OTAs, Travel Agents Reach A Compromise With Airlines - 3% Commission

Update: Hrush Bhatt, over at the Cleartrip blog, has explained the commission structure. We were awaiting a copy of the circular to analyse the changes, since we didn’t have the specifics of the reconciliation. Bhatt explains the changes as follows: 

 We’ll use a typical itinerary and fare to illustrate the difference between the previous commission structure (5%) and the newly announced structure (3%).

First, let’s take a look at the differences in the old and new structure:

• Old: 5% commission paid on the base fare
• New: 3% commission paid on the gross fare after deducting Rs. 225 PSF (Passenger Service Fee) charges

Here’s the itinerary and fare details:

• Flight: Jet Airways 9W-331
• Route: Mumbai-New Delhi
• Fare:
  • Base fare: Rs. 2,250
  • Taxes & fees: Rs. 3,138 (includes Rs. 225 PSF)

Now, let’s do the math to see how much the absolute agency commission earned is for the same fare under the old (5%) and new (3%) structures:

• Old: 5% of Rs. 2,250 = Rs. 113
• New: 3% of Rs. 5,163 (5,388-225) = Rs. 155

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OTAs, Travel Agencies Boycott Jet Airlines; Not Expedia And Travelocity

Updated Below

Online Travel Agents Makemytrip, Cleartrip, Yatra are among the over 2500 travel agencies who have decided to boycott the sale of Jet Airways‘ tickets from December 4th, reports Business Standard (via Ixigo Blog). The decision was taken a meeting of six travel agents associations - TAFI, TAAI, IAAI, IATO, ADTOI and ETAA, of which the OTAs are a part. Jet, Kingfisher and Air India stopped paying the 5% commission to travel agents from November 1st, and this is a move to make them change their stance. The travel agents have singled out Jet Airways because it is the market leader, and they’re hoping that if Jet changes its stance, the others will follow suit.

The OTAs, which are members of these organizations, are complying with the decision…at least some of them are: I just checked their sites, and Cleartrip and Yatra are not showing results from Jet, while MakeMyTrip, Expedia and Travelocity are still offering Jet and Jetlite tickets. (Screencaps: MakeMyTrip, Expedia and Travelocity)

We’d mentioned earlier about how OTAs are dealing with this situation differently - while Cleartrip had started charging a booking fee, Travelguru outsourced its search to Meta Search engine Ixigo.

One issue that may have arisen is that the fares that the OTAs would charge would be higher than the fares available on the Airline sites. The solution there lay in the Airlines also charging a booking fee. However this is sorted out, consumers are not left without an option - they can always book flights directly from Jet Airways’ website. What may just decide the outcome, is how many of them book directly.

Update: MakeMyTrip is complying with the guidelines, just hasn’t removed Jet and JetLive from their search. Here’s a screencap. (Thanks for the headsup Hrush)

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Note: we couldn’t check Via/Flightraja since their flight search wasn’t working. Update: Via was working on Saturday, when we checked it.

TravelGuru Outsources Flights To Ixigo; Only Desiya Remains?

Updated below

In an interesting twist of fate, Online Travel Agent TravelGuru has outsourced its entire Flight booking section to meta search Ixigo.com. This effectively means that the core of TravelGuru business is now an acquisition that they had made last year - hotel booking site Desiya.com. TravelGuru had raised, in all, $25 million in investment from Sequoia Capital and Battery Ventures, and is a part of Times of India’s Private Treaties portfolio. TravelGuru had reportedly acquired Desiya for around Rs. 100 crores, around $25 Million at the time.

Difference In Approach to Zero Percent Commissions

This deal with Ixigo also highlights two different approaches to the unfolding situation in the travel industry, around Zero percent commissions. At one end, you have other OTAs like Cleartrip who have included booking fees, and at the other, you TravelGuru which has tied up with a meta searches like Ixigo, for a revenue share. Zoomtra, from the Smile Interactive Group, is another meta search.

Aloke Bajpai, CEO of Ixigo, told MediaNama that they will be sharing revenue with TravelGuru on flight bookings and advertisements. Ixigo showcases ads on the search results page and also receives incentives from Advertisers - they are not a travel agent, but received performance based incentives from airlines, from their marketing budget. Bajpai feels that agents will become more expensive than airline travel sites going forward.

Update: TravelGuru appears to have taken offence to the suggestion that they’re naught but Desiya. A response:

“Travelguru believes in offering the best prices to our customers. Given a zero commission scenario for flights we had a choice – either mark up fares or go the metasearch way. We have an unwavering commitment to low fares and hence felt our customers’ interest is best served by not marking up fares. Hence, the decision to work with Ixigo.

We would also like to clarify that we have several lines of business – B2C domestic hotels & holidays, B2C international holidays, corporate travel and retail. Desiya is our B2B arm and an important contributor to the Travelguru business, but clearly not the only contributor as your report suggests.”

Related:
– Ixigo Powers NDTVtravels.com; Aloke Bajpai On Monetization & OTA Relationships
– Cleartrip Launches Train Booking; Service Fee; 10-20% Topline Contribution
– Yatra Launches In US, UK; Impact Of Zero Percent Commissions

Ixigo Powers NDTVtravels.com; Aloke Bajpai On Monetization & OTA Relationships

(Updated below)
Online Ticketing meta search Ixigo is powering NDTVtravels.com, the travel portal from NDTV Convergence. What’s interesting is that Ixigo is aggregating only the airlines - and on the Online Travel Agents like MakeMyTrip, Cleartrip, Yatra, TravelGuru etc. In fact, NDTV is now positioning the Travel portal as an alternative to OTAs. According to the release -

“NDTV’s flight search, powered by iXiGO.com, will enable users to search lowest air fares in real-time across all airlines and airports in India, and book them directly on airline websites, effectively by-passing travel agencies and saving on booking fees charged by travel portals. ”

Correct me if I’m wrong, but didn’t meta searches like Ixigo and Zoomtra once also aggregate OTAs? What happened? Aggregation of fares from across OTAs would have allowed users to compare one OTA with another, or with rates from Airline sites - and simply choose the one with the lowest price. That wouldn’t have gone down well with the OTAs.

We’ve contacted Ixigo for details on why they aren’t scraping OTA sites, and on the deal with NDTV Travels. More as we have it.

Meanwhile, Meta Search engines like Ixigo and Zoomtra also have to contend with Kayak, among the most successful meta search engines in the world, having launched an India site.

Update: Aloke Bajpai, CEO of Ixigo responds to our questions regarding OTA relationships, and the monetization of the deal with NDTV Travels:

On NDTV Travels And Monetization
“As mentioned on our site, we do monetize referrals/bookings on airline sites. In fact, for most airlines, iXiGO contributes between 1 to 5% of their total online direct sales. We are generating a total transaction value (TTV) of over 9 Crores for our airline partners through iXiGO, and it’s increasing at a healthy double-digit growth rate despite the market environment. NDTV is a special affiliate relationship. We monetize together from ads, bookings, and other strategic business opportunities.”

On OTA Tie-ups, or lack of
This is due to declining agency commissions (and therefore OTA margins), coupled with the fact that the booking fees they charge consumers makes airline ticket booking on them more expensive most of the time (avg. price difference between OTAs and iXiGO is 200 Rs. per ticket). In such a scenario, having OTAs on iXiGO for the air business is not great from both of our perspectives. Finally, airlines are actually happier if we work exclusively with them and build their direct online sales traction. Makes iXiGO more valuable for them.

We are working with (or exploring working with) all OTAs for non-air business segments.

Related:

- Ixigo Receives Undisclosed Amount Of Funding From BAF Partners
- Cleartrip Launches Train Booking; Service Fee; 10-20% Topline Contribution
- IRCTC Does $102 Million In Online Transactions In August; Payment Trends; HDFC, ICICI, Cash Cards Significant
- Yatra Launches In US, UK; Impact Of Zero Percent Commissions
- Yes, That’s Exactly What We Need - Another Player In The Travel Space

Cleartrip Launches Train Booking; Service Fee; 10-20% Topline Contribution

Around 30 minutes ago, Cleartrip launched online rail ticketing, becoming only the second OTA after Thomas Cook to roll out the services.

To understand the significance of this rollout, sample this - the Indian Railways did $102 million in online transactions last month. It’s the scale that excites OTAs like Cleartrip. Hrush Bhatt, co-founder of Cleartrip told MediaNama that at over 160,000 transactions per day, the Railways does double the transactions that the Airlines do in a day. The opportunity is also othere because of fewer points of sale for Railways. Comparing the two: flights have their own sites, an agency facing site, third parties, affiliates and downstream distributors.

Service Fee
The monetization is going to be by charging an additional service fee to customers. IRCTC charges Rs. 13-25, based on the fare class, and Cleartrip intends to charge a similar service fee on top of that. In fact, that’s a model that’s being considered for the flight ticketing as well, if the zero percent commissions model is imposed, though the IATA and the airlines haven’t finalized anything yet.

Contribution to revenues
Cleartrip has estimated a topline contribution of 10-20 percent from rail ticketing, which Bhatt says is a conservative estimate, with a bottomline estimate of 5-10 percent. Bhatt says that it’s still a very large number, if the top 3 OTAs to account for even 20-30 percent shift in IRCTC transactions - of around 40,000 - 50,000 transactions per day. By the end of the year, the company expects a topline contribution to be split as follows: 75 percent from Flights, 15 percent from trains and 5-10 percent from Hotels.

Cleartrip piloted a train search earlier this year, and Bhatt says they got 2500 visits/day without really spending anything at all on promotions. They’ve upgraded their search several times, based on user feedback. The OTA doesn’t intend to launch a TV campaign for train ticketing - “The margins here do not justify such large investments in marketing.” They do have plans for online marketing, though.

Bhatt also added that Hotels are a nascent market still, currently contributing 10 percent to revenues. They offer a margin of between 12-25 percent, depending on the deal with the hotel.

Related:
- Not Surprisingly, Cleartrip To Launch Rail Ticketing; Rs.30-35 Margins
– Cleartrip Promotes Crighton To CEO; Lays Off 42
– IRCTC Does $102 Million In Online Transactions In August; Payment Trends
– Yatra Launches In US, UK; Impact Of Zero Percent Commissions

Not Surprisingly, Cleartrip To Launch Rail Ticketing; Rs.30-35 Margins

Online Travel Agent Cleartrip is planning to launch Railway ticketing today according to LiveMint, thus becoming only the second OTA to offer the service after Thomas Cook. The launch isn’t surprising, since Cleartrip was among the first OTAs to launch a Railway ticket search earlier this year, sans the booking capability. I just gave it another go, and they haven’t allowed users to book tickets just yet. We’ve written to Cleartrip for a confirmation that the launch is planned for today. Not unexpectedly, MakeMyTrip, Yatra and Ezeego1 also plan to start rail bookings.

Cleartrip co-founder Hrush Bhatt offers some insight on the margins - which are around Rs. 30-35. While that is low, it’s still better than the 0 percent commission that the Airlines will be enforcing by the 1st of November. That said, crude oil prices fell below $92 to the barrel yesterday, down from a high of over $140. It’s too early to tell - the fall was rather drastic, so might recover, but if Aviation Turbine Fuel (ATF) drops as well, one just might see Airlines go back on their plans. At least the agents (both online and offline) will now have a case for a commission.

Over the next few months, we’ll track the impact of the increase in online outlets offering Rail ticketing on the IRCTC numbers. Some details for July and August:

Much more here.

Other Developments in the Travel Space

– Zoomtra Goes International: Smile Interactive promoted travel meta-search engine Zoomtra has launched international flight ticketing. They’ll also be launching specific portals targeting inbound traffic from Singapore, US, UK and Canada. Details in the release here.

– Ixigo Adds Bus Services: Another travel meta search engine, Ixigo, has launched bus ticketing services covering 500 towns and 2300 routes. Details in the release here.

Related:
– Cleartrip Promotes Crighton To CEO; Lays Off 42
– IRCTC Does $102 Million In Online Transactions In August; Payment Trends
– Yatra Launches In US, UK; Impact Of Zero Percent Commissions

Cleartrip Promotes Crighton To CEO; Lays Off 42

Cleartrip, an Online Travel Agency (OTA) has appointed Stuart Crighton as CEO, taking over from investor Sandeep Murthy of Sherpalo Ventures and KPCB. Murthy is now Chairman. Crighton is one of the founders of Cleartrip. The company has also laid off 42 of its 300 employees - around 11 percent. VCCircle has the details.

Over the past few months, OTAs have come under tremendous pressure because of a decline in their commissions. That situation is expected to worsen with zero percent commissions from October onwards.

There is hope, though: crude prices have been gradually declining from their peak, and are now near $100 a barrel, down from over $140 a barrel in June, which is when Airlines went in for cost-cutting, citing high Aviation Turbine Fuel costs. With a decline in crude Oil prices, airlines might just go back on their decision to cut commissions. More on the impact of Zero percent commissions here.

Related:
–Yatra Launches In US, UK; Impact Of Zero Percent Commissions
– IRCTC Does $102 Million In Online Transactions In August; Payment Trends; HDFC, ICICI, Cash Cards Significant