Texas-based online travel agent Travelocity Global on Tuesday announced the acquisition of Indian hotel aggregator Travelguru for an undisclosed amount. VCCircle has learned that the deal size could be between $10-12 million, which Ashwin Damera, CEO, Travelguru, termed it as "factually incorrect". Damera was also quick to deny VCCircle's report that the promoters - Ashwin Damera and Amit Taneja (founder of Desiya, which was acquired by Travelguru in December 2007) - made $1 million each as part of the deal.
Travelguru, a Harvard Business Plan contest winner, was launched in 2006. Venture capital firms Sequoia and Battery Ventures had committed $25 million to the company in two rounds of funding. The company had revenues of Rs 9.4 crore in FY08 and Rs 10 crore in FY10. VCCircle talks to Damera about the deal with Travelocity, Travelguru's strategy going ahead, and the state of India online travel market.
Q. What does the deal with Travelocity mean for you?
Travelguru remains independent as a hotel focused brand for Travelocity in India and I continue as the CEO of the business. I am personally very excited. There are several reasons why working with Travelocity is a big differentiator. They are very big in India already and they already have around 3,000 employees directly and indirectly, through Sabre and WNS. Sabre has been working in India for a long time and it was recently voted as top 25 places to work in India. They know India unlike anybody else. Also from a team perspective it was non-disruptive. They do have footprint here but what we do is very complementary.
Q. What is the nature of the deal - stock or cash?
I cannot comment on that. In your article you have mentioned that I have got $1 mn and Desiya founder Amit Taneja has got $1 mn as part of the deal. That is complete speculation and not true. What I can tell you is that Travelocity is a new player in this market and as far as Travelguru is concerned, they want to make sure that the key management stays. When I say management, I mean a larger set of people who have right reasons to stick. But we should not interpret this as
that we have stock.
Q. Why did you do the deal now?
There is no right time for a deal. Twelve months back was a good time for valuations, but the valuations at that time were no different from the discussions we had in the past. The question for us was if we build the company for a longer time, could it dramatically change a lot of things (for the company). The feeling was that consolidation in this industry is inevitable. And going with a global player who can drive demand for us from UK and US, who has an India foot print and
also has the advantage of being the largest GDS (Global distribution system) was an advantage no one else could offer us.
Besides, from the Travelocity side, they recently had a change at the Asia-Pacific level. Roshan Mendis became head of their Asia-Pacific about 3-4 months ago. We had been speaking to various players for last 6-9 months, however, they (Travelocity) had pushed this faster from their side. Both the parties were keen. One thing to keep in mind is that all the big hotel consolidation plays globally have come out of the recession. If you look at Expedia in 2001, they grew 2.5 times
faster than the market did. If you look at Ctrip in China after SARS, they really hit the ball out of the park. So I think this combination allows us to replicate some of those successes in the Indian market. The timing from a business perspective is very significant.
Q. Travelocity India and Travelguru will continue as standalone businesses in the market. What will each other's focus?
There are many markets where there is a full service OTA and there is a hotel brand. For example Expedia is a full service OTA and Hotels.com, which is owned by them, focuses only on hotels. The key for that is to make sure that our focus remains only hotels. And their (Travelocity India) focus will be on flights, dynamic packaging and everything else. On the backend, we will continue to optimise wherever we can. But in the front-end we remain very different with separate user interface, promotion, etc.
Q. Is Travelocity investing additional money into the company?
They obviously acquired the company to grow it. India is one of the top two investment destinations in Asia-Pacific, and they will invest money and resources here. This is a pretty large investment for them being a private company and what all is happening in the world. Right now we have access to resources that we didn't have and we are very excited.
Q. Going ahead, what will be Travelguru's strategy?
We are the leading hotels provider in the domestic market. Travelocity is very strong in markets like UK, US and Australia and going ahead we want to make sure that all the inbound demand goes to our hotel partners. The second area of focus will be technology and optimisation. Sabre has cutting edge technology and tools like CRM, SCM, SEO. We will continue to invest in both B2B and B2C business. And one of the rationales for doing the deal was that we were a leader,
but can we increase our leadership.
Q. What happens to your deal with IXIGO?
As we talk, the deal with IXIGo stands. And since our focus is hotels, and only 1-2% of our revenues come from flights.
Q. Do you see more consolidation in the Indian OTA space?
Going with an Indian player was never really an option for us. Taking stock in an Indian player is something that goes against the DNA of Travelguru. We said flight is not a good business and hotels is where the money is so why would we merge with someone who is 80-90% flights.
The only interesting players were international who had very strong hotel only business. What I can tell you is that international players will only be interested in hotels brands. You look at the best companies across the world they are 90% or above hotel business. Because that’s where the money is, because in every other market flight booking price has gone to zero. In India it nearly went down to zero, and will eventually go there since the airlines are bleeding so much.
So I think M&A will happen but it will be difficult if you are a flight focused player unless you have some differentiation like hotels. And hotels business is not easy to build organically, and its easier to acquire it and grow. We have seen this with the acquisition of Desiya. Also many of the domestic players have realised that IPO will not happen in next 2-3 years and their investors will seek an exit at some stage.
Q. Do you see areas like railways and bus ticketing driving profitability for Indian OTAs?
In rail, you can make Rs 10 per ticket, around Rs 15 per ticket if it's first class. How many tickets must you sell in order to make money? Players offering rail tickets are using this product so that
customers come to the website and book other products. Similarly with bus ticketing. You can't make money from these businesses. People will say that I booked so many tickets and this is my topline, but what is your bottomline? It's very difficult to make money from business with 1% margins.
Some of these players will make a pitch saying that we have done so many transactions but global players would like to look at bottomline. Some of the global players in the OTA space are listed and profitability is important to them. And profitability comes from plays like hotels. Metasearch can also be profitable if done very well. There are examples like Tripadvisors. Flight-only or bus-ticket plays have rarely succeeded. Look at Orbit, at one time it was a big company but now its market capitalisation is lower than its revenues, which is more than 90% flight booking.
Q. What is the online and offline ratio of Travelguru's business right now? How do you see that going ahead?
Right now, it's 50% online and 50% offline. Going ahead it depends upon the customer but my sense is that online proportion will increase as market matures. Right now people still have concerns doing online transactions and there are issues like internet speed and penetration. But over the next 2-3 years, those concerns will come down and we see more people going online for transactions. And since now we are under Travelocity umbrella, we can take longer. We have an offline network of more than 3,500 agents in B2B business. We have pretty strong business that caters to offline demand for hotels too.
(Photo coutsey: Indiatodayimages.com)