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MakeMyTrip Group is betting that the coronavirus pandemic will put an existing Indian national trend of buying more travel online on a faster timeline.
“Given the drive toward contactless travel engagement forced by this pandemic, we believe online booking adoption should accelerate even faster,” said Deep Kalra, group executive chairman of the online travel company based in Gurugram, India.
During an earnings call on Friday, Kalra called out a report by Goldman Sachs from late July that predicted the pandemic would hasten India’s shift from offline, traditional agencies to online ones.
After the pandemic, Goldman Sachs expects India’s online travel market to grow at a pace of 14 percent through 2025. Online booking of hotels will grow 20 percent a year on average through 2025, given low internet penetration now, wrote analyst Heath Terry.
A faster pace of online bookings is critical to MakeMyTrip Group’s game plan. Growing all its travel product offerings is not cheap. The company has found operating profits elusive for years. Spending on marketing, consumer incentives, and research and development has devoured revenue.
Yet the cost of serving each extra customer is marginal. So the faster MakeMyTrip can grow its online customer base, the sooner it can become profitable.
MakeMyTrip executives looked to the future on Friday, using the word recovery 14 times in their prepared remarks.
“As a company, we’ll prudently invest for the long-term and to make sure our brand, technology, and service platform are ready to scale for the inevitable rebound in demand,” Kalra said.
Executives gave examples of their tech investment, such as improved customer service chatbots and “simplified but comprehensive, step-by-step instructions on how to navigate state-by-state restrictions on travel.”
MakeMyTrip is playing a long game.
The pandemic devastated its financial numbers for its most recent quarter
Nationwide lockdown orders in India in March brought travel to nearly zero in April and most of May. The country still has many state-by-state restrictions on travel and hotels.
MakeMyTrip Group reported adjusted revenue of $6.4 million in the quarter ended June 30. During the same period a year earlier, it had earned $141.7 million. The group suffered an operating loss of $34.6 million in the quarter, reflecting an improvement of $8 million year-over-year.
While the earnings call was light on details on its strategic plans, MakeMyTrip’s annual report, which the group filed this month for the year ending March 31, offered more color. The report revealed details about its expansion in the corporate travel sector, its push into building a global bus ticketing operation, its bet on tours-and-activities sales, and its cash burn.
A Bet on Corporate Travel
MakeMyTrip built itself on leisure travel, but since 2018 it has taken business travel more seriously. It introduced a corporate booking tool. Then in April 2019 it acquired Quest2Travel, a corporate travel management company. As of March 31, more than 5,000 corporations booked air or hotel bookings through its brands, implying a significant pace of growth in this segment year-over-year.
Expanding Non-Air Supply
Skift compared last year’s annual report with this one to track differences.
As of March 31, 2020, the conglomerate said it offered 77,000 domestic accommodations in India. That was up 25 percent from the number it reported a year earlier.
The group also said it offered 700,000 hotels and properties outside of India. That was up 40 percent from a year earlier — likely driven by new supply from its strategic partnership with Trip.com Group.
During the earnings call, executives said that its corporate business was only at 10 percent of year-ago levels. The pandemic may dent the size of the small business and corporate travel markets if companies are slow to meet in person for years. Yet MakeMyTrip believes it can still profit from an accelerated shift to online services by those sectors.
MakeMyTrip said Friday that it recently began offering charter flights for corporate clients.
Expanding Its Experiences Sales
This year’s annual report put more weight on “experiences” as a product category. The tours-and-activities segment had been heating up worldwide before the pandemic struck. MakeMyTrip Group hopes to upsell its customers on these services.
MakeMyTrip now offers more than 33,000 activities and experiences in India and abroad, ten times as many as it did a year ago.
Hinting at International Growth in Buses
Ever since it acquired bus booking brand RedBus in 2017, MakeMyTrip Group has been betting more on inter-city bus reservations for growth.
It now has supply deals with 3,500 bus operators. That supply volume was up 40 percent year-over-year — likely driven by MakeMyTrip Group’s acquisition in July 2018 of Bitla, which provides technology support for bus operators. The deals include several major bus operators in India, Peru, Colombia, and select countries in Southeast Asia.
More supply has helped gather more users. The RedBus mobile app attracted 14 million active users per month in the fiscal year 2020, doubling the amount it drew in 2018. The Redbus site recently received more than 6 million searches a day on average.
Sales are up, too. The group’s bus ticketing revenue grew 8.5 percent in the year ending in March to $65 million.
MakeMyTrip Group modified its boilerplate language this year for describing RedBus. It added language to say it is expanding the brand and targeting international markets in a region-by-region approach.
In a hint of its overseas ambitions, the company said it had added a chatbot for self-service queries on its app in the international languages of Bahasa, Malay, and Spanish as well as Hindi and Tamil.
RedBus also sells bus tickets through agent platform, SeatSeller, which comprises more than 13,500 agents across India, South-East Asia, and Latin America, the company said. It also offers more than 200 data feeds, known as APIs, or application programming interfaces, that online resellers can tap.
Investors may wonder if MakeMyTrip would consider an acquisition of an overseas bus booking service, such as Reservamos in Mexico, Wanderu in the U.S., and CheckMyBus in Europe.
Loyalty Program Growth
As of March 31, the group had 1.1 million people enrolled in its free MMT Black loyalty program, up 10 percent year-over-year. It had more than 200,000 members of its paid-loyalty program Double Black, more than twice its number a year earlier.
India’s Package Market Has Changed
MakeMyTrip changed how it described the competitive landscape in the sales of combinations of travel products this year. Last year, it said, “we primarily compete with traditional travel players such as Cox & Kings, Thomas Cook and others in packages offering.”
This year the group’s annual report said, “we primarily compete with traditional travel players such as Thomas Cook, Travel Triangle, and others in packages offerings.”
Meanwhile, late last year TravelTriangle, which brings travelers and agents together for online sales of vacation packages, raised $13 million in a Series D round of funding.
The company frets about legal actions, the latest annual report revealed. MakeMyTrip Group set aside $30.8 million in the fiscal year 2020 as a provision for litigation, equating to about 6 percent of its $511.5 million in revenue.
India’s competition watchdog CCI has launched investigations in the past year into alleged abuse of market power by MakeMyTrip and Oyo Hotels and alleged abuse of market power by MakeMyTrip since its merger with smaller rival Goibibo). Authorities haven’t set a deadline for the investigations.
MakeMyTrip Group is also in a legal fight over the refunding of tickets that got canceled after Jet Airways went bust last year.
Distribution Play by Trip.com Group?
MakeMyTrip said it is receiving airline data from Amadeus, Travelport, and Trip.com Group’s Travelfusion but not from Sabre or China’s TravelSky. That’s a snub of China’s TravelSky, which offers ticket distribution services for flights in and out of China in competition with Travelfusion.
Investors might wonder if Trip.com Group is hoping its strategic investment in MakeMyTrip Group last year will lead to more business for its Travelfusion unit.
The group said it makes its bookings with airlines through Amadeus’s central reservation system and Travelport’s Galileo global distribution system or direct connections to the airlines’ booking systems. Sabre hasn’t had a full distribution contract with MakeMyTrip in recent memory.
MakeMyTrip Group needs rivals to cut back on offering incentives to consumers so it can do the same. The company spent $366.2 million on customer inducements such as cashback incentive, upfront cash incentives, and loyalty program benefits in the fiscal year. That swallowed 71 percent of its $511.5 million in revenue for the year. The expenditure showed almost no decline from the $360.8 million in inducements and loyalty program efforts it had spent in the fiscal year 2019.
MakeMyTrip Group offered no clues on when this cash-back war will end. It said rising competition in the Indian travel market prompted it to hike its spending on marketing and sales expenses to promote transactions on its mobile platforms in India and to promote its higher-margin, non-air ticketing business.
During an earnings call, executives emphasized their success at lowering digital marketing costs as competitors became more focused on promoting their brands than price wars. The company spent $166 million on online video and display advertising on websites, television and print, search engine marketing, referrals from metasearch sites, and other publicity work. The pandemic led to lower sales and marketing spending, which was down year-over-year by 11 percent. But the sales and marketing spending still swallowed 32 percent of its revenue for the period.
The consumer incentives are not improving in its air ticketing business, in particular. For the fiscal year, it spent $75.7 million on inducements on air ticketing or about 43 percent of its air ticketing revenue. That’s slightly worse than how inducements consumed 41 percent of its air ticketing revenue in the prior fiscal year.
Air passenger traffic in India’s domestic sector will shrink about 40 to 45 percent this year, said a July 2020 report by CRISIL Research. Indian carriers will likely log operating losses despite lower prices for jet fuel. As of today, the Indian government limits airlines to flying at only 45 percent full domestically.
Domestic airlines may feel pressure to cut the base commissions paid to travel agencies like MakeMyTrip. Any consolidation in the airline industry would increase that pressure on commissions.
Given those dynamics, MakeMyTrip Group executives are hoping for the pace of online adoption in India to speed up, which would make their business profitable faster.