Learnings from India helped us expand to other markets rapidly: Cleartrip CEO

Online travel agency Cleartrip recently announced its acquisition of Saudi Arabia's leading travel startup Flyin for an undisclosed amount.

This was the first-ever acquisition by the company since it started operations in 2006. The frugality, according to Cleartrip CEO Stuart Crighton, is core to company's operations.

In a market saddled with heavy discounting resulting in high cash burn, Cleartrip has operated at break-even profitability for the last four years. In an exclusive chat with Moneycontrol, Crighton elaborates on the reasons why the acquisition made sense for the company right now.

Q: Flyin is Cleartrip's first acquisition ever. Why does inorganic growth make sense for the company now?

A: We have been in the Middle East for five years. It has been an important part of our growth journey. The reason we went into Saudi is because we started seeing a lot of traction from the corridor and we came to a point where we couldn't manage it from India alone. So we thought of landing in UAE and manage our customer base from there.

When we went there we realised there are no specific, localised products in the market catering to GCC (Gulf Cooperation Council). For the first 3 years we built a significant market share in GCC, with the exception of Saudi. Two years ago when we went to Saudi it was for a simple reason that you cannot be a dominant player in GCC without being in Saudi. We organically went there and set up shop. But it is a slightly more complex market than others. It was at that point that we started having discussion with Flyin, which is a market leader in the market. We saw a lot of things operationally that resonated with Cleartrip – the way they handle the product, their focus on problem solving than on discounting. It made a lot of sense for us.

Q: What kind of synergies are you expecting from this acquisition?  

A: The combination of Cleartrip's market in GCC and Flyin will instantly give us a 60 percent share in the GCC region. It also gives us access to Egypt market, Middle East and North Africa (MENA) region. The Middle Eastern market will now account for 40 percent of our overall revenue, which itself is growing at 50 percent year on year. So it's fairly large scale.

Moreover, Flyin's 150-people strong engineering team sits out of Hyderabad, while our team is in Bangalore. Altogether, we will have a strong team over 300 people in India alone. This will accelerate our revenue roadmap, while keeping our costs lean. The biggest challenge in India is resourcing, finding the right talent. So this gives us a massive head-start.

We are retaining the Flyin brand in Saudi because it is centred on Arabic culture, which we struggled with for various reasons. It makes sense for us to keep Flyin strong and keep investing in it. We could take their learning in other Arabic markets and other non-English speaking markets. But for now, all other regions around Saudi will continue with Cleartrip brand. We will see how we tumble along together in next 12 months and take strategic decision thereon on expansion.

Q: Where does India stand in your overall scheme of things?

A: This year, we will do an overall GMV of $1.2 billion. It's not just a market share story, but an evolution. We are already the second largest digital business in Middle East, first being an e-commerce company. And we can do that really because our India business has allowed us to do that. India is a competitive market, lot of things going on here, with massive growth opportunities. India is a compelling story and an important one for us. Because of the lessons learnt here, we are able to get into other markets rapidly, and doing it with scale and profitability. India continues to be an anchor market for us.

Q: Cleartrip's expenses and costs have remained stable over the years. What will be the impact of the acquisition on your expenses?

A: Most travel companies around the world and in India are very capital-intensive and require a lot funding to sustain. We have built our business very differently. We have looked at our bottom line and top line with equal priority. We have grown but not at the cost of profitability. We were very clear that once we start looking for inorganic opportunities, we don't want it to damage the healthy profit and loss account we have built for ourselves.

Flyin is similar to Cleartrip in unit economics and profitability. We classify over 33 percent of our customers as L3 customers – frequent fliers. Problem in India is that there is a large channel shift from offline to online but the frequency is quite low. People are coming online but they are not travelling frequently. With prolific discounting, recovering the lifetime value on a customer gets very difficult in this scenario. That's why there is a lot of cash burn across the industry.

We, on the other hand, focused on building products around solving real problems. The early adopters of these innovations are, of course, the frequent fliers. That has helped us craft a competitive unit economics in our business. We take that learning to Saudi which has a good chunk of frequent flier base, we should do even better. Having said that, I feel, discounting is a natural source for customer acquisition. But it has to be intelligent discounting. Though discounting can get you the customer, but you need much more to make them loyal to your platform. So to answer the question, we will remain a lean company, as is Flyin. We would rather stay stagnant at 20 percent market share here in India than reach for 30 percent share by way of meaningless discounting.

Q: What is the next growth trajectory for Cleartrip?

A: There is a lot of work to do. Every product today is broken, in my opinion. The fact that you cannot embed flight bookings, activities, train bookings, etc., in a single payment method, is a broken experience. In a single window product also, somewhere it will take you out of the app for a transaction or something else. All these problems can be solved by technology. What is missing is imagination. If people only think of acquiring customers at any cost possible, innovation will somewhere take a back seat. We will definitely focus on improving user experience, reducing friction, and plugging loopholes wherever we find it.