1/ 👇Thread on a top-down view of travel in India - revenue pools, margin pools and high level opportunities for tech startups (I know the absolute worst time to talk about travel, but maybe a distraction from the current overflow of Covid19 news). #traveltech
2/ Travel can be seen in 3 buckets: 1) business travel, 2) domestic travel and 3) outbound travel. Let's uncover each of them in this order (a top down lens).
3/ Business travel is a large spend category (~$32B in 2017). Most of this is on flights and hotels (~80%). Remaining is on city taxis, trains, buses, visa etc. This spend has been growing at a healthy pace over years (doubling every ~6 yrs).
4/ Most of this spend is made by the vast small and medium businesses (~70% share in 2017) (defined by turnover of Rs 300cr or less). Rest is by enterprises - some ~2000 firms. In absolute terms, the enterprise spend was ~$10B in 2017.
5/ Both the enterprise and SMB markets today are primarily served by traditional travel agencies (~60% share in enterprises and ~90% in SMBs in 2017), though OTAs and upcoming travel startups are trying to make a headway.
6/ Margins are compressed in the business travel segment - with flights and hotels seeing a ~4% and ~10% gross margin resp. In absolute terms, this means a gross margin pool of ~$650M for flights and ~$1B for hotels (in 2017).
7/ The workflow in business travel is broken. Often, the employee has to interact with a human travel desk, usually via email. The approver provides his approval on email. Post which flight and hotel options are provided, and employee selects.
8/ ‘Human’ travel desk adds a turnaround time to this process, which makes last minute bookings and reschedules painful. Needless to say you cannot book outside travel desk’s working hours or on weekends. Then there are human errors.
9/ I clearly see an opportunity to ‘consumer-ise’ business travel, and replace this human travel desk with a DIY platform - which as consumers we’ve all gotten used to. However, businesses will also need to be delivered cost savings.
10/ Today, material cost savings can be sought by getting employees to book in advance versus the last day, book economical options etc. Some of it could be driven by just a smarter product, some of it through mechanisms of stick and carrot.
11/ I do feel there is an opportunity to create a more intelligent product to deliver these cost savings. Then the other big inefficiency is the - cost structure of travel agencies - to serve SMBs. This is largely done through a feet on street model.
12/ I do feel there is an opportunity to acquire and service SMBs through a combination of digital and inside sales model - thus reducing the cost in the process. Some of these cost savings can be further passed back to the respective SMB.
13/ The key question IMO for startups attacking this space is how do they compete with OTAs. OTAs also recognise this opportunity and seem to be going for it. They’ve the brand name, capital, supply side partnerships and integrations.
14/ Moving on to domestic travel, let's start by understanding the revenue and gross margin pools in this segment. Air, hotel, bus and rail are the 4 key categories. Domestic air saw ~$12B spend in FY18 with ~$700M gross margin pool for the distribution channel.
15/ Similar numbers for domestic hotel were ~$23B and ~$4B. For bus - were ~$7B and ~$300M. For rail - the spend was ~$7B with insignificant gross margins. Clearly, most gross margin pools lie in the hotel /accommodation segment in India.
16/ I believe there is NO opportunity to directly attack the distribution gross margin pools. They’ve been taken by the OTAs and hotel aggregators. There could be an opportunity to be a tech-enabled supplier and to build superior or alternate supply.
17/ There are a few examples in the West like Flixbus (German inter-city bus operator), Bla Bla car (French car sharing for inter city travel), Vacasa (US vacation home manager and seller) etc - in this category.
18/ Not saying these exact models will work in India but a large business - if it gets built - is likely to be built in this category. It’s not clear what exactly that would be though. But eager to meet startups who’re building for this theme.
19/ There are few players in India who’re trying to be a tech-enabled inter-city bus operator, or a managed provider of alternative accommodation like a homestay, holiday homes, leisure resorts etc - but they’re yet to prove scalability IMO.
20/ Moving to outbound travel, India is (or atleast was :-)) est. to see ~25M outbound leisure trips in 2020. It’s est. that of these, ~50% would be visiting friends and relatives trips, ~25% package trips and remaining ~25% independently planned trips.
21/ The bulk of the expenditure in an outbound leisure trip is the cost of flight, accommodation and in-destination experiences. Per person trip cost for an independent trip is est. at ~Rs 80K. This pegs the independent travel market at ~$7.5B.
22/ Off late, there has been a surge in independent trips esp. to SEA and ME. The air fares have dropped, there is availability of economical hostels, and there’s no longer as massive a difference in taking a Goa trip versus a SEA trip.
23/ Though India has traditionally been a package travel market (think SOTC). A package takes away all the cognitive load associated with trip planning, anxiety of unknowns in travelling to a foreign location, managing while at-location etc.
24/ It provides familiarity and trust - in the form of a similar group travelling together, Indian food, Indian language, and a set of package operators who will take care of any unforeseen situation that might arise during the trip.
25/ However, over the last few years that seems to be changing with more people wanting flexibility and customisation at the expense of familiarity. Younger people are far more confident with knowledge at their fingertips and good english fluency.
26/ However, trip planning is still a pain point for most. They want a trusted expert to help them with trip planning, often asking a trusted friend or relative who’s been to that foreign location. Or in some cases seeking help from a travel agent.
27/ I do think there is an opportunity to solve trip planning through a combination of tech and assistance from a trusted expert who’s been to the foreign location and understands the nuances of the location, and preferences of the traveller.
28/ And I do feel time to build such a business is now. The market has gained depth and is growing fast, it’s now possible to improve the productivity of such an expert using tech, and the gig economy as a phenomenon is picking now.
29/ Would love to speak to travel startups pursuing the mentioned high level opportunities. Please DM.
30/ Source:
1) Yatra and MMT Investor PPTs
2) Bain and Google’s report on Travel
3) BCG travel report
4) Internal analysis
1) Yatra and MMT Investor PPTs
2) Bain and Google’s report on Travel
3) BCG travel report
4) Internal analysis
