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Deep Kalra, Chairman, MakeMyTrip
TMT

Only 3-4 OTAs will survive in India and two will make money: MakeMyTrip’s Kalra

01 September, 2017

MakeMyTrip Ltd, India’s largest online travel agency (OTA), is focussing on its hotel business to drive revenue and growth. The Nasdaq-listed company, which saw net revenues from the hotel business surge by almost 140% to $81.2 million in the first quarter of FY2017-18, is expecting the hotel segment to contribute nearly 75% of its business in next two years. The firm, whose losses widened post its merger with smaller peer ibibo Group, aims to focus on growth which could make its runway to profitability even longer. In an interaction with VCCircle, MakeMyTrip chairman Deep Kalra talks about the merger with ibibo Group, competition from new-age hotel chains and a possible timeline to become profitable.

How has the merger with ibibo group been?

Mergers are tough at multiple levels. Mergers of online companies involve technology, processes, brand and most importantly people. We have made good progress on all these fronts. The company is doing well and there have been no hiccups. Between Rajesh Magow (MakeMyTrip CEO), Ashish Kashyap (ibibo Group CEO) and myself, we make sure that we change the tyres while the car is still moving. One positive aspect of our approach is that we are not going to try and change everything. We pick up our battles, we have decided that we will adapt wherever there is a better practice and we have made a structure flexible enough where we can borrow from each other while we keep going. We have anyway decided to keep both brands. So the merger is coming along well.

In Q1FY18, losses widened even as revenues doubled. What are your thoughts?

We had $1.1 billion in GMV, and more than $140 million in revenues. I don’t think anybody else is achieving such growth. When it comes to product mix, hotels contribute 57% of our business. When we floated our IPO in 2010, airlines accounted for 90%. Today air bookings form only 30% of our business. The rest is hotels and bus bookings. We will keep moving towards hotels because hotels are a much healthier business. It is fragmented and we bring a lot of value to the hotel ecosystem. Big chains have their own distribution system. But how does the small hotel distribute itself? How does it get itself found when it is in a hill station or a tier 2 city? We become their marketing platform and they pay us only if they sell a room, instead of giving out a fixed ad which may or may not get customers. Hence, we play a very important role in the hotels segment.

We have clocked a triple-digit growth in revenues which is stunning. Frankly, losses are a conscious part of our investment right now. We could easily cut back and become profitable in a day. We saw profitability during the post IPO period. But it is critical that we keep on opening the hotel market rather than waiting for it to open for us. Over time, discounts will come down but for now we need to open the hotel market. Only 10% of the hotel market is online right now. But 60% of air travel booking is online. So let’s get at least 20-30% hotel market online and become market leaders there.

What is the idea behind keeping MakeMyTrip and ibibo separate?

We see merit in keeping the two brands separate. After the merger, we realised that there is only a 23% overlap between the customer bases of the two brands. The rest is distinct. ibibo is very attractive for the budget customer looking for deals in the hotel space. MMT is more relevant for the segment above the budget space and even for premium customers.

So why would we kill the brand which has got a natural traction? Also, if someone is exiting one brand, there is a good chance that he/she is migrating to our other brand.

How do you see competition from the new crop of hotel chains such as FabHotels and Treebo?

These are new-age chains and are also trying to change the way hotels operate. It is a noble goal but not so easy. We have always been a company which is aware of competition but obsessed with customers. I would not like to change that equation. We are focussed on the customer’s pain points and try to deliver on that. Competition will always keep trying to surge ahead. But we are in a leadership position and the only way to maintain leadership is to be customer-obsessed.

We are doing hyper personalisation. What you see on the app now is on the basis of the digital footprint you left behind – what you sorted, filtered, rejected and bought. So, if everyone in a group is going from Delhi to Bombay, each one will see a different set of hotels on the app.

We are using artificial intelligence-powered chatbots. Around 25% of all post-sale service requests is being handled by chatbots now. All these efforts are based on what our consumers want. We can’t think of a solution which is people-intensive. The hire people only in technology and product segments.

Chains such as FabHotels and Treebo are available on MMT, ibibo apps as well. How does that affect your business?

If we see someone as a supplier, we have no issue. But if we see someone is becoming an aggregator itself on the app, we have an issue and we are not going to help promote that brand. Both MMT and ibibo apps had OYO Rooms last year but its goal was to be an aggregator as well. But if one’s goal is to be a supplier, we are okay with it.

On MMT, we have MyValue+ and Make My Trip Assured hotels, while on ibibo we have GoStays. We don’t do anything about how the hotel is being operated, but we get data on which hotels always get the best net promoter score (NPS) and the best use reviews in that price category and hyper location. So we go to those hotels and ask them to be a part of MMT Assured or GoStays. In return, they will be promoted above the others. This will give both hotels and customers a good experience.

What is the contribution of the chains to your hotel business?

The contribution of these chains is still very small—say, about 15%. But we focus more on the segment and it will continue to grow.

Within every hyper location (because that is how customers choose where they want to stay) we will have a budget hotel. Not every hotelier wants to align with these new-age chains. They don’t want to give up their brand and identity. In fact, we have found that many mom and pop stores and family-owned hotels do not want to give up their identity. For them, their brand is working well and they want to run it themselves. These are the people we would want to associate with, and they will continue to retain their brand but will be accredited by MMT or Goibibo. That’s the fundamental difference between us and other chains.

How is the airlines vertical doing?

Airlines continue to grow. We are growing faster than the market and market share continues to grow but the growth in the hotel segment is faster. Airlines have thin margins as well.

You have also entered the cab booking space. Is it growing?

Intercity cabs is where there is scope. Many people want to take a trip and not want to drive themselves, and when these cabs come back they are typically empty. They can’t stand at the city cab stand and wait for customers. Using technology, we can pair them up with customers who want to come back. So we have a play there because we know where customers want to travel. There is a lot of scope and there is less competition, but it is very early days.

How do you see travel tech as a segment evolving? Many new players have cropped up but have shuttered even after raising funds.

In travel technology, it is expensive to build a brand. Even Cleartrip is a good company but has somehow fallen by the wayside because consumers keep gravitating towards a brand they think is more reliable. They look for selection, location, price and want to get done. They can’t check multiple platforms.

Over time, there will be three-four brands and only two will make money. The winner might not take all in this game but it will take the most.

It is tough to have a business unless you have not only a serious edge in terms of technology, but also do something for customers that other brands don’t do.

Do you expect more consolidation in the sector?

Some of it has already happened. For some, consolidation might be the only way for survival.

Are you looking at acquisitions?

We are constantly looking but it has to be a compelling proposition. The Goibibo-redBus merger worked for us because redBus has good technology. There is nothing exciting in other me-too companies.

How do you intend to become profitable?

We have seen it before and we want to have growth with profitability. But when it is an either-or situation, growth gets preference. Profitability will definitely be on the cards by FY19 or FY20. It is a slow process to get there. We can turn profitable now but it will bring down growth and we don’t want to do that in the hotel segment. We can attain profitability when we have close to $10 billion in gross bookings and over $1 billion in revenues. Profitability will come with scale. And hotels would be 75% of the business. That is the fastest growing vertical for us and a key focus area.

What are MMT’s future plans?

We are looking at continued growth in the hotel segment. We are also looking at an international push for both air and hotel segments, which is why we got into a partnership with Travelport. To start with, we will focus on Middle East, South East and some key cities in Europe like London and Paris.

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Only 3-4 OTAs will survive in India and two will make money: MakeMyTrip’s Kalra

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