China’s largest online travel company is on course to become a formidable force in the Indian market -- albeit from behind the scenes.
Last week, Ctrip became the largest stakeholder in MakeMyTrip, India’s foremost online travel agency, following a share-swap deal with South African conglomerate Naspers. Apart from owning 49% of MakeMyTrip’s shares, Ctrip now occupies five of the seats on the board of the Gurugram-based firm.
While the transaction does not amount to an acquisition per se, the development could well define the trajectory of both Ctrip and MakeMyTrip on multiple fronts for the foreseeable future.
What’s in it for Ctrip?
Economic growth has been on the wane in China and competition from Tencent-backed hotel booking giant Meituan and Alibaba’s online travel platform Fliggy has been intensifying like never before.
Given this background, Ctrip is now turning its attention to China’s fast-growing neighbour next door in the hope of replicating its home success.
Exploring potential consolidation elsewhere is one way of staying on the growth path. Seeing the big picture, Ctrip has been making significant acquisitions in other markets in recent years. Prominent among them has been the $1.74 billion acquisition of Scottish flight-search engine Skyscanner and Palo Alto-based travel recommendation service Trip.com. It has also invested in jet startup Boom Supersonic.
“Ctrip’s aggressive growth plans through acquisitions and consolidation in the international market is a sign of its global ambitions. This deal will help Ctrip to take a strong position in India, which is an ideal market for the company to expand its offerings,” said Ankur Pahwa, partner and national leader–e-commerce and consumer internet at EY India.
There is no denying that India presents a massive opportunity. According to a report by management consulting firm Praxis Global, India’s OTA market is expected to account for 43% of the total travel category by 2021, with an estimated market valuation of $13.6 billion.
And with MakeMyTrip, in which Ctrip first invested in 2016, the Chinese company hopes to have found the ideal vehicle to take full advantage of this opportunity.
After Booking Holdings, Ctrip is the second-largest OTA in the world in terms of gross transaction volume (GTV) -- the total value of all services sold on a platform. It also controls at least half of China’s online travel market bookings. Both Ctrip and MakeMyTrip are listed on the Nasdaq. While Ctrip has a market capitalisation of more than $24 billion, MakeMyTrip is about a tenth of the Chinese company’s size on this metric but remains the market leader in India.
MakeMyTrip was founded by Deep Kalra, Keyur Joshi and Rajesh Magow in 2000. In 2016, Naspers and China's Tencent, which owned 91% and 9% respectively in the ibibo Group, decided to sell the online travel company to MakeMyTrip to mark the biggest consolidation in the OTA segment in India.
Flight bookings were MakeMyTrip’s forte until that point. The merger helped MakeMyTrip boost access to fast-growing segments such as hotel booking and bus ticketing. Today, the company allows travellers to research, plan and book a wide range of travel services and products in India and overseas via three platforms – MakeMyTrip, goibibo and redBus.
Holiday planning and packaging, rail ticketing, bus ticketing, car rental and ancillary travel requirements such as facilitating access to third-party travel insurance and visa processing are part of its repertoire. MakeMyTrip’s revenue has been on the rise thanks to significant growth in its main business verticals.
MakeMyTrip is a leader in a fragmented online travel market in India. Its nearest rival in the country is Cleartrip, which recently laid off about 100 employees amid declining market share.
US-based Ebix, through its acquisition of Via, has also emerged as a formidable player in India. Ebix is currently conducting due diligence to buy out Yatra, another of MakeMyTrip’s main local rivals.
Homegrown player Ixigo and global giants Booking.com and Expedia are also rivals in India. There is competition too in specific verticals from budget hotels chain OYO, short-term home-rental firm Airbnb and Alibaba-backed Paytm.
While MakeMyTrip is the leader in international outbound air ticket bookings in India, experts say Ctrip can add heft to its inbound traffic where Booking.com is a formidable rival. MakeMyTrip has a strong lead in domestic air ticket sales and accounts for about half of OTA sales of hotels.
The primary synergy between these travel portals is the inventory that’s available for each other. With a global footprint, Ctrip has a much larger inventory at its disposal. It will now incorporate the Indian firm’s inventory into its various brands.
“In the travel segment, the depth of your supply or inventory is a key factor. Combining Ctrip’s international supply with the local inventory will give the company good control at both the ends of the travel experience,” EY’s Pahwa said.
Industry experts also say that Ctrip’s global supply line and related business offerings can help MakeMyTrip offer better pricing while the growing scale should result in better margins for both companies.
In addition, Ctrip already has success to speak of in terms of blending the distinctive offerings of its various acquisitions with its other brands. For instance, its attempt at using Trip.com’s trip planning services for Skyscanner and its decision to offer the website access to the growing Chinese market to enable direct booking fulfilment paid off exceptionally well. As a result, the Edinburgh-based Skyscanner, acquired in 2016, delivered about 600% year-on-year revenue growth in Ctrip’s direct booking programme for the second quarter of 2018.
Experts says Ctrip’s learnings from operating verticals such as Skyscanner and Trip.com can help MakeMyTrip build effective customer-facing products around comparison and pricing that can improve the traffic and transaction volume on the platform.
In addition, with Ctrip taking a strong position in the Indian firm, the deals and the inventory along this corridor will get more centralised at MakeMyTrip. Besides, both India and China are fairly price conscious markets and therefore, Ctrip’s extensive expertise in the China market around pricing strategy and bundling of deals can come in handy for MakeMyTrip in India.
MakeMyTrip and Ctrip will also be able to target key markets in Southeast Asia and the Middle East, which attract the most number of tourists from India and China.
Then there is technology. The Chinese behemoth is known to make heavy investments in emerging technologies like artificial intelligence, big data and cloud computing.
Ctrip uses its proprietary data analytics tools to introduce credit ratings, predict peak timings for partner hotels and to push target advertisements to users. In a management call after the share purchase agreement with Naspers was announced, the Chinese travel company said it would look at leveraging its technology capabilities at MakeMyTrip.
This will involve bolstering operations with technology-enabled management of real-time inventory, global distribution, and localisation capabilities.
“Ctrip will bring its advanced analytics, algorithms and operational expertise from the China market,” said EY’s Pahwa. “Ctrip will be able to bring great value around pricing structure and bundling of services and deals, while the larger advantage lies in the global inventory that it brings to the aggregated business.”