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Exclusive: Cleartrip Lays Off 42, Yatra Tightens Marketing Spend

11 September, 2008

As the dynamics of air travel is changing with more and more airlines finding themselves stuck on the tarmac, the online travel ticketing business is going through some belt-tightening. Cleartrip, an online travel portal, has started laying off people over the past couple of months. While industry sources suggest that the venture funded company has issued pink slips to some 70 employees, the company has confirmed to VCCircle that it has indeed laid off 42. This is about 15 per cent of their total staff of 300.

Cleartrip’s CEO Stuart Crighton told VC Circle that while 10 people have been laid off in the call center, the others have been laid off across various sections. “I think any responsible organisation needs to make sure that they are competitively staffed. I will continue to keep an eye on the business and continue to make sure that we focus on our core strategy and we are staffed appropriately to do that,” said Crighton.

Crighton, who is a co-founder of Cleartrip, has now taken over as the CEO from Sandeep Murthy. Crighton was till now the COO of Cleartrip. Murthy, a representative of Sherpalo Ventures and Kleiner Perkins Caufield & Byers, has become the Chairman. Murthy has been officiating as the CEO since the company kicked off in late 2005.

Crighton said that Cleartrip has had a very low attrition and had absorbed a lot of headcount over the last two years. As part of its cost cutting exercise, Cleartrip is also planning to spend money more judiciously for its marketing and capital expenditure. Cleartrip recently raised funding from DFJ and has in the past raised money from Mahindra Group, Kleiner Perkins Caufield & Byers, Sherpalo Ventures and DAG Ventures, totalling more than $30 million.

Even though Cleartrip admitted the problems in OTA business as a result of high aviation fuel prices and spiralling tariffs, the other online travel agents painted a-not-so-gloomy-picture. Deep Kalra, CEO of MakeMyTrip.com, arguably India’s largest OTA, said that they are hiring people and not sacking at the moment.

Kalra told VCCircle that they are adding at least 10-15 people to their workforce every month. As of now the company employs about 700-750 people all across India. This includes about 250 people in offline business. They have 22 offline centres across India.

Ditto Yatra.com, another leading travel portal. However, OTAs are streamlining their marketing spend. “We are continuing to optimise our marketing expenditure,” said Dhruv Shringhi, CEO, Yatra. “Also we will keep on hiring more people over the next few months as we continue to open more offices,” he added.

Travelguru, which is focused on hotels and holidays, gets around 10% of its revenues from air travel business. But being in travel business it has seen a drop of about 10-15% in flight sales and about 10% in hotel demand.

“We are adjusting marketing expenditure, in non-ROI marketing, and taking smart calls on non-core area expenditure at this stage,” said an offical from Travelguru. It has also cut some staff in non-performance businesses or its non-core focus areas.  

Strategy In Current Scenario

While cutting costs by laying off staff is one part of its strategy to deal with the slowdown, Cleartrip is now also focusing on efficient resource allocation. “We are spending a lot of time in making sure that every marketing dollar is linked to a transaction,” said Crighton. Marketing comprises bulk of Cleartrip’s expenditure, contributing to 40% of  its annual spend.

“It’s not about cutting marketing expenditure but making sure money is used productively,” explained Crighton. “I think we need to continue expanding our market share especially in other parts of India where we are not as strong as we are in west and south,” he added.

Diversifying Revenue Base

“All the travel portals in India today to a large degree are very dependent on their model as an intermediary between airlines and customers,” said Crighton. Only 10% of Cleartrip’s business is non-air, while the balance is from air related businesses. The current slowdown has reduced Cleartrip’s revenues by 10%.

To counter the dependency on the domestic online product, the firm has revamped its hotels product and has formed a partnership with TripAdvisor . The company has also recently rolled out its insurance product and international airline booking product.

“We are reducing the core dependency from the domestic airline product. The uptake from the new products has been pretty exciting. This offsets the decline on the core domestic product,” said Crighton. Now Cleartrip plans to expand its focus on non-air products and is upbeat about online railway booking. Cleartrip is also expecting to reach profitability by end of this financial year. It registered a turnover of Rs 700 crore (gross merchandise revenues) in the last financial year.

On Online Travel Market In India

 The online travel market in India is a very competitive and crowded with the likes of MakeMyTrip, Yatra, Cleartrip and Travelguru. Also big international players like Expedia and Travelocity have entered the Indian market. “They would be planning some customisation and Indianisation of their strategy because there is no clear cut global strategy that you can apply to India,” said Shringhi.

It’s also time for consolidation in the industry. “I also think that time is getting closer when some consolidation may make sense and that could come in many forms,” said Crighton. “But there is no urgency at this point to seek any kind of a deal and we are confident in the way we are deploying our resources,” he added. “I don’t see any consolidation happening this year but may be we can see something happening next year,” said Shringhi of Yatra. 

 


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3 Comments
Ravi Venkatraman - Hotel.co.in . 6 years ago

Why OTAs will bleed.

Here are the last years Gross Revenue Numbers for the top 3 OTA.

(source: sify.com/finance/fullstory.php?id=14736567 )

MakeMyTrip.com

Rs 1,000 Crores Booking Revenue.

73% is from Airline Booking

Yatra.com (35% Market share)

Rs 1000 Crores ($250 billion).

88% of Yatra’s revenues come from Airline bookings.

ClearTrip.com

Rs 700 Crores Booking Revenue

90% from Airline Booking

Net Revenue for the above Transaction would translate to around Rs 50 – 100 Crores.

Example: The Airline ticket value could be Rs10,000 (Gross Booking Value), the current pass thru commisson (net revenue) would be Rs500.

Even with the Airline commission reduced to 0 these companies can maintain the same Gross Booking revenue.

But what does it add to their bottom line (Net Revenue.)?

With 90% (domestic) of these Airline Booking commission wiped out, would reduce their

Net Revenue by 90% to Rs 5 – 10 Crores.

The other problem in this OTA industry is about reporting/recognition of revenue, Gross Booking Revenue Vs Net Revenue

I don’t know the e-commerce Accounting rules in India, but in US and UK the

Revenues should be reported as gross amounts only when the retailer has the primary responsibility for fulfilling the transaction and bears the accompanying risk.

Source: www2.warwick.ac.uk/fac/soc/law/elj/jilt/2001_3/manly

Section: 3.2 Gross or Net Revenues

Internet retailers of goods and services must choose between reporting the sale at the gross amount with a corresponding charge for the cost of the good or service provided or at the net amount retained.

At issue is whether the company takes control of the goods or services or acts as an agent for a third-party provider.

An example of Net Vs Gross Booking Revenue

Priceline.com included in its revenues the full amount customers paid for travel services and then

charged cost of goods sold for the amount paid to airlines, hotels, and car rental agencies.

Traditional travel agencies usually record revenue as the net difference between the two as a fee.

Again, there is no effect on the net income, but the difference in reported revenues is huge.

Here is

When Priceline.com reported 1999 third quarter revenues of $152 million, its market price-to-revenue ratio was 23;

however, if revenues had been reported at net ($18 million) the market price-to-revenue ratio jumps to 214.

Price multiples this high would certainly cause investors to investigate whether the stock was overvalued.

Sameer Patil - Head - Marketing -Arzoo.com . 6 years ago

Many OTAs have gone overboard trying to woo the market by giving 10 to 50% cash back on the purchases with the aim of customer acquisition. But the hard fact is, in online industry, theres not much of customer acquisition as most of the customers simply open around 3 sites, compare fares & book where they get the cheapest deal. All OTAs, at the end of the day, are simply Travel Agents who earn on an average 5 to 20% commission on various Travel Products sold. By giving away more than what one is earning, achieving profitability would be like getting to the pot of gold at the end of the rainbow..

Vikas - Director - LePlaza.in (www.lebooks.in) . 6 years ago

Hi Ravi, IMO it shouldn’t matter whether the revenues are being reported as net or gross. The investors would know and accordingly redo their calculations for a price multiple comparison across the industry.

Exclusive: Cleartrip Lays Off 42, Yatra Tightens Marketing Spend

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