(By Nikhil Pahwa and Preethi J)
Under the aegis of Federation of Indian Airlines, three airlines – Spicejet, IndiGo and Kingfisher – are going to back a site for booking airline tickets and planning holidays called Rang7. Rang7 and its travel subsite MyIndia directly compete with online travel agents (OTAs) Cleartrip, Yatra and Makemytrip. Update: MyIndia has been launched.
By the looks of it, Rang7 has been in the works for over a year, and is operated by ShiVik Internet Pvt Ltd according to its site. As per the press release, a venture capital firm has apparently committed $3 million to Rang 7, though the release doesn’t mention which.
Last year, Air India, Kingfisher and Jet Airways had stopped paying the 5% commission to travel agents and decided they would let users book tickets directly from their websites. It failed then due to pressure from the OTA community and a compromise was reached. The carriers now have recession on their side and can use it as an opportunity to draw users with zero commission as bait.
How Will They Make Money?
It is suggested that Rang7 has been launched by the Airlines to counter the issue of paying out around Rs. 200 crores in distribution costs, in the form of commissions to ticketing agents. If Rang7 does not charge a commission, then how will they make money? How will they fund the cost of operations? The other options for them are to receive money from the marketing budget of airlines, and compete with meta search engines like Ixigo and Zoomtra, or have an advertising based model. Either way, they’ll need scale, and that will be expensive.
Aloke Bajpai of Ixigo has the same questions, adding that “There is a simple reason why travel agents either need a commission or a service fee from customers (and increasingly both), and it’s because of their inherent business model. In India, on average commissions are around 3% and 6-8$ per booking to GDS is more like it (no GDS fee for LCCs). The saving doesn’t look too exciting any more.”
“What would be interesting to see is how much transaction-fee Rang7 will add to customers to sustain its business model, given that it will charge no commissions. Today OTAs add on average Rs. 200 per ticket and get some commissions,” Bajpai adds.
Do We Need Another Online Travel Agent?
That’s a question which the Rang7 team has asked, but not quite answered on their blog. The points that they raise regarding challenges for the OTAs are as follows:
— Highly competitive market: with several OTAs
— Low margins and high associated operating costs
— High cost to build a brand: most of the VC funding of over $120 million has been spend on brand building.
— Low customer loyalty: “Unfortunately, the reality is that a substantial majority of consumers shop – typically an average of 2.5 websites – to find the best deals before making a purchase…which explains why Marketing is the largest line item cost.”
— Commodity product & service
— Supplier dynamics: Airlines and Hotels are themselves struggling given the downturn.
The press release suggests that current OTAs offer biased results – on the basis of the commission offered – which we feel is incorrect because the value of an OTA comes from offering all the flights available, and allowing the user to filter and sort the information on the basis of time of departure, arrival and cost. Users do pay a premium for that flexibility.
Is It Ready To Take On The Competition?
Jet Airways and Indian Airlines also seem to be on board Rang7 – we see that their flights are included in the results. Carriers say they are doing this to save on distribution costs – they spend close to Rs. 200 crore on commissions to travel agents and portals. Their independent launch of Rang7 signifies that they are confident in standing up to their competition. Rang7 will be up against Yatra, Cleartrip and Makemytrip – who have a very strong foundation in the e-commerce sector and large customer following. Some have diversified into train booking and holiday packages, so their bouquet is also bigger.
Rang7 will soon launch a travel portal called MyIndia. MyIndia currently features 287 destinations, 75 festivals, 44 monuments, 28 national parks and 53 other Wiki guides contributed by members of Rang7. Take a look at one of these Wikipedia-like entries here.
MyIndia offers search for travel destinations in a map – something unique and definitely attractive. You can search for getaways by filtering the distance you are willing to travel, and the mode of transport. Here’s a screenshot.