Across its travel businesses, ibibo reported revenues of $91 million for the year ended 31st March 2016, with its airline business becoming profitable, its parent company Naspers said while announcing its annual results. The company said that the revenues are “67% higher in local currency, adjusted for acquisitions and disposals”. Naspers is putting in $250 million in expanding, what it claims, is the market leader position in online travel in India, based on total number of transactions.
ibibo claims to be the number two player in air ticketing, in terms of transaction volumes.
For a company that entered the online travel space by giving heavy discounts on airline tickets, achieving profitability in the segment is significant. For years, ibibo has treated discounting as form of a marketing expenditure, tactic common among ecommerce companies in India. With ecommerce companies now looking at “net revenues” and the path to profitability, this, from ibibo, is notable. The “Nearest Competitor” in the chart above is likely to be MakeMyTrip, which reported 6.96 million Airline tickets sold in FY16, up 28.1% growth year on year. ibibo says it grew 52% year on year, but Naspers hasn’t disclosed the number of tickets sold.
MakeMyTrip reported net revenues of $78.2 million for airline ticketing, and hotel booking net revenues of $86.5 million, for FY16. However, the company reported its 14th successive quarter of losses.
It’s unlikely that Goibibo is profitable either, but Naspers is still in investment mode (as it has been with ibibo since 2006): It has identified ibibo’s hotels as a new area of investment, where it claims a leadership position, and says that it is growing faster than competition.
Why Hotels are now a priority for ibibo, and should be
“The priority for ibibo is now to expand its hotel segment,” Naspers says in its annual report. While the reason it gives is that only 13% of hotel transactions are online, and growth is expected to be at 40% for the next two-three years, there is possibly another, more structural reason. While air ticketing is growing in terms of demand, there are significant supply side restrictions in this business: the number of players are too few, and this typically gives them disproportionate power in terms of control over airline ticketing. Given that airlines have struggled, commissions have been replaced by additional transaction charges levied by the ticketing companies. This defines and limits their potential for growth in revenue, which is linked only to the growth in sale of tickets via their platform.
In case of hotels, though, the market is more open: there is fragmentation both on the demand and supply sides of the business, which gives an aggregator more control over discovery and inventory. Remember that all online platforms are in the business of maximising fragmentation and monetizing aggregation: becoming the primary source of information, transactions and content for a user gives aggregators power over the supply side, given that no single supplier has disproportionate power. Think of Uber and cars, YouTube and content, Facebook and audience. In the supply side fragmentation is where the opportunity lies for ibibo, and every other online travel company.
A smaller ticket size also makes hotels more accessible than flights, and expands their base to train and bus travelers as well. hotels are already integrated with Redbus.
Note that for the year ended 31st March 2016, MakeMyTrip accounted for 2.4 million bookings online, and 1.3 million bookings on mobile. ibibo hasn’t disclosed transaction volumes.
Redbus revenue grew 37% (in local currency) for Redbus in the year, while transaction volume increased by 59%. Naspers said in the report that the ibibo team has “internationalised the platform and strategy” and launched in Singapore and Malaysia. Since the year ended, Redbus has also expanded to the South American continent by acquiring Busportal.pe in Peru. Busportal.pe plans to expand operations to Colombia and Chile next.
Naspers had acquired Redbus for $101 million in 2014.