MakeMyTrip to focus on profits only after 2 years, currently in growth mode, says CEO

MakeMyTrip which recently raised USD 330 million from existing investors Ctrip.com International and Naspers, plans to be in a growth mode till at least 2020. Last year, it merged rival GoIbibo, which was seen as one of the country's biggest mergers in the online travel space.

In an exclusive interaction with Moneycontrol’s Priyanka Sahay, MakeMyTrip's CEO Rajesh Magow talks about the company's strategies for the coming three years, its plans for the hotel segment and the reason behind it aggressive investment goals despite holding over 50 percent market share in the hotel space among the online travel agencies.

Edited excerpts:

What is the market share that MakeMyTrip and GoIbibo now together account for in India's travel space?

For flights, we have 23 percent including the online and offline for the domestic flights. Hotels would be probably a high single digit. It used to be about 4-5 percent but has probably doubled because GoIbibo had the similar kind of size. But the domestic hotel market is hardly penetrated. Barely 12-13 percent is the online penetration. Among online travel agencies (in hotels) we would have over 50 percent market share. Of the online, we would be 29 percent.

What amount of your business is coming from hotels segment? What is the growth expected going forward?

We have 54 percent of the business now coming from hotel and packages and 46 percent from flights. We will take the hotel and packages contribution and largely now in favour of hotels to about 70-75 percent in the next 3-4 years.

Don't you think, it could be beneficial for MakeMyTrip to partner or list niche hotel startups such as OyoRooms or Fab Hotels which also have good inventory and can help the company grow in the budget hotels domain?

It does make sense if some of these players are on the supply side. Now the way of working with them could even be a strategic business deal or an investment, whatever makes sense.

We are engaged with Fab Hotels, we are working with them (listing them on MMT).

Also read: MakeMyTrip to discontinue alternate accommodation brand Rightstay

On the other hand with Oyo, we think that they are a bit of a hybrid model. They are not 100 percent on the supply side.  Then it is more like you are going into the hotel segment but you are trying to make the difference at the hotel only from an experience stand point.

Oyo is also an aggregator. Now you can be creative to camouflage the whole thing but the reality we know (about Oyo) as we are in this business. Therefore, doesn't make sense (to partner with Oyo). Then you are competing with us. When you are competing, we will compete.

On what parameters are you targeting your growth in hotel segment?

There are two big reasons. One is that the online penetration is low so there is a lot of growth expected. Then the international hotels that are also definitely trying to grow and we have a differentiated strategy on the supply side there. We have identified about 30 cities where Indians travel, so there we are going after doing the direct contracting with the hotels. So we already have 6,200 hotels where we have contracted directly. Otherwise, we have third party international supply through third party aggregators.

We believe the hotels segment would grow at a higher growth rate than the flight business. Because flight is highly penetrated already. Domestic flight business is 55 percent penetrated and we already have a 23 percent market share.

MakeMyTrip spent USD 142.3 million in discounts, sales and marketing activities when its revenue stood at USD 141.2 million during the March quarter. This happened at a time when you have a clear dominance in the market.

One reason for us -- MakeMyTrip and GoIbibo spending (earlier) was that we were competing against each other, especially in hotels. But why we are investing (now) is that the market is underpenetrated even today. Domestic flights is 55 percent but international flight is lower double digit. Domestic hotel is 12-13 percent. When we looked at RedBus business post the merger we saw a massive opportunity.

So all these four segment we continue to be growth focussed. When you are growth focussed, irrespective of whether or not there’s a competition, you invest.

The business is still in losses....till when do you plan to be in the investment mode?

It is a long-term outlook, it moves in tandem and this is based on historical experience, like I will give you the analogy of the flights business for example.

If you look at the history of MakeMyTrip and see the numbers from 2006 to 2011, you would notice that the first few years, proportion of the spending would be marketing, sales promotions and then after that when the air penetration reached a particular level is where we started making money.

If it reaches a threshold you start making money and then we were consistently profitable for three years at IPO in 2010. We had 85 percent of business coming from flights, 15 percent from hotels. So if let’s say the hotels business did not exist, we would have been handsomely profitable because the market had matured online. You did not need to then grow.

So today it is 15 percent, the estimate is about that this penetration will be 30 percent by 2020. As the penetration improves the spend keeps coming down. It should happen by 2020. The next two years we will continue to make investments.

Is there a number on what amount of investments will be made?

It is very difficult to say.

You have just raised USD 330 million. What amount of that money will go here?

We have around USD 500 million on our balance sheet. But it is very hard to say what would I invest next year. It is also a function of market dynamics. We will continue to make investments that could also mean that the loss situation is improving. It is not that there is no possibility of not improving but largely we will be in an investment mode for sure. There are areas where we are pushing massively on automation.

Will there be a focus on profitability as you grow the business?

After two fiscal years, we are committed to be growth focussed after that 2019-20 onwards the focus will shift if all goes well.

Are you looking to buy Tencent's stake in Travel Boutique Online?

No, that we had declared (during the GoIbibo merger) that we didn't look at it. Travel Boutique was not part of the transaction. If it wasn't few months back then why would it be now. Fundamentally B2B business are not very enthusiastic about because our company is much more B2C. That's the game that we understand and therefore it didn't make any sense for us at that point in time also.

Are you open for more acquisitions?

We continue to have travel innovation fund. It is a small amount that we invest in all the niche travel players. We keep looking for startups if there's a niche space we would look at it. But in terms of consolidation, we just did it. And I just spoke about organic opportunities and all these underpenetrated segments. I don't think in the immediate future there is any opportunity.

Treebo recently said that MakeMyTrip has increased the commissions to a level wherein it didn't make much of a business sense for them. Is it that now that you hold a clear monopoly it is easier for you to govern prices? Do you think there is a scope for an OTA which is aggregating the inventory to charge a commission beyond 15-20 percent and is there a growth that is possible there?

I don't think that was true or factual (Treebo’s claims).

However, globally if you see even Booking.com, the commission rates are 15-20 percent depending upon properties. This space is a function of ecosystem Europe for example is very close to independent properties and very less chain of hotels. When you have global chain of hotels you have a clear structure the way they do it. Globally that's the range of 10-15 percent consistently across the globe and then we will have their private spaces where you deliver performance lingo or you on the private spaces. They would do something special for you. Similarly in India if you look at the spectrum of the space, it has independent properties. 80 percent of the properties are independent. It has Indian as well as global chains.

We can only talk about our strategy. Our strategy is to focus on growing the hotel business and for us to be able to do multiple execution strategies. One of the segments that we have to grow is the budget segment. We have got MakeMyTrip assured, GoStays. So whatever it takes from a strategic stand point, we will do that. In business, sometimes you will take a technical call or strategic call.

MakeMyTrip also had huge plans to get into Dharamshalas, PGs and tent stays. Are they on track?

The alternative accommodation which is the homestay is a focus area. It started it as RightStay but now we do not plan to pursue RightStay as an independent brand. We already have multiple establishments, we will bring RightStay in the main funnel. RightStay brand we will discontinue, the properties will remain.

Post-merger scenario things changed because we already have those brands. We already have three distinct establishments.

What will these properties be called now?

There is a tab called 'homestays'.

How many hotels do you currently have?

We have got 45,000 and 13,500 home stays. Globally over 300,000 hotels.

What is the growth expected in the home stay segment?

Homestay is one of the future emerging segments. Alternative accommodation is the definitive future proof investments but it will take some time because it is also consume behaviours changing. So some investment will happen in terms of increasing awareness. Supply side anyway we are doing it.

Don’t think we plan to do it immediately. But like I said if we are going to take a four year outlook everything is not going to happen in the next quarter or the next year. This one is future.

What has been the impact of GST on the business?

Nothing negative.

Overall given that budget hotel segment the taxes had come down and the same increase for the luxury segment.

The luxury segment is a huge end category, there is a big confusion about this whole declared tariff. At least on our platform we haven’t seen bookings going down. The way I look at GST is that it is a positive thing set in the right direction. It is a massive law.