Eyefortravel - Travel Distribution India Report (edition 1)

Part of EyeforTravel’s

Emerging Online Travel Markets Series

TRAVEL DISTRIBUTION

INDIA REPORT Edition 1

EyeforTravel Research 7-9 Fashion Street London E1 6PX UK For queries contact: [email protected] www.eyefortravel.com EyeforTravel Ltd, January 2008

Table of Contents

Travel Distribution India Report • Edition 1

Table of Contents Executive Summary & Trends

1.1 1.2 1.3

2.1 2.2 2.3

3.1 3.2

3.3

3.4 3.5 3.6 3.7

4.1 4.2 4.3 4.4 4.5

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1. Country Overview

13

Macroeconomic Setting Key Demographics Government Policies

13 20 37

2. Tourism Overview

47

Indian tourism – A period of strong, resilient growth Domestic tourism analysis Outbound tourism analysis

47 49 54

3. Indian Travel Distribution & Trends

63

Size of Indian Travel Market Domestic Travel Market Time-series analysis by industry sector: travel sector trends; online vs. offline; direct vs. indirect; key players 3.2.1 Domestic Railways 3.2.2 Domestic Cruise Travel 3.2.3 Domestic car rental industry 3.2.4 Domestic Airlines 3.2.5 Domestic Hotel Industry

63 66

Outbound Travel Market Time-series analysis by industry sector: travel sector trends; online vs. offline; direct vs. indirect; key players 3.3.1 Outbound airlines 3.3.2 Outbound hotels 3.3.3 Outbound cruise travel 3.3.4 Outbound car rental 3.3.5 Outbound railways Online Travel Agent (OTAs) Metasearch Engines Traditional Intermediaries Package Tours

106

4. Indian Traveller – Search and Buying Behaviour

131

Internet Users & E-commerce Internet usage characteristics Mobile phones Payment solutions Consumer travel buying cycle insights

131 136 137 140 142

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69 70 71 75 90

108 113 116 117 118 119 125 126 129

3

Table of Contents

5.1 5.2

6.1

7.1 7.2 7.3 7.4 7.5

4

5. Marketing, PR & Sales

155

Advertising Media and Online Marketing in Travel Basis of competition in key travel segments

155 164

6. Case Study

179

Makemytrip: Leading through efficiency and aggression

179

7. Going about Business in India

189

One India, multiple languages A cultural perspective Regulatory framework E-commerce Entering India - Distribution, marketing and brand strategies

189 190 191 194 196

Useful Contacts

199

Research Methodology

209

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List of Figures

Travel Distribution India Report • Edition 1

List of Figures Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Figure 9 Figure 10 Figure 11 Figure 12 Figure 13 Figure 14 Figure 15 Figure 16 Figure 17 Figure 18 Figure 19 Figure 20 Figure 21 Figure 22 Figure 23 Figure 24 Figure 25 Figure 26 Figure 27 Figure 28 Figure 29 Figure 30 Figure 31 Figure 32 Figure 33 Figure 34 Figure 35 Figure 36 Figure 37 Figure 38 Figure 39 Figure 40 Figure 41 Figure 42 Figure 43 Figure 44 Figure 45 Figure 46

India’s GPD at constant price (base year 1999) India’s nominal GDP GDP per capita of India at constant prices Per capita GDP in nominal terms Per capita GDP by state Per capita travel and tourism consumption in INR (personal travel & tourism expenditure) (2006) Travel & tourism expenditure as a percentage of per capita income (Personal travel & tourism) Exchange rate against key currencies (average annual rates) Foreign direct investments into India Sector-wise foreign direct investments in India (INR billion) – year 2006-07 Employment growth by gender Employment growth by gender & age group (per 1000 workerpopulation ratios – rural & urban areas) Tax rates for corporates India’s population growth Share of households in each income bracket Middle class households – number (mn) & average annual consumption per middleclass household (INR ‘000) Average household size Share of households vs. share of consumption (household income in ‘000 inr) 2005 Share of households vs. share of consumption (household income in ‘000 inr) 2025 Age-wise population distribution – India Dependency ratio Paid vacation days & paid public holidays India’s consumption expenditure & share of urban Urban population penetration (in %) Education profile of Indians aged seven years and older, 2005 Internet subscribers (2002-07) E-commerce revenues Growth of credit cards issued Growth in debit cards Volume (in millions) and value (INR billions) of eletronic payment cards in India Break-up of online bookings at IRCTC website by mode of payment (October 2007) India tourism marketing budget (2005-06) Segmentation of prepaid cards Features of open loop prepaid cards Features of prepaid cards Telecom subscribers Visa processing time for Indians Growth in Indian travel & tourism (value & volume) Domestic travel & tourism expenditure by segment Domestic tourists Domestic travel & tourism expenditure by objective, 2002 Top tourist places in India Domestic travel figures, CAGR, market share Average trip length by purpose of travel Average length of stay for important tourism states (2005-06) Growth in Indian outbound travellers (million)

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13 13 14 14 15 15 16 16 17 17 18 18 19 20 21 21 22 23 23 24 24 25 26 26 27 28 28 29 29 30 31 33 34 36 39 44 45 47 48 49 49 50 51 52 53 54

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List of Figures

Figure 47 Figure 48 Figure 49 Figure 50 Figure 51 Figure 52 Figure 53 Figure 54 Figure 55 Figure 56 Figure 57 Figure 58 Figure 59 Figure 60 Figure 61 Figure 62 Figure 63 Figure 64 Figure 65 Figure 66 Figure 67 Figure 68 Figure 69 Figure 70 Figure 71 Figure 72 Figure 73 Figure 74 Figure 75 Figure 76 Figure 77 Figure 78 Figure 79 Figure 80 Figure 81 Figure 82 Figure 83 Figure 84 Figure 85 Figure 86 Figure 87 Figure 88 Figure 89 Figure 90 Figure 91

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Purpose of outbound travel, 2005 Destination selection criteria Indian outbound tourists by destinations, 2005 Outbound Indians, segmented by destination Dream outbound destinations by type of trip (India Consumer Snapshot 2007 survey data) ‘Repeats’ as a percentage of total Indians visiting that country Average trip length by Indians in major countries Outbound traveller segmentation – FIT vs. group Total Indian travel market size Total Indian travel market - online vs. offline Total Indian airline market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (USD million) Total Indian railway market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (USD million) Total Indian cruise market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (USD million) Total Indian car rental market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (USD million) Total Indian hotel market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (USD million) Size of the Indian domestic travel market, break-up by online vs. offline, 2001-02 to 2011-12F (INR million) Domestic travel market by segments 2007-08F Domestic travel market by segments - 2001-02 to 2011-12F Domestic online travel market by segments 2007-08F Domestic online travel market by segments 2001-02 to 2011-12F Online bookings by city Domestic railways market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (INR million) Rail - number of domestic reservation passengers carried Growth in domestic online rail ticket bookings Domestic cruise market size, online vs. offline market size (INR million), 2004-05 to 2007-08F Growth in domestic cruise passengers Domestic car rental market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (INR million) Total number of cars registered as taxi (2002-12F) Value of the domestic car rental market (2002-12F) Domestic airline market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (INR million) Domestic airline revenue & growth Growth in total domestic airline passengers Segmentation of domestic airline passengers by purpose of travel (2006) Market share of airlines by revenue (value) and by number of passengers (volume) - (2006-07F) Market share of domestic LCC vs. FSC Air travellers as a percentage of total domestic travellers India’s per capita air travel is well below other countries (2005-06) Air traffic concentrated in the metros Weekly seat capacity on major domestic routes (September 2006) Air traffic growth at select Tier I & Tier II cities (Passengers handled, including inbound) Fleet size of indian carriers – current & forecast Online revenue from domestic air tickets Revenue from domestic air tickets – online vs. offline Online booking penetration, domestic FSC vs. LCC Online direct vs. OTA air ticket revenue

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54 55 55 56 59 60 60 60 61 63 64 64 64 65 65 65 66 66 67 68 68 68 69 69 70 70 71 71 72 72 75 76 76 77 78 78 79 79 80 80 81 82 82 83 84 84

Figure 92 Figure 93 Figure 94 Figure 95 Figure 96 Figure 97 Figure 98 Figure 99 Figure 100 Figure 101 Figure 102 Figure 103 Figure 104 Figure 105 Figure 106 Figure 107 Figure 108 Figure 109 Figure 110 Figure 111 Figure 112 Figure 113 Figure 114 Figure 115 Figure 116 Figure 117 Figure 118 Figure 119 Figure 120 Figure 121 Figure 122 Figure 123 Figure 124 Figure 125 Figure 126 Figure 127 Figure 128 Figure 129 Figure 130 Figure 131 Figure 132 Figure 133 Figure 134 Figure 135 Figure 136 Figure 137 Figure 138 Figure 139 Figure 140

Available seat kilometres by all scheduled passenger airlines Passenger load factor of all scheduled passenger airlines Domestic hotel market size, online vs. offline market size, direct vs. indirect online market size (INR million), number of rooms, 2001-02 to 2011-12F Size of domestic Indian hotel industry in INR billion Hotel preference for domestic tourists (% of total tourists visiting the state – FY 2005-06) Size of domestic organised Indian hotel industry Break-up of hotel industry revenue by star category (2006-07) Size of Indian hotel industry – no. of approved rooms (2001-02 to 2011-12F) Number of approved hotel rooms by hotel category (2006-07) Size of domestic Indian hotel industry (organised and unorganised) Online and offline domestic bookings (2001-02 to 2011-12F) Size of domestic online Indian hotel industry (2001-02 to 2011-12F) Break-up of total domesticonline market between supplier website and OTAs (2001-02 to 2011-12F) Guest profile by purpose for Indian hotels (2005-06) Value of domestic business travel and leisure travel revenue in hotels Revenue mix at Indian hotels (2006) ARR and occupancy rates for different category of hotels (2005-06) Monthly occupancy at Indian hotels (2005-06) IHCL hotels – revenue in INR billion (2005-07) ITC hotels – revenue in INR billion (2005-07) Hotel Leelaventure limited – revenue in INR billion (2005-07) Eih limited – revenue in INR billion (2005-07) Size of the Indian outbound travel market, break-up by online vs. offline, 2001-02 to 2011-12F (INR million) Indian outbound travel by segments 2007-08F Indian outbound travel by segments 2001-02 to 2011-12F Indian online outbound travel market by segments and supplier vs. OTA websites 2007-08F Outbound airline market size, online vs. offline market size, direct vs. indirect online market size (INR million) Outbound airlines market revenues (2001-02 to 2011-12F) International traffic from India International traffic to & from India by airport (2005-06) International departures from India by airport (2003-04) Online bookings in outbound air travel (INR billions) Online bookings in outbound air travel by point of purchase (direct vs. indirect) Outbound hotel market size, online vs. offline market size, direct vs. indirect online market size, 2001-02 to 2011-12F (INR million) Growth in outbound hotel revenues Nights spent by indian visitors in UK (2005) Type of hotel (2005) Online bookings in outbound hotel industry (INR billions) Online bookings in outbound hotel industry by point of purchase (direct vs. indirect) Growth in outbound cruise passengers Growth in outbound car rental market revenues (INR millions) Growth in outbound railways market revenues (INR billions) Share of OTAs in Indian travel market Online travel market share, supplier vs. OTA (2001-02 to 2011-12F) Top of mind brand recall (Searched and Booked) Comparative analysis of domestic OTAs OTA market (overall) and its segments Players in the domestic OTA segment Metasearch engines in India

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List of Figures

Travel Distribution India Report • Edition 1

90 90 91 91 92 92 93 93 94 94 96 96 97 100 100 101 101 102 104 104 105 106 106 107 107 108 108 109 110 110 111 113 113 114 114 115 115 116 116 117 118 118 119 120 121 122 123 123 125

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List of Figures

Figure 141 Figure 142 Figure 143 Figure 144 Figure 145 Figure 146 Figure 147 Figure 148 Figure 149 Figure 150 Figure 151 Figure 152 Figure 153 Figure 154 Figure 155 Figure 156 Figure 157 Figure 158 Figure 159 Figure 160 Figure 161 Figure 162 Figure 163 Figure 164 Figure 165 Figure 166 Figure 167 Figure 168 Figure 169 Figure 170 Figure 171 Figure 172 Figure 173 Figure 174 Figure 175 Figure 176 Figure 177 Figure 178 Figure 179 Figure 180 Figure 181 Figure 182 Figure 183 Figure 184 Figure 185 Figure 186 Figure 187 Figure 188 Figure 189 Figure 190 Figure 191 Figure 192 Figure 193

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Number of approved travel agents by state Package tours – percentage of domestic tourists with package trip for important tourist states (2005-06) The internet user population (various estimates) Average number of e-commerce transactions per month Internet users & travel purchase Urban internet users The Internet user base across top 8 metros Broadband subscribers in India Broadband households & penetration in India by access technology, 2005-11F Time spent online PC penetration Forecast of PC sales in India Internet point of access Main point of Internet access across segments Mobile subscriber growth (2006-2012F) GSM & CDMA subscriber base - historical (2000-2007) Mobile content product/services used Mobile content market Website options for online bill payment Travel planning and decision making Factors influencing decision making Goods and services bought online (2006-07) Online shopping demographics Wallet size - amount spent online in the last 6 months - demographics Where did you hear about the destination for your last holiday? Common themes & check points for Indian consumer concerns about booking travel online Open question “Is there anything that concerns you about booking travel online?” The most important features of travel related websites for Indian consumers Brand ambassadors of travel companies Advertisement expenditure by media type Print media – readership, circulation, number Distribution of newspaper circulation by language Readership of dailies (all languages; readers in million) Share of ad volumes of domestic airlines by channel genres in 2006 Radio listenership data – major stations Online advertising market in India Top Indian advertisers – estimated annualised spend for SEM (INR) Keyword portfolio Most popular websites for specific online activities Advertising expenditure of airlines - 2007 Marketing expenditure per available room and as a % of revenues Top tour operators - Franchise programme overview Comparative analysis Top advertisers on the travel & tourism category on print media in 2003 Makemytrip - Revenues and growth Top of mind ad and brand recalls (Searched Only) Technology response areas Makemytrip - Chronology of events Languages spoken in India Diverse linguistic demography Ministry of tourism guidelines Barriers to online purchase USD to INR exchange rates (2001-02 to 2011-12F)

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126 129 131 132 133 133 134 134 135 135 135 136 136 137 137 138 139 139 141 143 143 145 146 147 148 149 150 151 152 155 156 156 157 159 159 160 162 162 163 165 171 173 176 178 180 183 184 187 189 190 192 195 211

Executive Summary

Travel Distribution India Report • Edition 1

Executive Summary & Trends Indian Travel Industry – Steady growth forecast on the back of strong fundamentals The Indian travel industry posted a strong growth for the fifth consecutive year in 2007. The industry has evolved from INR 431 billion market in 2001-02 to INR 861 billion in 2006-07, at a CAGR of 15%. This includes spending by Indians in India (called the domestic travel market, which excludes spending by foreign inbound tourists) as well as outside India (called the outbound travel market). The domestic travel market has prospered at 12% CAGR over the past five years, increasing from INR 303 billion in 2001-02 to INR 541 billion in 2006-07. The outbound travel market, though small in volumetric terms, accounted for 37% of the total travel market and was worth INR 321 billion in 2006-07. Airlines and Hotels, which together constituted approximately 75% of gross bookings in 2006-07, registered CAGR of 21% and 15% respectively, while Rail, Cruise and Car rental increased 6%, 21% and 15% respectively over the period 2001-02 to 2006-07. With a robust growth forecast for the economy as well as personal disposable income, the travel industry is expected to continue the momentum over the next five years at a growth rate of 18%. In value terms, the market is expected to grow from INR 861 billion in 2006-07 to INR 1,962 billon in 2011-12. The domestic travel industry is predicted to grow at 13% CAGR over the next five years to reach up to INR 987 billion level, thus the outbound market is set to outpace the domestic market growth rates by increasing by 25% CAGR over the next five years. Among the segments, Airlines is expected to post a strong growth and increase its share in the total market from 35% in 2006-07 to around 44% in 2011-12, while the Hotel segment’s share of the total market is expected to reduce to 39% in 2011-12 from 40% in 2006-07. Travel distribution – Online bookings taking off There are several factors that have driven the growth of the online travel segment in India. These include a growth in credit card usage due to a significant increase in the Internet population, as well as increasing confidence from Internet security initiatives & online awareness created by OTAs (Online Travel Agents) and suppliers. Online bookings in the Indian travel industry began early this decade and have grown quickly from INR 87 million in 2001-02 to INR 55 billion in 2006-07. This significant growth can be attributed to the emergence of online bookings in airlines, especially domestic LCC, (Low Cost Carriers) which constitute 23% of the total online market. The launch of the online booking facility by Indian Railways has also gained popularity as the segment claimed the third largest share of the total online travel market. Despite such high growth rates overall, in 2006-07, online booking has penetrated merely 6.4% of the market. But the level of penetration is expected to increase by up to 20% in the next five years. Online penetration in the domestic market is around 6% while in the outbound market it is around 7%. Bookings made via supplier websites account for a significant 78% share of total online travel bookings while OTAs account for the rest (in 2006-07). OTAs have emerged

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9

Executive Summary

as an ‘online substitute’ to the traditional street agents, offering lower rates, better convenience, enhanced control, 24-hour access and up-to date content, and have thus enjoyed significant growth. Domestic Airlines – LCC dominates online penetration Passenger Load Factor in the domestic airline industry reached an all time high of 68% in 2006-07 due to better utilisation of the flights. Gross domestic bookings for the LCCs grew at a 45% CAGR in the period 2001-02 & 2006-07 vs. 21.2% CAGR for legacy carriers. Online bookings in the airline industry grew to INR 24.1 billion (USD 533 million) in 200607 and by 2007-08 it is expected to account for more than 27% of the total bookings in airline segment. While the online penetration was high for LCCs at 42% in 2006-07, it was minimal for the legacy carriers or FSC (Full Service Carriers) at 12%. In terms of e-bookings, overall supplier website bookings accounted for 73% of the total online air bookings in 2006-07 and are expected to decrease by up to 65% by 2011-12, owing to the increase in the number of OTAs. Hotel & Lodging segment - Offline business dominates but with reduced market share The fragmented and disorganised domestic hotel industry is experiencing a significant supply constraint, but experienced higher occupancy rates and increased ARR(Average Room Rates), although this is expected to level out by 2008-09 due to supply of additional rooms. Gross bookings in the domestic hotel segment reached INR 221 billion revenue in 2006-07 and this is expected to rise to INR 393 billion by 2011-12. Internet bookings accounted for only 0.8% (3% in organised sector) of total domestic hotel bookings in 2006-07 and are expected to increase up to 3.5% (12% in organised sector) by 2011-12. Due to the fragmented nature of the industry, consolidation would further facilitate the growth of online bookings and online bookings made through supplier websites. The outbound hotel industry recorded a healthy growth, increasing from INR 44 billion in 2001-02 to INR 124 billion in 2006-07, a growth rate of 23% CAGR. The industry is expected to experience faster growth to reach at 367 billion level by 2011-12. Online penetration in the outbound hotel industry was around 9% in 2006-07 which is expected to increase up to 20% in the next five years. OTAs – On a growth trajectory OTAs are adopting various tools and strategies to combat supplier competition, such as improved search facilities for the best travel deal, best rate guarantee, assimilation of a broad range of products within a single place, targeting of niche segments, m-commerce and international expansion. They have also extended this through partnerships with retailers to leverage their loyal customer base to sell them various travel products offline.

10

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Executive Summary

Travel Distribution India Report • Edition 1

The share of OTAs in the total online Indian travel market shows an increasing trend. In value terms, the OTA segment was valued at INR 12 billion in 2006-07 and is expected to reach INR 140 billion in 2011-12. Challenges of the online segment – How Suppliers and OTAs are dealing with the competition Though online travel bookings possess significant growth prospects, there are many blockers. These include • Credit card security, fear of online identity theft, lack of human interaction, website performance issues, distrust and confusion • Lower credit card penetration and Internet awareness. • Lower broadband penetration. Poor performance of the websites combined with high response time. • Individual’s comfort factor in making a high-value deal face to face or through a known and trusted agent. Suppliers and OTAs are equipped to manage these challenges and are developing secured payment gateway, real-time online assistance and differentiated online services, all of which should be able to support the growth of the online travel industry.

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