Bullish On MakeMyTrip As Indian Travel Trends Look Positive

13 April, 2012

As highlighted in our initiation report, MakeMyTrip's expected 50%+ top line growth is fueled by a large and fast-growing Indian travel industry that is moving online, rapidly growing Internet penetration, a booming Indian economy, rising middleclass/ income levels, and strong competitive position. As the largest OTA in India, the company’s well-being is closely aligned with that of the travel industry in the country.

We are continuing with our monthly review of the most prominent trends in the Indian travel industry with specific focus on hotel and air travel trends. Despite some concerns about the quality of air travel data and the government’s reporting schedules, we believe that including air travel trends is incrementally net positive as it helps build a more comprehensive picture of overall travel trends in India.

â Indian hotel travel trends: After robust 1H-10, occupancy growth rates decelerated from June to September and have been quite volatile in Q4-CY10. Smith Travel Research data showed a 3.4% Y/Y growth in December, following a 3.4% Y/Y decline in November. ADRs showed healthy growth in Q4-CY10 and improved 1.9% Y/Y in December, staying in positive growth territory for a fifth consecutive month. Consequently, RevPAR in December improved 5.3% Y/Y, registering its 10th month in 2010 with positive growth. During our intra-quarter conversations with Management, we thought that the company was rather upbeat on H&P trends.

â Indian air travel trends. Air passenger traffic growth in India has been very strong in the latest reported 12-month period (Jan. Dec. 2010). In domestic travel, Y/Y growth rates stayed in the 15%-25% range for most of the reported 12 months and growth reaccelerated after a drop to 9.9% in August. Similarly, in international travel, Y/Y growth rates stayed in the 15%-25% range for most of the period but in addition to August (up 9.3% Y/Y) we saw Y/Y growth outside of this range in December as well (up 8.7% Y/Y). We visited India in early January and our checks indicated strong air demand for the December quarter.

â Other travel trends in India. After suffering for almost two years from the 2008 terrorist attacks and somewhat weaker economic patch, the travel industry in India

saw robust growth in 2010. In early January we visited India for a field trip and met all the major OTAs; we believe that the three largest (i.e. MakeMyTrip, Yatra, and Cleartrip) have gained significant traction and are nicely positioned to benefit from the fast-growing travel industry in India. However, in our view, rising competition may likely result into booking fees on air eventually disappearing and it will be a while before new hotel capacity is added (constrained by highly expensive real estate and poor infrastructure). Still, we believe that India will be adding new air seat capacity very rapidly (two carriers are placing large orders for new planes).

Worldwide travel trends started improving in Q1-10 and continued into 2H-10. In India, trends in the travel industry have been healthier, overall, with positive growth in airline passengers and hotel occupancy starting as early as mid-2009. ADRs in India, though, did not start improving until 2H-10 and occupancy growth decelerated between May and September 2010.

Indian hotel travel trends

After a robust first half of 2010, occupancy growth rates decelerated from June to September and have been quite volatile in Q4-CY10. Smith Travel Research data showed a 3.4% Y/Y decline in November (the first in more than a year) followed by a 3.4% Y/Y growth in December. ADRs showed healthy growth in the fourth quarter, continuing a positive trend that started in

August ’10 after more than a year of Y/Y declines. In December, ADRs improved 1.9% Y/Y and remained in positive growth territory for a fifth consecutive month. Consequently, RevPAR in December improved 5.3% Y/Y, registering its tenth month in 2010 with positive growth.

Indian air travel trends

Despite some concerns about the quality of data and reporting schedules, we believe that including air travel trends can only help build a more comprehensive picture of overall travel

trends in India. Air passenger traffic growth in India has been very strong in the latest reported 12- month period (Jan. Dec. 2010). In domestic travel, Y/Y growth rates stayed in the mid-teens to mid-twenties range for most of the reported 12 months and growth reaccelerated after a drop to 9.9% in August. Similarly, in international travel, Y/Y gowth rates stayed in the same mid-teens to mid-twenties range for most of the period but in addition to August (up 9.3%

Y/Y) we saw Y/Y growth outside of this range in December as well (up 8.7% Y/Y).


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Bullish On MakeMyTrip As Indian Travel Trends Look Positive

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