As online hotel bookings see high growth, travel portals attract top dollar

The fight for a larger pie of the rapidly growing online hotel booking space is set to get bigger. Two leading domestic online travel portals- MakeMyTrip and Ibibo- have raised a sizeable $430 million (Rs 2,900 crore) in the current quarter. The three digit growth in hotel bookings seen by the travel portals in recent quarters has only made them want more. 
 

While Indian ecommerce has attracted investment worth billions of dollars, such numbers in the online travel booking space is not common at least in the domestic market. Ibibo last month secured an investment of $250 million from Naspers, the South African Internet and media company which is one of its main shareholders along with Chinese internet firm Tencent. The money will be used to expand presence in the hotel segment, focus on innovations and have more users download its app on their smart phones.
 

Ibibo Group founder and chief executive officer Ashish Kashyap says the share of online in overall hotel booking was just 15 per cent 2015, growing more than double from 6 per cent in 2014. “There is huge headroom for growth as half of the hotel booking can shift to online in next few years. We will bring more inventories and there will be a higher focus budget and alternate accommodation in every nook and corner of the country”, he said. Kashyap said the Ibibo app has seen over 10 million downloads and the country is estimated to have a smart phone user base of 200 million, showing large untapped market. 
 

What is making companies invest millions in hotel bookings? First, the hotel booking space typically offers a much higher margin of 10-12 per cent against airline ticketing margin of 5-6 per cent. Secondly, already a large chunk of air ticketing (estimated at 50-60 per cent) has shifted to online while in hotels the low penetration of 15 per cent offers scope for bigger growth. 
 

For MakeMyTrip, the greater focus will be outside the top 10 Indian cities. “Travel demand from the next level of cities will drive the need to expand the city base and aggregate the demand”, Rajesh Magow, co-founder and CEO, India, at MakeMyTrip said recently. The Nasdaq-listed company, which raised an investment of $180 million from Chinese travel major Ctrip in January, plans to deploy significant funds to expand the high-margin hotel booking business. Magow wants a 50 per cent share in the domestic online hotel booking business. 
 

Companies are willing to invest big cash in acquisition of customers to their mobile sites or apps by offering steep discounts, a regular feature in the online travel space for some time. At the same time, there is need to spend on improving the mobile platform and the app to offer a greater convenience and ease in transactions. 
 

Ankur Bhatia, executive director of Bird Group, which has interest in hospitality and aviation, said India is a large marketplace. “Online hotel booking is very limited and bound to increase as more and more people get internet savvy. This is drawing investors to the Indian market. When the market booms, they will get a great return.”