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:
amy@eyefortravel.com
www.eyefortravel.com

EyeforTravel Ltd, January 2008

Table of Contents
Travel Distribution India Report • Edition 1

Table of Contents

Executive Summary & Trends 9

1. Country Overview 13

1.1 Macroeconomic Setting 13
1.2 Key Demographics 20
1.3 Government Policies 37

2. Tourism Overview 47

2.1 Indian tourism – A period of strong, resilient growth 47
2.2 Domestic tourism analysis 49
2.3 Outbound tourism analysis 54

3. Indian Travel Distribution & Trends 63

3.1 Size of Indian Travel Market 63
3.2 Domestic Travel Market 66
Time-series analysis by industry sector: travel sector trends; online vs. offline;
direct vs. indirect; key players
3.2.1 Domestic Railways 69
3.2.2 Domestic Cruise Travel 70
3.2.3 Domestic car rental industry 71
3.2.4 Domestic Airlines 75
3.2.5 Domestic Hotel Industry 90
3.3 Outbound Travel Market 106
Time-series analysis by industry sector: travel sector trends; online vs. offline;
direct vs. indirect; key players
3.3.1 Outbound airlines 108
3.3.2 Outbound hotels 113
3.3.3 Outbound cruise travel 116
3.3.4 Outbound car rental 117
3.3.5 Outbound railways 118
3.4 Online Travel Agent (OTAs) 119
3.5 Metasearch Engines 125
3.6 Traditional Intermediaries 126
3.7 Package Tours 129

4. Indian Traveller – Search and Buying Behaviour 131

4.1 Internet Users & E-commerce 131
4.2 Internet usage characteristics 136
4.3 Mobile phones 137
4.4 Payment solutions 140
4.5 Consumer travel buying cycle insights 142

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© EyeforTravel Research. All rights reserved.

Table of Contents

5. Marketing, PR & Sales 155

5.1 Advertising Media and Online Marketing in Travel 155
5.2 Basis of competition in key travel segments 164

6. Case Study 179

6.1 Makemytrip: Leading through efficiency and aggression 179

7. Going about Business in India 189

7.1 One India, multiple languages 189
7.2 A cultural perspective 190
7.3 Regulatory framework 191
7.4 E-commerce 194
7.5 Entering India - Distribution, marketing and brand strategies 196

Useful Contacts 199

Research Methodology 209

4


List of Figures
List of Figures

Figure 1 India’s GPD at constant price (base year 1999) 13
Figure 2 India’s nominal GDP 13
Figure 3 GDP per capita of India at constant prices 14
Figure 4 Per capita GDP in nominal terms 14
Figure 5 Per capita GDP by state 15
Figure 6 Per capita travel and tourism consumption in INR (personal travel &
tourism expenditure) (2006) 15
Figure 7 Travel & tourism expenditure as a percentage of per capita income
(Personal travel & tourism) 16
Figure 8 Exchange rate against key currencies (average annual rates) 16
Figure 9 Foreign direct investments into India 17
Figure 10 Sector-wise foreign direct investments in India (INR billion) – year 2006-07 17
Figure 11 Employment growth by gender 18
Figure 12 Employment growth by gender & age group (per 1000 worker-
population ratios – rural & urban areas) 18
Figure 13 Tax rates for corporates 19
Figure 14 India’s population growth 20
Figure 15 Share of households in each income bracket 21
Figure 16 Middle class households – number (mn) & average annual consumption
per middleclass household (INR ‘000) 21
Figure 17 Average household size 22
Figure 18 Share of households vs. share of consumption
(household income in ‘000 inr) 2005 23
Figure 19 Share of households vs. share of consumption
(household income in ‘000 inr) 2025 23
Figure 20 Age-wise population distribution – India 24
Figure 21 Dependency ratio 24
Figure 22 Paid vacation days & paid public holidays 25
Figure 23 India’s consumption expenditure & share of urban 26
Figure 24 Urban population penetration (in %) 26
Figure 25 Education profile of Indians aged seven years and older, 2005 27
Figure 26 Internet subscribers (2002-07) 28
Figure 27 E-commerce revenues 28
Figure 28 Growth of credit cards issued 29
Figure 29 Growth in debit cards 29
Figure 30 Volume (in millions) and value (INR billions) of eletronic payment cards in
India 30
Figure 31 Break-up of online bookings at IRCTC website by mode of payment
(October 2007) 31
Figure 32 India tourism marketing budget (2005-06) 33
Figure 33 Segmentation of prepaid cards 34
Figure 34 Features of open loop prepaid cards 36
Figure 35 Features of prepaid cards 39
Figure 36 Telecom subscribers 44
Figure 37 Visa processing time for Indians 45
Figure 38 Growth in Indian travel & tourism (value & volume) 47
Figure 39 Domestic travel & tourism expenditure by segment 48
Figure 40 Domestic tourists 49
Figure 41 Domestic travel & tourism expenditure by objective, 2002 49
Figure 42 Top tourist places in India 50
Figure 43 Domestic travel figures, CAGR, market share 51
Figure 44 Average trip length by purpose of travel 52
Figure 45 Average length of stay for important tourism states (2005-06) 53
Figure 46 Growth in Indian outbound travellers (million) 54

5

List of Figures

Figure 47 Purpose of outbound travel, 2005 54
Figure 48 Destination selection criteria 55
Figure 49 Indian outbound tourists by destinations, 2005 55
Figure 50 Outbound Indians, segmented by destination 56
Figure 51 Dream outbound destinations by type of trip (India Consumer Snapshot 59
2007 survey data) 60
Figure 52 ‘Repeats’ as a percentage of total Indians visiting that country 60
Figure 53 Average trip length by Indians in major countries 60
Figure 54 Outbound traveller segmentation – FIT vs. group 61
Figure 55 Total Indian travel market size 63
Figure 56 Total Indian travel market - online vs. offline 64
Figure 57 Total Indian airline market size, online vs. offline market size,
direct vs. indirect online market size, 2001-02 to 2011-12F (USD million) 64
Figure 58 Total Indian railway market size, online vs. offline market size,
Figure 59 Total Indian cruise market size, online vs. offline market size,
Figure 60 Total Indian car rental market size, online vs. offline market size,
Figure 61 Total Indian hotel market size, online vs. offline market size,
Figure 62 Size of the Indian domestic travel market, break-up by online vs. offline,
2001-02 to 2011-12F (INR million) 66
Figure 63 Domestic travel market by segments 2007-08F 66
Figure 64 Domestic travel market by segments - 2001-02 to 2011-12F 67
Figure 65 Domestic online travel market by segments 2007-08F 68
Figure 66 Domestic online travel market by segments 2001-02 to 2011-12F 68
Figure 67 Online bookings by city 68
Figure 68 Domestic railways market size, online vs. offline market size,
direct vs. indirect online market size, 2001-02 to 2011-12F (INR million) 69
Figure 69 Rail - number of domestic reservation passengers carried 69
Figure 70 Growth in domestic online rail ticket bookings 70
Figure 71 Domestic cruise market size, online vs. offline market size (INR million),
2004-05 to 2007-08F 70
Figure 72 Growth in domestic cruise passengers 71
Figure 73 Domestic car rental market size, online vs. offline market size,
Figure 74 Total number of cars registered as taxi (2002-12F) 72
Figure 75 Value of the domestic car rental market (2002-12F) 72
Figure 76 Domestic airline market size, online vs. offline market size,
Figure 77 Domestic airline revenue & growth 76
Figure 78 Growth in total domestic airline passengers 76
Figure 79 Segmentation of domestic airline passengers by purpose of travel (2006) 77
Figure 80 Market share of airlines by revenue (value) and by number of passengers
(volume) - (2006-07F) 78
Figure 81 Market share of domestic LCC vs. FSC 78
Figure 82 Air travellers as a percentage of total domestic travellers 79
Figure 83 India’s per capita air travel is well below other countries (2005-06) 79
Figure 84 Air traffic concentrated in the metros 80
Figure 85 Weekly seat capacity on major domestic routes (September 2006) 80
Figure 86 Air traffic growth at select Tier I & Tier II cities (Passengers handled,
including inbound) 81
Figure 87 Fleet size of indian carriers – current & forecast 82
Figure 88 Online revenue from domestic air tickets 82
Figure 89 Revenue from domestic air tickets – online vs. offline 83
Figure 90 Online booking penetration, domestic FSC vs. LCC 84
Figure 91 Online direct vs. OTA air ticket revenue 84

6


List of Figures
Figure 92 Available seat kilometres by all scheduled passenger airlines 90
Figure 93 Passenger load factor of all scheduled passenger airlines 90
Figure 94 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 91
Figure 95 Size of domestic Indian hotel industry in INR billion 91
Figure 96 Hotel preference for domestic tourists (% of total tourists visiting the
state – FY 2005-06) 92
Figure 97 Size of domestic organised Indian hotel industry 92
Figure 98 Break-up of hotel industry revenue by star category (2006-07) 93
Figure 99 Size of Indian hotel industry – no. of approved rooms (2001-02 to 2011-12F) 93
Figure 100 Number of approved hotel rooms by hotel category (2006-07) 94
Figure 101 Size of domestic Indian hotel industry (organised and unorganised) 94
Figure 102 Online and offline domestic bookings (2001-02 to 2011-12F) 96
Figure 103 Size of domestic online Indian hotel industry (2001-02 to 2011-12F) 96
Figure 104 Break-up of total domesticonline market between supplier website and
OTAs (2001-02 to 2011-12F) 97
Figure 105 Guest profile by purpose for Indian hotels (2005-06) 100
Figure 106 Value of domestic business travel and leisure travel revenue in hotels 100
Figure 107 Revenue mix at Indian hotels (2006) 101
Figure 108 ARR and occupancy rates for different category of hotels (2005-06) 101
Figure 109 Monthly occupancy at Indian hotels (2005-06) 102
Figure 110 IHCL hotels – revenue in INR billion (2005-07) 104
Figure 111 ITC hotels – revenue in INR billion (2005-07) 104
Figure 112 Hotel Leelaventure limited – revenue in INR billion (2005-07) 105
Figure 113 Eih limited – revenue in INR billion (2005-07) 106
Figure 114 Size of the Indian outbound travel market, break-up by online vs. offline,
2001-02 to 2011-12F (INR million) 106
Figure 115 Indian outbound travel by segments 2007-08F 107
Figure 116 Indian outbound travel by segments 2001-02 to 2011-12F 107
Figure 117 Indian online outbound travel market by segments and supplier vs. OTA
websites 2007-08F 108
Figure 118 Outbound airline market size, online vs. offline market size, direct vs.
indirect online market size (INR million) 108
Figure 119 Outbound airlines market revenues (2001-02 to 2011-12F) 109
Figure 120 International traffic from India 110
Figure 121 International traffic to & from India by airport (2005-06) 110
Figure 122 International departures from India by airport (2003-04) 111
Figure 123 Online bookings in outbound air travel (INR billions) 113
Figure 124 Online bookings in outbound air travel by point of purchase (direct vs.
indirect) 113
Figure 125 Outbound hotel market size, online vs. offline market size, direct vs.
indirect online market size, 2001-02 to 2011-12F (INR million) 114
Figure 126 Growth in outbound hotel revenues 114
Figure 127 Nights spent by indian visitors in UK (2005) 115
Figure 128 Type of hotel (2005) 115
Figure 129 Online bookings in outbound hotel industry (INR billions) 116
Figure 130 Online bookings in outbound hotel industry by point of purchase (direct vs.
indirect) 116
Figure 131 Growth in outbound cruise passengers 117
Figure 132 Growth in outbound car rental market revenues (INR millions) 118
Figure 133 Growth in outbound railways market revenues (INR billions) 118
Figure 134 Share of OTAs in Indian travel market 119
Figure 135 Online travel market share, supplier vs. OTA (2001-02 to 2011-12F) 120
Figure 136 Top of mind brand recall (Searched and Booked) 121
Figure 137 Comparative analysis of domestic OTAs 122
Figure 138 OTA market (overall) and its segments 123
Figure 139 Players in the domestic OTA segment 123
Figure 140 Metasearch engines in India 125

7

List of Figures

Figure 141 Number of approved travel agents by state 126
Figure 142 Package tours – percentage of domestic tourists with package trip for
important tourist states (2005-06) 129
Figure 143 The internet user population (various estimates) 131
Figure 144 Average number of e-commerce transactions per month 132
Figure 145 Internet users & travel purchase 133
Figure 146 Urban internet users 133
Figure 147 The Internet user base across top 8 metros 134
Figure 148 Broadband subscribers in India 134
Figure 149 Broadband households & penetration in India by access technology, 2005-11F 135
Figure 150 Time spent online 135
Figure 151 PC penetration 135
Figure 152 Forecast of PC sales in India 136
Figure 153 Internet point of access 136
Figure 154 Main point of Internet access across segments 137
Figure 155 Mobile subscriber growth (2006-2012F) 137
Figure 156 GSM & CDMA subscriber base - historical (2000-2007) 138
Figure 157 Mobile content product/services used 139
Figure 158 Mobile content market 139
Figure 159 Website options for online bill payment 141
Figure 160 Travel planning and decision making 143
Figure 161 Factors influencing decision making 143
Figure 162 Goods and services bought online (2006-07) 145
Figure 163 Online shopping demographics 146
Figure 164 Wallet size - amount spent online in the last 6 months - demographics 147
Figure 165 Where did you hear about the destination for your last holiday? 148
Figure 166 Common themes & check points for Indian consumer concerns about
booking travel online 149
Figure 167 Open question “Is there anything that concerns you about booking travel
online?” 150
Figure 168 The most important features of travel related websites for Indian
consumers 151
Figure 169 Brand ambassadors of travel companies 152
Figure 170 Advertisement expenditure by media type 155
Figure 171 Print media – readership, circulation, number 156
Figure 172 Distribution of newspaper circulation by language 156
Figure 173 Readership of dailies (all languages; readers in million) 157
Figure 174 Share of ad volumes of domestic airlines by channel genres in 2006 159
Figure 175 Radio listenership data – major stations 159
Figure 176 Online advertising market in India 160
Figure 177 Top Indian advertisers – estimated annualised spend for SEM (INR) 162
Figure 178 Keyword portfolio 162
Figure 179 Most popular websites for specific online activities 163
Figure 180 Advertising expenditure of airlines - 2007 165
Figure 181 Marketing expenditure per available room and as a % of revenues 171
Figure 182 Top tour operators - Franchise programme overview 173
Figure 183 Comparative analysis 176
Figure 184 Top advertisers on the travel & tourism category on print media in 2003 178
Figure 185 Makemytrip - Revenues and growth 180
Figure 186 Top of mind ad and brand recalls (Searched Only) 183
Figure 187 Technology response areas 184
Figure 188 Makemytrip - Chronology of events 187
Figure 189 Languages spoken in India 189
Figure 190 Diverse linguistic demography 190
Figure 191 Ministry of tourism guidelines 192
Figure 192 Barriers to online purchase 195
Figure 193 USD to INR exchange rates (2001-02 to 2011-12F) 211

8

Executive Summary

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

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 2006-
07 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

Executive Summary

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.

11

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