 "Cleartrip targets long-term sustainability, not just volume growth")
The fast growth, however, has come at a cost.
Shrinking commissions, thin margins and subdued demand for travel, with intense competition, are posing problems for online travel companies. Cleartrip’s auditors, BSR & Company, in its report for FY12, said the “accumulated losses are more than 50 per cent of its net worth at the end of the financial year”.
According to travel industry research firm PhoCusWright, Cleartrip has a market share of 20 per cent and competes with rivals MakeMyTrip (47 per cent), Yatra (20 per cent). The company’s balance sheet for FY12 reveals the standalone loss increased from Rs 39 crore in FY11 to Rs 51 crore in FY12. Its accumulated loss in March 2012 was Rs 169 crore, up from Rs 118 crore. (The company’s balance sheet shows it had made a modest profit of Rs 6 crore in FY10.)
To be fair, its main rivals, MakeMyTrip and Yatra, are also losing money. So, what went wrong with Cleartrip? Its management answered it in the FY12 balance sheet. It said the company had incurred heavy advertising and promotion expenses and created goodwill for the brand and would accrue its benefit in future. It had also said the normal break-even period for online travel companies was three-five years. Over-dependence on the air travel business (Cleartrip earns 80 per cent of its revenue from air ticketing) and marketing and promotion costs are hurting. Sources say the cost of acquiring a customer in the online travel segment is high. Some experts put the figure at Rs 400-500 and, hence, the losses. In India, Cleartrip mostly advertises digitally. But in Dubai, Cleartrip has put up a giant billboard covering a large portion of the facade of a building on Shaikh Zayed Road (pictured), said to be the second largest billboard in the world.
“In the early days, OTAs were chasing market share. But it has evolved. The cost of acquisition is nowhere close to Rs 400. There are some parts of business as in hotel bookings, where it takes lot more to acquire customers. There we do spend Rs 400-500 but we also earn lot more from each transaction. We are not chasing market share,” says chief operating officer Samyukth Sridharan. “We have grown from zero per cent in other business to 20 percent in the last three years. The way we see it, air ticketing business will remain important but its importance will continue to diminish as other businesses grow,” Sridharan adds.
Cleartrip chief executive Stuart Crighton maintains the portal is not bleeding. “Our investors are satisfied with us. The last 12 months have been hard for the industry. There has been limited growth and that does put pressure on cost structures. We are responding to it well. We are reasonably well-capitalised and are are executing our business plan,” says Crighton. The company also sees mobile as the future. It currently has apps for the Android and the iOS platforms, while 25-28 per cent of the entire search volume is generated via mobile. Moreover, seven-eight per cent of the total transactions are also happening on mobile.
A source says Cleartrip has been trying to raise funds from other investors but failed because of a data theft case filed against it by rival Travelocity. Crighton denies it: “There is no mandate to raise capital. As regards the data theft case, we have earlier refuted allegations completely and we maintain that position.” He adds venture capital funds that have invested in Cleartrip are not looking for an exit and there was no plan for an initial public offering now. Sources, however, have a different take. After MakeMyTrip’s listing, funds invested in portals like Cleartrip at high valuations and are now stuck as the market is not favourable.
“Given transactions like redBus and JustDial, there is somewhat renewed optimism around VC/PE (venture capital/private equity)-backed companies offering a meaningful exit to investors. Having said that, the exit mechanisms and frequency are nowhere close to where they need to be to create an ecosystem for investors around healthy returns,” says Mohanjit Jolly, managing director, Draper Fisher Jurvetson, one of the equity investors in Cleatrip. In a statement Concur, a US-based travel solutions provider, said it is committed to the Indian corporate travel market since it continues to represent a key growth opportunity. “As for Concur’s investment in Cleartrip, the Concur Perfect Trip Fund is encouraged by their performance.”
Emails to other VC investors did not elicit any response.
Cleartrip was started by Hrush Bhatt, Stuart Crighton and Matthew Spacie. Spacie exited after a couple of years. Filings with the corporate affairs ministry show Cleartrip has a paid-up equity of Rs 178 crore and is owned by entities registered in Mauritius and Cayman Islands. (Cleatrip Mauritius owns 99.99 per cent in Cleartrip Pvt Ltd and its holding company is Cleartrip Inc Cayman Island.) The Gulf business is run separately.
Till now, Cleartrip has had five rounds of funding. The first was in 2006 from Sherpalo Ventures and Kleiner, Perkins, Caufield and Byers. Subsequently, it got funds in November of the same year and then in 2008. Crighton says till now, the company has raised $67 million with the last investment coming from Concur.
Concur invested $52 million in Cleatrip in two tranches in 2011 and 2012 in Cleartrip Inc and, thus, the actual funds raised by Cleartrip could be higher than $67 million. Crighton refused to comment on the company’s equity structure and declined to give a break-up of investments.