Online Travel Agency - OTAs Part 1

OTA Industry in Indian market

Industry

OTAs, or Online Travel Agencies, are companies that specialize in selling travel-related products and services. These services include booking air tickets, hotel rooms, travel packages, bus tickets, and railway tickets through their websites and applications. Typically, OTAs act as third-party agents, reselling products and services provided by others in exchange for a commission.

Revenue Generation

The Major revenue source is taking rate**.** Take rate refers to the percentage of the total booking value that the OTA keeps as a commission for facilitating the booking. Apart from this OTA’s get income from incentives from GDS Galileo or Amadeus, convenience fees, cancellation fees, incentives from cards, and the advertisement they show on its platform.

Factors Influencing Revenue Variation Among OTAs

• Larger, established OTAs have more leverage to negotiate take rates with suppliers due to their higher volume and reach.

• OTAs provide Advance deposits as suppliers would be slightly cash-hungry. OTAs normally customize it by amount and duration based on the provider for the optimized rate they get.

Market Share

• In the fiscal year 2023, the value of the travel industry in India is projected to reach between Rs 2,825 and Rs 2,845 billion, reflecting a Compound Annual Growth Rate (CAGR) of 6-8% from 2017 to 2023. The industry's growth trend is expected to continue.

• The Indian travel industry utilizes online booking for 66%-68% of its services. Out of this, Online Travel Agencies (OTAs) account for a 67%-69% share. The gross booking revenue of the OTA industry in India is projected to grow at a compound annual growth rate (CAGR) of 13-14% between fiscal years 2023 and 2028, amounting to Rs 2,440 billion - 2,460 billion.

Key Sub Segment

Air Ticketing

By 2024, India is projected to become the third-largest air passenger market globally. This includes both domestic and international travel. It's anticipated that by 2036, India will host over 480 million air travelers. Indian carriers are also projected to double their fleet capacity to over 1,100 aircraft by 2027 (Source: IBEF report, 2023).

Industry estimates for fiscal 2023 show that online air ticketing has a high penetration rate of 74-76%. In the same year, air ticketing accounted for 62%-64% of the industry's revenue. The revenue for Online Travel Agencies (OTAs) comes from commissions and volume-linked incentives from airlines. MakeMyTrip dominated this segment. Over the last few years, domestic airlines in India continued to reduce the base commissions paid to travel agencies.

Hotel booking

CRISIL MI&A forecasts the market size of the organized Indian hotel industry to reach Rs 800-820 billion by fiscal year 2023. The contribution of the Tourism and Hospitality sector to the GDP is expected to reach US$ 512 billion by 2028, growing at a robust CAGR of 16% from 2021-28.

As of fiscal 2023, online penetration in hotel bookings is relatively low, sitting at 31-33%. This is due to the fragmented nature of the Indian hotel industry. Despite the hotel industry having a lower volume share than airlines, it accounts for a significant portion of the Online Travel Agency (OTA) revenue mix due to its higher margins – between 15-30%. As of 2023, hotel bookings generate 13%-15% of the industry revenue.

Hotel OTAs are a concentrated market in India, with the top 3 players—MakeMyTrip, Agoda, and Booking.com—comprising 75% of the hotel market. Yatra.com is the only other significant Indian OTA with a market share of 10% in Fiscal 21.

Note: In case you are interested in looking at the Hotel industry more I worked on this some time back

Hotel Industry Notes

Rail & Bus Ticketing

IRCTC directly book online 75% of rail tickets, with only 25% of tickets being routed through OTAs, who act as distributors of train tickets for the IRCTC.

Online penetration in buses is only 15% in 2020 pre-pandemic and after seeing a surge during COVID times is expected to settle at 30% by 2024. ixigo(it’s subsidiary ConfirmTkt and AbhiBus) collectively dominate the segment. B2C distributors of IRCTC.

In the next 5 to 10 years rail OTAs are expected to focus on the service side to build a deeper presence.

Indian Growth Story

Development of tourism infrastructure, and rising income levels help grow the online travel market in India which is estimated to grow to Rs 3,335 billion – 3,355 billion in fiscal 2028 from Rs 1,900 – 1,920 billion in fiscal 2023,

OTAs’ growth potential

• Convenience: - The biggest advantage for customers is the availability of multiple options across segments, providing the option to compare prices, dates, locations, and time schedules on a single platform

• Competitive pricing - OTAs and their banking partners have been aggressive in offering discounts and rebates. This trend is expected to continue.

OTAs’ growth challenges

• Direct bookings by hotel players - larger hotel chains are now focusing on their websites to draw customers.

• Limited presence in holiday packages segment - The holiday packages segment continues to be dominated by the larger branded TTAs since it requires experienced personnel on-site and operational expertise in tour management.

  The Byke Hospitality Ltd

Porter’s 5 Forces

Intensity of competitive Rivalry [High]

• The Indian OTA market is highly competitive, The Industry is dominated by major players but faces competitive pressures not only from the other major players but also from other small and emerging players in the market.

• MakeMyTrip dominates the overall market with a leading position in Air and Hotel booking with a presence in the Rail/Bus segment. Even with Sucha's dominance, they lack the pricing power and still spend a good amount on discounts.

The Threat of New Entrants [Medium]

• Global OTAs choose to focus on the comparatively nascent Indian market. Entry of new players with deep pockets

The threat of Substitutes [Low]

• Players like OYO build their OTAs like ecosystems with a complete tech stack for hotel operations to transform fragmented, unbranded hospitality assets.

  OYO

• Online players like Airbnb changing the concept of traditional hotel accommodation.

Bargaining Power of Buyers [High]

• B2C segment: Consumers directly book their tickets through OTAs, based on where they find cheaper prices or better services. Customers have the option to go different OTA or directly.

• B2B: This category includes corporate clients and travel agents. This requires a dedicated service component. Corporate Online Travel Agencies (OTAs) establish long-term loyalty as businesses strive to incorporate OTAs with Enterprise Resource Planning systems and into their Human Resource Management System.

Bargaining Power of Suppliers [Medium].

• OTAs in some cases provide deposits to get favorable terms and access to inventory and rates. This comes as a win-win for both.

• Larger airlines, hotels, car rental companies, and tour operators are now focusing on their websites to draw customers. Encouraging direct bookings helps hotels avoid the OTAs’ commission with tailored service.

• Consolidation suppliers like in the airline industry may also adversely affect existing relationships and arrangements with such suppliers.