Globetrotters Online Travel Agency:

The right destination!?

Proposed Solution by:

Vijay Ghule (PGP26186), Sec C
Associate Consultant
IIM Lucknow
Overview

Online Travel Agencies (OTAs) are a thriving business in the current market scenario, with players
increasing overnight. The three markets USA, India and China are destinations under
consideration for prospective OTA. OTAs offer booking capabilities and planning resources to
customers on behalf of suppliers over the Internet. Online travel services include booking airline
tickets, hotel reservations, car rentals, vacation packages, and cruises. The study presents a
summary of the market research conducted in the client’s regions of interest. After taking into
consideration all the possible scenarios a final recommendation along with the reasons for the
same are presented to the client.

Market Analysis

The market study conducted focuses on all three countries under consideration, viz., USA, India and
China. USA has three major market players: Expedia, Orbitz and Travelocity. Expedia, which
pioneered in this business since its inception in 1999, is the market leader and its Annual Sales in
2008 were $2.97 bn. The total market size of Online Leisure/Unmanaged Business Travel Bookings
in 2006 was $78.8 bn. The expected CAGR is 13%. The estimated market size in 2011 is $145 bn. In
the US, airlines offer 0% commission for OTAs for selling tickets, therefore revenue comes from
selling high volume with low cost per transaction and packaging them to help generate fees from
air-tickets. The internet penetration is highest among the three markets at 72.5%.

Indian market is dominated by three major market players: TravelGuru, MakeMyTrip and
ClearTrip. TravelGuru is the leading player and offers a host of services to customers. The total
market size in India in 2006 was $0.6 bn with an expected CAGR in the period of 2006-2011 of
45.6%. The internet penetration is lowest among the three markets at 3.5%. Railway tickets make
up a significant part of business revenue. Recently, OTAs have started rolling out new travel
services for mobile phone users (more than 100 mn mobile users vs. 40 mn internet users).

Chinese market is currently enjoying duopoly. It has two players cTrip and eLong controlly most of
the market. cTrip is the market leader with an annual revenue of $216.2 in 2008. The total market
size in China in 2006 was $1.5 bn with an expected CAGR in the period of 2006-2011 of 59.9%. The
internet penetration in China is 16.2%. There have been significant changes in regulations effective
May 1, 2009. These regulations are OTA friendly and provide incentives to private players and
foreign investors to set up OTAs in China. Online payment infrastructure in China is
underdeveloped; however with the recent changes in govt. regulations, the infrastructure is bound
to improve in the recent future.

Strategy

Through analysis of OTA business, various markets under consideration and the major players
dominating currently in each of these markets, it is clear that for a new entrant in order to ensure
good service and fast growth, capturing market rapidly with service differentiation is very crucial.
Considering these factors in perspective, it is recommended to start an OTA in India. The key
factors are: High expected CAGR of market, untapped market potential, high expected growth in
mobile users. The pricing and revenue model should be similar to that of the competitors. A good
launch strategy coupled with high degree of promotion should be planned and executed. In the
initial stages, marketing will play a key role in defining the growth of the organization. Innovation
in the services provided, the way services are provided, and customer relationship post service
provision would be important tools to penetrate market in brisk manner.

Business Kickoff Action Plan

The prospective OTA has to be launched in a phased manner. Initially core services should be
offered as a pilot run, and gradually value added services along with service customization can be
offered. The client will require conducting a market survey to decide the best regions to setup and
launch their services. People with good analytical and interpersonal skills should be hired. It is
important to maintain the best service standards to ensure repeat business. Feedback and action on
feedback can be a key to grow business rapidly to newer heights at faster pace. Partnership tie-ups
with players in allied businesses like online payment gateways, search engines, ‘online travel
forums’, ‘travel guide websites’ will fuel the launch rampantly.