Flying high in cyberspace

Europe's online travel king Dinesh Dhamija is striking it rich in the BPO business

It was an overnight transformation. One day Dinesh Dhamija was a mid-sized and relatively unknown British travel agent reckoned to be worth a measly £15 million.

Then he went online, held an IPO at the peak of the dotcom boom, and woke up the next morning worth around £400 million.

Today, Dhamija's ebookers is Europe's largest online travel agency and it notched up business worth £500 million in 2003. If that isn't enough, Dhamija has made a second leap "" from online travel agent to BPO entrepreneur.

Tecnovate, his BPO company in Okhla, Delhi employs 700 people handling back-office work for ebookers and its subsidiaries across Europe. It was recently valued at $160 million.

Dhamija, who started his travel agency from a hole in the wall in Earl's Court, London back in 1980, is first and foremost a travel industry specialist.

But he knows an opportunity when he sees one "" and business process outsourcing is the fastest growing industry in India.

So, he has bought a new building in Okhla which is being gutted and turned into a modern BPO office. In the next few months he will hire another 700 to 1,000 people.

The plan is simple: most of the new staffers will handle back-office work for other travel companies "" that includes travel agencies, airlines, hotels and car hire companies "" around the world.

"We can provide an integrated service. Our team understands the travel domain," says Tecnovate CEO, Prashant Sahni.

Dhamija "" he's the son of an Indian diplomat and moved to Britain in 1968 "" is returning to India in a second way. He has just applied for an IATA licence and is about to open an Indian arm of ebookers.

Says Dhamija: "It will cost us next to nothing because we've already got 700 people working for us here. Nothing extra is needed."

Don't get the idea that this is a story of instant riches being effortlessly turned into even greater wealth. Dhamija and ebookers have been through Herculean struggles during the last four years just to stay afloat.

Says Dhamija, "We knew we had a company that worked. The difficulty was convincing others."

For Dhamija, amazingly enough, raising $60 million turned out to be the easiest part. Ebookers hit the Nasdaq in November 1999 at the peak of the dotcom frenzy and immediately became a star.

The company's share price spiralled from around $18 to $44 in a handful of months.

Dhamija's new status showed dramatically when Britain's Asian Rich List came out the next year. From around 200 one year he catapulted to fourth position.

Dhamija was never carried away by his sudden paper wealth. His strength wasn't as an Internet mouse-meister but as a travel agent who, with 20 years experience behind him, knew the intricate ins and outs of the business.

During an earlier avatar he was the genearl sales agent for Royal Nepal Airlines and that had given him a range of industry contacts across Europe.

In the next seven months he moved ahead with a a gameplan that had been meticulously worked out before the IPO. He cut a swathe across Europe buying 11 mid-sized travel agencies in countries from Sweden to Spain.

Since then ebookers has bought another four and is now in all major European countries except Italy.

The companies were needed for a variety of reasons: they had IATA licences to operate in their countries and also got the cheaper merchant fares that airlines offer certain agents. Also they had knowledge about the travel habits of the local people.

At the same time ebookers began spending heavily on marketing to make itself known. It spent $24 million on one deal (which Dhamija now describes as his worst) with AOL.

Also, the company put up advertisements all over the London Underground. Says Dhamija: "The money is spent just to get known so people come to your website."

Within a few months, however, it was obvious that ebookers was running into trouble. The dotcom boom had turned to bust and investors were tightening their grip on the purse-strings.

As dotcom stocks fell out of favour the ebookers stock price went into a dizzying spin and fell from a peak of $44 to $2. That made it impossible to offer stock deals to potential takeover targets.

Also, the company was burning up money at a much faster speed than it was making it. Nevertheless, by July 2000 Dhamija managed to persuade sceptical investors to put in another $45 million.

After that it was downhill all the way "" not only for ebookers, but for the entire travel industry. Osama Bin Laden's human bombers sent the entire industry into a downward spiral.

In 2003, when a recovery seemed around the corner people stayed at home once again because of the Sars epidemic in Asia and the Iraq war.

Despite these towering difficulties ebookers has made astonishing strides forward in the marketplace. In its first year the company did bookings worth about £23 million. That soared last year to bookings worth £500 million.

Also, it made operating profits of £2.5 million before tax in 2003. In 2004 it is expecting profits before tax of £16 million.

Besides that, on the plus side it has a cash balance of $108 million. On the deficit side it has accumulated losses of around £100 million.

Nevertheless, it is strongly positioned in the European travel mart. Dhamija claims to be the market leader "" though he admits that nobody is sure about the real position "" ahead of companies like Expedia and Lastminute.com.

Expedia, started by Microsoft and later sold, is a colossus in the US online travel business. Lastminute.com was one of the most over-hyped IPOs during the dotcom boom days.

Dhamija has also stolen a march over his rivals by shifting large chunks of back-office work to India. The move to this was, admittedly, born to a certain extent from desperation and the need to cut costs during the company's darkest days in 2001.

Says Sahni: "Our operating cost was out of whack with our business."

Sahni returned to India initially to scout for companies that could handle back-office work for ebookers. He rapidly came to the conclusion that it would be smarter to do it in-house (even though he says "I didn't really want to build a company") so he began operations on a tiny scale with 10 people.

At the beginning Sahni and Dhamija were wary of letting Indian agents take calls from European customers. So they started by shifting non-voice functions and parts of the customer service division to India. Bit by bit, they transferred more parts of the business to India.

Finally, they started routing night-time calls to Tecnovate. Says Sahni: "People don't expect a reply at night so they are glad to get one."

As the company began to grow they bought a shed belonging to Gillette in Okhla and began converting it into a full-fledged BPO operation. And, as the workers ripped through the building, Sahni was forced to operate from a Portakabin on the terrace for a few months.

Along the way Tecnovate has attempted some interesting experiments and succeeded. Being a pan-European travel agency it needed to handle customers speaking a variety of languages from Finnish to Spanish.

So it advertised for youngsters in different European countries, promised them rupee salaries and accommodation and made it sound like a great way to spend a gap year between school and university. It has even made a video that talks about everything from the Taj Mahal to the price of eggs in India.

Now the company has a team of 60 handling calls in languages other than English and about 40 are from Europe. Says Sahni: "It was an idea and everybody laughed at me especially since we started in Finnish."

Every BPO company in India has a desperate need for youngsters who can man the phones and the terminals. So Tecnovate is making a second move that might help to solve the people crunch. It has just opened a training school for people who want to join the travel trade.

The travel school, which will be called Travelguru, will offer six to eight week courses that will be followed by an IATA-certified exam. Travelguru launched on January 1 and the plans are to take on 2,500 students this year.

Sahni believes the travel course could help Tecnovate to stay ahead in the BPO game where staffers changes jobs at the drop of a hat. The company will offer jobs to the best students. More importantly, says Sahni: "When they join the travel school they are committed to the travel vertical."

If he can hang in there and the money doesn't run out for some reason, Dhamija should soon be playing on a comfortable wicket. The travel industry is moving swiftly to the web but there is still a long way to go. And with each passing month ebookers' position gets better.

Says Dhamija wryly: "It's easier to run a large company than a small one. You are always on the breadline with a small company."

In the United States between 15 per cent and 20 per cent of all travel business is now done on the web. Europe is still far behind and only about 5 per cent to 10 per cent is online.

In the next few years, however, it's certain that Europe will go online with increasing speed.

Dhamija reckons it's safe to predict that 25 per cent of all Europe's travel business will soon be on the Net. Says Dhamija: "The travel industry is particularly suited for the web."

Of course, there might be a second way forward that nobody had foreseen. Given the growth rates in the BPO business, Dhamija might find that it's even more profitable than being an online travel agent.

That might be a curious turn up for the books but it might demonstrate that in the travel business there are always new destinations to be explored.

Net escapes

Did Dinesh Dhamija make a smart move by going online? The figures speak for themselves. Europe is still far behind the United States in the online travel business but it is rapidly catching up.

In Europe a leading research agency calculated that travel e-commerce touched around 10 billion euros in 2003. The research agency PhoCusWright also predicts that online travel revenues will zoom to 27.5 billion euros by 2005.

Europe is far behind the United States where PhoCusWright says that $20 billion was spent on online leisure travel in 2001.

Bear in mind that the international travel industry has been buffeted by a combination of factors ranging from Osama Bin Laden and Saddam Hussain to unexpectedly hot weather in Europe during the last three years.

Together these factors have conspired to keep more people at home or travelling shorter distances. Nevertheless, of the ones who did head for distant destinations, a large number went online to book journeys, hotel rooms and hired cars.

Breaking into the online travel business isn't a cheap proposition. And that is reflected in the way the industry has developed. In the United States the business is dominated the giant IAC Group controlled by maverick businessman Barry Diller.

IAC controls the industry mammoth Expedia and two other powerful sites Hotels.com and Hotwire. Together the three sites sold travel worth about $10 billion last year.

In Europe the picture is slightly different. Expedia is muscling its way into the market but it's getting strong competition from companies like ebookers and Lastminute.com. Last month the Lastminute share price began climbing after rumours that Expedia had offered to buy it.

Will Dhamija get an offer from Expedia that he can't refuse? That's a hypothetical question but it can't be ruled out.