A new year of mergers awaits eTravel startups

NEW DELHI: Consolidation is expected to be the dominant theme in the Indian online travel sector over the next 12 months, with the major players anticipated to gobble up their smaller rivals in their bids to grab market share, as well as to offer more niche services.
On the technology front, domestic ventures will also have to gear up for what has been described as Travel 3.0 - greater utilisation of artificial intelligence and machine learning - in order to achieve increased automation and enhanced user experience for consumers.

Industry experts also believe that funding for the sector, which has been an investor darling over 2016 and 2017, may see a dip, with risk capital likely to plump for market leaders, rather than back newer entrants, as they look for assured returns.

“2017 saw the early days of dialogue happening in the right direction. 2018 will see the acceleration of consolidation take place. The drive from the investor community is going to trigger more transactions,” pointed out Ashish Kashyap, founder and former chief executive of Ibibo Group.

Consolidation in the travel space in Asia’s third-largest economy is likely to mirror broader global trends, which has seen the major players, such as China’s Ctrip snap up their smaller peers, as they look to stave off the entry of unicorns, such as Airbnb, particularly in the more lucrative hotels and hospitality segment.

“There is now a clear realisation that trying to build a business that has global parallels, but does not solve local parallels, will not work here. We should be seeing more mature decisions, relating to mergers, taking place, and which will be driven by concept of impact and value creation,” Kashyap said.

In November, the Nasdaq-listed Chinese travel giant announced its acquisition of travel discovery app Trip.com for an undisclosed sum, and industry experts believe that the domestic giants, such as MakeMyTrip and Yatra are gearing up for a similar strategy over the next 12 months.

“One big consolidation - MakeMyTrip and Ibibo - has already taken place. The entry barriers to be an online travel venture has also come down. Therefore, there are a lot of ventures that are catering to a niche audience, and could likely be acquisition targets for the bigger players going forward,” Aloke Bajpai, chef executive of Ixigo, told ET.

An example of that would be Yatra Online Inc, India’s second-largest online travel operator, acquisition of corporate travel services provider Air Travel Bureau (ATB) in an estimated cash-and debt deal of $22.5-27.5 million in July earlier this year.

Separately, in September, ET reported that a clutch of blue-chip private equity firms were in discussions to invest in B2B travel platform Travel Boutique Online, and in the process potentially provide Naspers, the largest stakeholder in the company, with an exit.

Additionally, the two majors, along with a handful of others, such as Ixigo, have raised significant amounts of capital, including debt, from their investors. However, bankers feel that the trend may not continue into the new year.

‘There is a lateral shift indeed taking place. But the problem is most of the players, outside the top three are not seen as having undifferentiated business models,” Sanjeev Krishan, Leader - private Equity and Deals, PricewaterhouseCoopers India, said.

“Once consolidation happens, investors, however, will support the buyer. Capital will be forthcoming,” he added.

The differentiator, according to will be in the company’s technology platforms.

“Voice will be the game changer... Technology will replace human interaction, which in turn will is likely to result in drastic cost reductions to the industry overall,” Bajpai said.