Online agents' one-upmanship vexes industry

One often comes across travel portals offering attractive discounts such as a cash-back of 5 to 20 per cent on purchase of an airline ticket or a "buy one, get one free ticket" offer or buy four tickets and get a mobile worth Rs 6,000 free.

The online travel agents (OTAs) are busy in one-upmanship of cornering market share and observers feel the business could be heading for a shakeout. ''There has to be a shakeout. I am not sure if they have a sustainable business model. They are just using VC (venture capital) money to buy market shares,'' said the CEO of a leading airline.

"The OTAs are desperate to get business and are discounting below their cost. They cannot continue to do so for long. People are losing money and investors will not continue to fund losses. Discounting will come down with sanity returning to the market,'' said Deep Kalra, CEO, makemytrip.com, the largest of the OTAs.

A key reason for discounting is the intense competition among OTAs "" the last couple of years saw the entry of the second round of OTAs such as Travelguru, Yatra, Cleartrip, Arzoo, Ezeego, Flight Raja and Indiatimes, among others.

These OTAs came in after the first set of players such as net2travel.com or traveljini.com, which entered in 2000 at the height of the dot.com boom, went out of business.

''The market is still not ready to buy online, though the situation is improving by the day,'' said Amalendu Purandare, head of arzoo.com, promoted by Sabeer Bhatia. When Arzoo started in August 2006, only 10 per cent of its business came online. Today, 40 per cent of its business comes online, the rest through call centres. Overall, OTAs account for just 7-8 per cent of airline ticket sales.

"People are still reluctant to use credit cards for fear of frauds. Besides, when your mom is flying to the US, she may be anxious about her meals or stopovers. So, customers still require some level of manual intervention," says Purandare. Besides, he feels that the travel agents, used to doing business in a certain way, are not yet comfortable doing business online.

Discounting helps portals drive traffic and volumes. "Promotions help us attract new customers, many of whom become our repeat customers," said Sandeep Murthy, CEO of cleartrip.com. ''We are building the category and giving people incentive to come and buy online,'' said Ashwin Damera, CEO, travelguru.com.

''You can spend on brand creation strategy (advertising) or pay customers only when they transact. Most of us are doing some of both. Everybody tries to buy market share. This is what the budget carriers did (Rs 500 ticket) when they entered the market,'' reasons Damera. But there's a problem with this strategy.

There's no loyalty in this business as it's a low-involvement category.

"As a customer, I won't blink twice to move to another portal. What's the level of stickiness?'' asks the CEO of a budget carrier. ''It's an intermediary, which is not adding much value (beyond aggregating fares). Why should a customer pay them more or why should a supplier give them discount?'' asks an airline official.

To reach out, many OTAs are trying to go offline (Cleartrip, for instance, is setting up offices in Big Bazaar outlets). "A physical presence will help us reach out to more people, especially in the B&C category towns, and attract existing customers from offline travel agents," said Murthy.

Airline ticketing brings in traffic and volumes, but the margins lie in downstream products such as hotels, car rentals or packages. Most OTAs in the country are finding it difficult to develop these revenue streams as they are more challenging.

But it would be too early to write off the travel portals. "Most online ventures take three-four years to break even, and we are no exception," said Damera. It took Rediff four years to break even. Bazee, which was started in 1999, had not achieved a breakeven when it was acquired by ebay in 2003-04. Experts say that OTAs could become significant players in a couple of years. ''Why should a customer buy at Cleartip, and not Yatra? There should be a compelling reason to buy online (airline is a small element of people's travel plans). They need to add services such as car rentals and hotels,'' adds an expert.