Travel Portals Gain Allure in India
The Wall Street Journal, August 3, 2006

ABHRAJIT GANGOPADHYAY 
MUMBAI -- Drawn by a tourism boom in India, private-equity funds are investing in online travel companies to cash in on a market that is expected to expand 30% to 35% each year. 

Like Expedia and Orbitz in the U.S., portals such as Travelguru.com and MakeMyTrip.com offer flights, hotels, cars and packages in a range that experts say the typical family-owned travel operator will find hard to match. 

Although the limited number of credit cards in India is a hurdle, travel engines are adding payment options to tap consumers in smaller cities and towns and are reporting double-digit growth in bookings. 

Ram Badrinathan, Asian-Pacific analyst with PhoCusWright Inc., a travel-research firm based in the U.S., expects the value of online bookings in India to hit $2 billion by 2008, from a negligible amount now. 

The Travel Agents Association of India, a lobby group representing about 1,800 travel operators, says the challenge from the start-up businesses will force some smaller companies to close. But the association's vice president, C.V. Prasad, says that despite initial pressures, many of the traditional travel operators are likely to develop new products and survive. 

According to fund managers, five funds have invested in four online travel portals so far and three more investments are in the pipeline. 

"We see immense potential in India's consumer-led Internet-based business. It is on the cusp of growth as China was a few years ago," says Promod Haque, managing partner at U.S. venture-capital firm Norwest Venture Partners. 

In January, Norwest teamed up with Reliance Capital Ltd. and broadcaster Television 18 India Ltd. to fund start-up Yatra Online with an estimated $5 million. Yatra.in was launched in June. 

In February, U.S. venture-capital fund Kleiner Perkins Caufield & Byers announced its first Indian investment, an infusion of between $2.7 million and $3 million in Cleartrip.com. 

Travelguru started operations in February, after the local unit of U.S. venture-capital fund Sequoia Capital invested an undisclosed amount. 

The scope for growth in online bookings is immense, according to competitors. 

Nearly 60% of tickets are bought online in the U.S., but such sales account for only one out of 10 tickets in Asia, says Ashwin Damera, chief executive of Travelguru. 

MakeMyTrip, which was launched in May 2005 after Hong Kong-based Softbank Asia Infrastructure Fund Partners invested $10 million, does 1,000 transactions a day, accounting for close to 2,000 airline tickets and 100 room bookings. 

The company declined to disclose its revenue, but said it has a "profitable operation." 

Travelguru now sells more than 500 tickets a day and plans to hit 1,000 by year end. It is aiming for $75 million in ticket sales during its first year, Mr. Damera says. 

"Online companies have an edge [over travel operators] as they can tie up with several hotels and airlines without incurring much cost and offer an expanded choice," says Mr. Damera, whose Travelguru has tied up with nearly 450 hotels across the country. 

Although India's Internet and credit-card-penetration rates are low by global standards -- just 30 million of the billion-strong population have credit and debit cards -- there are new ways to pay online such as itz-cash, a prepaid cash card. 

Travelguru now accepts checks that can be handed over to the courier who delivers the tickets. It will soon accept itz-cash, it says. 

An estimated 51 million domestic passengers traveled by air in India during the year to March, a 28% increase from 39 million domestic passengers the previous year, according to the Center for Monitoring Indian Economy, a Mumbai-based think tank. 

The domestic air-travel market is forecast to grow 20% annually over the next five years, fueled by low-cost carriers, while the total tourism industry, including foreign tourists, is estimated to grow 30% to 35% each year for the next few years, according to the travel agents' association. 

Norwest expects India's travel industry, including foreign and local tourists, hotel bookings and customized tours, to be worth nearly $40 billion this year and $50 billion by 2009, with revenues from foreign travelers in India quadrupling to $24 billion by 2015.