundumogula said Mondee plans additional acquisitions to enhance the group’s geographic reach. For more context, see our story from last week, “Major Travel Agencies Are on a Consolidation and Expansion Fast Track.”
The digitization of ethnic travel
Ethnic communities sometimes prefer to book through agents that speak their language and offer culturally relevant marketing. Yet a new generation of ethnic travelers is used to mobile-first research, communication, and customer service, while many travel agencies haven’t invested in new technologies and marketing techniques to keep pace.
“Mondee can bring conversational commerce to help agents serve customers in the way millennials have grown used to,” Gundumogula said. The messaging platform enables “asynchronous communication” for offline agents, he added.
Mondee has been using fresh funding from institutional investors to build a new customer relationship management (CRM) tool for the 45,000 agents that belong to its group. The system, which launched in the past year, can help agencies automate digital marketing campaigns.
Mondee has also been at work on new payment technologies to help agents to accept a broader array of payment methods faster and more cheaply.
Why Airlines Like This Segment
Carriers like to sell long-distance flights to individuals who are “visiting friends and family” (or VFR, in the trade lingo). Yet airlines may struggle to sell on their own to ethnic communities, such as immigrants to the U.S. who may want to visit extended family in their hometowns in countries like China, India, the Philippines, or the Caribbean. So airlines sometimes find it is more cost-effective to distribute tickets via consolidators that work with the agencies that have relationships with those communities.
Airlines increasingly want to be creative in how they sell their tickets. Mondee has led among consolidators in investing in the new technologies for retailing airfares, it said. (Mondee is a technology provider to agents and does not — as a core business — sell directly to consumers.)
For example, Mondee has been adopting Delta’s preferred way of displaying airfares through so-called next-generation storefronts. American Airlines and United are also participating in the effort via help from with ATPCO (formerly known as Airline Tariff Publishing Co.), an airline-owned tech firm.
Travel agencies that serve ethnic communities often favor consolidator fares. A consolidator is a bit like how Costco offers wholesale rates on retail goods. A consolidator gets tickets from airlines in bulk at a deep discount and then distributes them to agencies, which are typically offline. These agencies often focus on specific ethnic markets such as India or China, for example.
Consolidator fares are cheaper because they come with restrictions. The most common catches are that the tickets are non-refundable and don’t let passengers earn frequent flyer miles.
Mondee works with more than 100 airlines to make sure the discounts they provide to wholesalers aren’t made widely available to the general public, combatting a problem of so-called “rogue fares” that can move from offline to online agencies against contract rules.
Despite recent institutional investment, Mondee remains majority-owned by its co-founder CEO Prasad Gundumogula, he said. The company was co-founded in 2011 by Gundumogula and Vajid Jafri.
Photo credit: The village of Soufrière on the Caribbean island of Dominica, as seen from a viewpoint in Gallion, Dominica. Airfare wholesalers like Mondee help airlines sell tickets to agencies in ethnic communities, such as immigrants to the U.S. who may want to visit extended family in their hometowns in places like the Caribbean. Discover Dominica Authority