 "We're not after M&As, as there's no threat from Amazon or Uber: Rajesh Magow")
Travel portal MakeMyTrip, one of the oldest internet-led start-ups in India, is going after hotel market share as a route to profitability. It has even entered segments that were the territory of entities such as Oyo and Airbnb till recently. Although the international threat is limited in online travel, MakeMyTrip co-founder and chief executive Rajesh Magow tells Ajay Modi & Nivedita Mookerji in a candid conversation that it's a matter of time before a strong competitor could emerge. Edited excerpts:
MakeMyTrip was in the news for a dispute with the authorities over service tax. What's the status?
It was primarily because of lack of clarity on service tax. We were paying it as intermediaries or agents. They (the tax authorities) wanted us to pay service tax as if we were a hotel. We are neither an airline or a hotel. Their point was since we were collecting payments on hotels' behalf, we should pay to the government. We clarified that we had given it back to the hotels. We paid Rs 300 crore of service tax and were never a defaulter in our assessment. We also checked with 2,000 hotels which confirmed they were paying and so, there was no loss of revenue to the government. The authorities argued that small hotels were not paying…Everybody has now figured out that the case has little basis. In the Bombay High Court, a positive judgement came out in a similar case involving Cleartrip. So, there's hope.
Identity per se is not changing. Our vision was to be a one-stop shop for travel needs and it still is. Only, the business mix has changed and that is with a purpose. In 2010, when we brought an IPO (initial public offer of equity), 85 per cent of the business came from flights and the rest from hotels and packages. Since then, we have only been growing our hotel business, for two reasons. First, the hotel and packages business has higher margins, of 17 per cent against 6.5 per cent for flights. Another reason is that hotels is a fragmented business. There are 70,000 hotels in the country, while airlines are a handful in number. When you have more suppliers, more value can be added. We now have 30,000 domestic hotels on our platform and 300,000 international. All campaigns of late, all our organic and inorganic moves and investments, are in the hotel space.
What's your market share split? How's the revenue mix changing?
Our market share in total flight booking (online and offline) is 16.2 per cent. Of the online space, we have 50 per cent. In hotels, the online reach is only 15 per cent for the sector. In flights, it is 55 per cent and here the market has matured. This offers lower scope for growth. MMT's share in overall hotel booking is four per cent; online, it is 28 per cent. Now, 54 per cent revenue comes from non-air for us. We consciously want to take it to 70-75 per cent in the next two-three years. By then, we expect 40 per cent of hotel booking to take place online and of that, our market share should be 50 per cent.
How do you see the journey to 50 per cent share in hotel booking?
There's investment that has happened. We are getting tremendous results. A few quarters before, we had 74 per cent growth. Now, we have 300 per cent. The overall sector is only growing 15-20 per cent. There is a shift to online booking. We are getting a momentum, thanks to mobile booking. Now, 70 per cent of our hotel and 45 per cent of flight booking is taking place on mobiles.
Is it true that packages (flights plus hotel room bookings) have stopped growing?
The trend is changing fast towards unbundled booking or a la carte, mostly in the domestic market. When airlines come with flash sales, people book and freeze rates. That said, we will continue to sell packages, more so in overseas travel, since these are high value transactions and travellers want assurance. In domestic, too, in some destinations (Andaman and Ladakh, for instance) where inventory is less, packages will stay.
You recently launched Value Plus in the budget hotel segment. How's that going?
Encouraging. We are putting our weight behind it and have about 1,000 hotels under Value Plus.
Isn't Value Plus quite like what Oyo offers? Why did you remove Oyo from your platform?
When they started, Oyo wanted to be a budget hotel chain through aggregation. Now, they are shifting focus to the flagship model. We removed Oyo because their quality had issues and they were becoming a competition in the budget space. They wanted to aggregate properties and then leverage our platform. It did not make sense for us.
What is MMT's vision on consolidation as is being seen in the e-commerce space?
I don't think there is any need for us to acquire another player for growth but we will be open. Unlike on the other side of e-commerce, there's no threat from Amazon and Uber in our space. The international players in travel have not been able to take us on.
Is it good that there's no international competition?
It is great because we did not let that happen. But, I think it is a matter of time. Eventually, they might come. Maybe someone from China…However, our brand is strong and we will have a substantial lead. It will be tough for anyone entering late.
With your Rightstay category, are you not getting into Airbnb's space?
We are investing in alternative accommodation and it will bring growth. We have launched Rightstay and it will be like an Airbnb. We have 5,000 properties live.
Isn't Airbnb a threat?
Globally, they are a big company. In India, we have more advantage in terms of demand, traffic and brand. Airbnb is starting from scratch here; we will have an edge. Still, competition only helps and we will compete as long as someone does not bring crazy price disruptions through discounts to show financial muscle. Luckily, neither Booking.com nor Airbnb follow the discounting model.
Are the continuous losses at MMT a concern?
This will not continue endlessly. We have seen this with air travel. Sales and promotion expenses in 2007 were 70 per cent of revenue, when we were trying to set up the online booking space. Similarly, we are treating this (focus on hotels) as an investment, though accounting will show this as an operating loss. In 2010, 2011 and 2012, we made profits. Once we reach a criticial mass here (hotels) also, we will start delivering profits. Now, the focus is more on driving market share. The growth rate is expected to come down by the last quarter of 2017-18 and then profitability will start falling in place. In 2018-19, we should make a small profit. In two quarters, more than $100 million has been invested in promotions. We wanted to increase traffic. That is how volumes are coming.
Is there a need to raise funds?
We have $196 million on our balance sheet and do not need more cash at this stage.
MakeMyTrip was in the news for a dispute with the authorities over service tax. What's the status?
It was primarily because of lack of clarity on service tax. We were paying it as intermediaries or agents. They (the tax authorities) wanted us to pay service tax as if we were a hotel. We are neither an airline or a hotel. Their point was since we were collecting payments on hotels' behalf, we should pay to the government. We clarified that we had given it back to the hotels. We paid Rs 300 crore of service tax and were never a defaulter in our assessment. We also checked with 2,000 hotels which confirmed they were paying and so, there was no loss of revenue to the government. The authorities argued that small hotels were not paying…Everybody has now figured out that the case has little basis. In the Bombay High Court, a positive judgement came out in a similar case involving Cleartrip. So, there's hope.
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Increasingly, MMT is appearing like a platform for hotels, rather than a travel portal. Is there a change in identity?
Identity per se is not changing. Our vision was to be a one-stop shop for travel needs and it still is. Only, the business mix has changed and that is with a purpose. In 2010, when we brought an IPO (initial public offer of equity), 85 per cent of the business came from flights and the rest from hotels and packages. Since then, we have only been growing our hotel business, for two reasons. First, the hotel and packages business has higher margins, of 17 per cent against 6.5 per cent for flights. Another reason is that hotels is a fragmented business. There are 70,000 hotels in the country, while airlines are a handful in number. When you have more suppliers, more value can be added. We now have 30,000 domestic hotels on our platform and 300,000 international. All campaigns of late, all our organic and inorganic moves and investments, are in the hotel space.
What's your market share split? How's the revenue mix changing?
Our market share in total flight booking (online and offline) is 16.2 per cent. Of the online space, we have 50 per cent. In hotels, the online reach is only 15 per cent for the sector. In flights, it is 55 per cent and here the market has matured. This offers lower scope for growth. MMT's share in overall hotel booking is four per cent; online, it is 28 per cent. Now, 54 per cent revenue comes from non-air for us. We consciously want to take it to 70-75 per cent in the next two-three years. By then, we expect 40 per cent of hotel booking to take place online and of that, our market share should be 50 per cent.
How do you see the journey to 50 per cent share in hotel booking?
There's investment that has happened. We are getting tremendous results. A few quarters before, we had 74 per cent growth. Now, we have 300 per cent. The overall sector is only growing 15-20 per cent. There is a shift to online booking. We are getting a momentum, thanks to mobile booking. Now, 70 per cent of our hotel and 45 per cent of flight booking is taking place on mobiles.
Is it true that packages (flights plus hotel room bookings) have stopped growing?
The trend is changing fast towards unbundled booking or a la carte, mostly in the domestic market. When airlines come with flash sales, people book and freeze rates. That said, we will continue to sell packages, more so in overseas travel, since these are high value transactions and travellers want assurance. In domestic, too, in some destinations (Andaman and Ladakh, for instance) where inventory is less, packages will stay.
You recently launched Value Plus in the budget hotel segment. How's that going?
Encouraging. We are putting our weight behind it and have about 1,000 hotels under Value Plus.
Isn't Value Plus quite like what Oyo offers? Why did you remove Oyo from your platform?
When they started, Oyo wanted to be a budget hotel chain through aggregation. Now, they are shifting focus to the flagship model. We removed Oyo because their quality had issues and they were becoming a competition in the budget space. They wanted to aggregate properties and then leverage our platform. It did not make sense for us.
What is MMT's vision on consolidation as is being seen in the e-commerce space?
I don't think there is any need for us to acquire another player for growth but we will be open. Unlike on the other side of e-commerce, there's no threat from Amazon and Uber in our space. The international players in travel have not been able to take us on.
Is it good that there's no international competition?
It is great because we did not let that happen. But, I think it is a matter of time. Eventually, they might come. Maybe someone from China…However, our brand is strong and we will have a substantial lead. It will be tough for anyone entering late.
With your Rightstay category, are you not getting into Airbnb's space?
We are investing in alternative accommodation and it will bring growth. We have launched Rightstay and it will be like an Airbnb. We have 5,000 properties live.
Isn't Airbnb a threat?
Globally, they are a big company. In India, we have more advantage in terms of demand, traffic and brand. Airbnb is starting from scratch here; we will have an edge. Still, competition only helps and we will compete as long as someone does not bring crazy price disruptions through discounts to show financial muscle. Luckily, neither Booking.com nor Airbnb follow the discounting model.
Are the continuous losses at MMT a concern?
This will not continue endlessly. We have seen this with air travel. Sales and promotion expenses in 2007 were 70 per cent of revenue, when we were trying to set up the online booking space. Similarly, we are treating this (focus on hotels) as an investment, though accounting will show this as an operating loss. In 2010, 2011 and 2012, we made profits. Once we reach a criticial mass here (hotels) also, we will start delivering profits. Now, the focus is more on driving market share. The growth rate is expected to come down by the last quarter of 2017-18 and then profitability will start falling in place. In 2018-19, we should make a small profit. In two quarters, more than $100 million has been invested in promotions. We wanted to increase traffic. That is how volumes are coming.
Is there a need to raise funds?
We have $196 million on our balance sheet and do not need more cash at this stage.