Make My Trip’s acquisition of smaller rival Ibibo Group, in what has turned out to be the biggest M&A deal in the country’s online travel space, has now turned the spotlight on its rivals, leading to expectations of greater consolidation in the space.
According to analysts, given its sheer scale, the all-stock transaction, announced on October 18, and valued at about $1.8-2 billion, has created a massive vacuum, changing industry dynamics as they existed, and removing the perception of an existing number two operator in the market.
“Nature abhors vacuum, and with MakeMyTrip and GoIbibo coming together, there’s no longer a number two in the market,” said Yogendra Vasupal, CEO of Stayzilla. The newly-merged entity is now expected to dominate the space with an overall market share of between 50% and 60%, and particularly in the more lucrative hotels and travel packages segment, which is seen as the growth driver for travel companies, going forward.
“It spells trouble for competitors, especially if the merged brand decides to position itself as a surrogate brand, which these guys are definitely doing,” said Siddharth Thaker, managing partner at Prognosis Global Consulting, a leading consultancy focused on hospitality, leisure and the food services industry.
Gross margins earned from the hotel and travel packages segment can range between 10% and 25%, according to analysts, compared with 5-10% from air-ticket bookings. “The average commission from air ticketing has shrunk to less than 6% over the past seven years, and the shift to hotels is more of a compulsion than strategy,” said Thaker.
Just in terms of numbers, the combined company is expected to have gross bookings of $3-3.5 billion (Rs 19,958 crore-Rs 23,285 crore), compared to Yatra, which recorded gross bookings of Rs 5,888 crore for fiscal 2016. Yatra declined to comment on the story, stating that it was in its silent period, while Cleartrip did not respond to an email questionnaire sent by ET.
The merged entity also claims to have a total of 80,500 hotels across the two platforms, with gross room bookings standing at a cumulative 50,000 room nights per day.
In contrast, Yatra claims to have about 61,000 hotels on its platform, and 5,000 room nights per day, according to industry estimates.
The third OTA, Cleartrip, is believed to record 2,500 room nights per day, according to industry sources. “The competition is going to face a tough time, given that this merger (MakeMyTrip and Ibibo) combines brands and scale. They (the competition) were already struggling to raise cash, and grow,” said an investment banker, on the condition of anonymity, as he has advised companies in the space.
And it is this capacity to raise cash, not just from the market, given that MakeMyTrip is listed on Nasdaq, but also the presence of South African media conglomerate Naspers, Chinese internet giant Tencent and Chinese online travel major Ctrip.com, that will have rivals worried. Yatra, too, has raised cash. In July, Yatra Online, which owns and operates travel portal Yatra.com, agreed to be acquired by Nasdaq-listed special purpose acquisition firm Terrapin 3 Acquisition (TRTL) in a reverse merger deal, which had an enterprise value of $218 million.
But the merger will also pit Make-My Trip-Ibibo against the likes of well-funded startups such as Soft-Bank-backed OYO Rooms and Matrix Partners-backed Stayzilla, which also concentrates on the budget hotel and home stay segments. Both OYO and Stayzilla, according to sources, record 10,000 and 6,500 room nights per day, respectively.