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MakeMyTrip & Goibibo Merger: How does it affect the hotel industry in India?

Go-ibibo-and-MMT_2

The Indian e-commerce sector is witnessing a wave of consolidation with the likes of Myntra, CaratLane, BabyOye, Citrus Pay, FabFurnish.com and many others being acquired and merged by Internet behemoths. Even rumours of consolidation between e-commerce rivals like Flipkart-Snapdeal and Flipkart-Paytm have been doing rounds for a long time. However, the Nasper-backed MakeMyTrip and Goibibo merger took everyone by surprise. MakeMyTrip acquired rival Goibibo, and the merged entity will be valued at $1.8bn, making it the biggest merger in India’s online travel space.

What will be the ripple effects of this merger on the travel and hotel and accommodation industry?

The newly-merged entity has emerged as the biggest online travel giant of the country and will enjoy an approximately 60% market share in the online flight booking segment and 70% in the online hotel space. It means smaller OTAs like Booking.com, Expedia and Cleartrip in the Indian ticket booking space and OYO Rooms and Stayzilla in the budget hotel and homestay segments will suffer a major setback and most likely need to reconsider their strategies.

As it is still early days, there is a lack of clarity about how the OTAs and the hotel industry will react. We can only speculate:

OTAs will reduce their cash burn.

The last 12 months saw heavy discounting in the hotel segment between Make My Trip and Go Ibibo. As a result, other OTAs too were offering ridiculous discounts by cannibalizing their own profits to attract customers. These discounts come out of the pockets of these agencies themselves. Many a times, these portals book rooms in advance by paying the hotel and offer these rooms to guests at discount.

At the end of the day, these portals end up with severe cash burn and a major dent in their profitability. Ibibo reported a loss of USD 62 million in FY14-15, while MakeMyTrip ended up with losses of USD 50 million in Q4 FY16. The smaller players didn’t do very well too.

With reduced competitive intensity, the desperate discount battle for market share, is expected to reduce and these portals will be able to reduce their cash burn.

“This brings good news for direct bookings of hotels”

The heavy discounting was the main thing preventing consumers to book directly with hotels. A hotel puts up a room for Rs. 1000 on its website. But, when an OTA lists the same room of the same hotel on its site, it offers it at 20-30% discount or doles out hard-to-resist offers like pay 50% with your loyalty points. This subsequently brings down the net cost to the guests. Hotels can never match that kind of discounted pricing. They might go as far as a 10-15% discount, but they can’t reduce it any lower than this. No wonder, the guests choose to book hotels via OTAs.

Now, if the OTAs decide to reduce discounted pricing, or even a slight reduction in those discounts by the OTAs, presents the opportunity for hotels to get guests to book direct with them by offering matching but more realizable discounts or attractive additional amenities (spa vouchers, dinner on the house, complimentary bar coupons, etc.) exclusively when booking directly with the hotel.

This is an ideal time for hotels to attract customers by prioritizing direct booking on their hotel website at lower rates. They can break free from the hefty commission model (30%) that they need to pay to the OTA for filling up their rooms. They can try to source direct business through their own booking engine at a sourcing expense less than 10%.

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The important thing is that the hotels need to be prepared with both the right tools to aid direct conversions and the revenue strategy.

  • A well-designed website with good UX, appropriate call to actions, good SEO to capture organic traffic likely to be a result of billboard effect.
  • An OTA price comparision widget
  • A well-desgined and visually appealing booking engine. A booking engine connected to a CRS can ensure zero chances of underbooking and enhance conversions. It can:
    • sell special packages apart from the rooms,
    • sell add-on services such as airport pick ups and late check outs,
    • and allow the use of promo codes – both transparent i.e. fully visible to the public and opaque i.e. promo codes that are not visible on the website so you can create special promo codes that can be offered to loyal customers etc. directly through the booking engine.
  • Enquiry management that allows hotels to send custom quotes via email and SMS to potential guests, offering them instant booking option when payment is made…

Take a look at DJUBO’s booking engine widget that offers all of these to help hoteliers increase their direct bookings.

While the MakeMyTrip and GoIbibo merger has created a loud noise in the sector, the ripple effects will emerge clearly only after a few months. If the industry news are to be believed, there are more such mergers and consolidations in the pipeline in the online travel and hotel space. However, if the Hotel sector gets its act right now, it can not only stay insulated from the big waves, but can also emerge as the winner.

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