Online Travel Agency (OTA) MakeMyTrip’s (MMT) financial results have a few interesting patterns that indicate the progress of the segment & preferences of online travelers. MakeMyTrip generated gross revenue of US$ 228.8 Million in the year ended March 31, 2013, an increase of 16.4% (29.7% if currency fluctuation is not factored) over the previous year. However, the company reported 1.4% decline in its revenues less service costs, which stood at US$ 21.7 Million for the fourth quarter ended March 31, 2013 over the year-ago period.
Air Ticketing segment to blame for the decline: Decline in revenues less service costs (a crucial metric for OTAs) can be attributed to the sharp fall in sales from its key revenue earner; Air Ticketing. This segment declined 26.3% (21.2% in constant currency) to US$ 13.14 Million. All this negatory shift clearly represents deteriorating performance in air ticketing.
How are the OTA doing?
Overall, Air Ticketing was one of the most financially lucrative avenues. Driven by wildly varying pricing structure that fluctuated not only by season or availability, but also time-duration, OTAs had a very good profit margin. By pre-empting demand, these companies routinely pre-booked tickets & hence could offer a holistic holiday package that included air fare too.
The company blamed the decline in revenue less service costs, to a fall in Net Revenue Margin (defined as revenue less service cost as a percentage of gross bookings) to 5.3% from 8.4% a year ago, mainly due to a reduction in airlines’ Base Commission. In other words, the demand has largely remained stable, but OTAs cannot earn well from the transactions as their revenue margin has been almost halved.
Is there an upside? Fortunately for MakemyTrip, it’s Hotels and packages sector is proving very successful. Despite being a relatively smaller contributor of revenues, this segment grew an astonishing 141.6%. Interestingly, this is exactly what MMT desires revealed Deep Kalra, chairman and CEO of MakeMyTrip, “As part of our long-term strategy to grow the hotels and packages business, we significantly improved our annual non-air net revenue mix to over 35 per cent”
Reducing reliance on Air Ticketing is certainly a good business tactic. This could even be a response to big OTAs like IRCTC entering the field. What do you think?
Image Courtesy | kotakcards