Showing posts with label online travel industry in India. Show all posts
Showing posts with label online travel industry in India. Show all posts

Sunday, July 26, 2009

PWYW: A New Pricing Model in Indian Online Travel Industry

What is PWYW?

PWYW, Pay What You Want, is an innovative pricing model in the revenue/yield management arena. In online travel space this model was first used by priceline.com (a leading online travel agent in the US), where it finds a supplier/product (flight, hotel room, etc.) that match customer’s price bid; without naming a provider.

This model allows the customer to purchase a product or service at a price what he thinks is reasonable.

How it is important in Indian context?

One of the key reasons for relatively less penetration of online hotel bookings in the country is psyche of Indian traveler. Behavior of Indian traveler is quite different when he makes purchase of an air ticket and a hotel room night. Unlike purchase of air ticket, Indian traveler always looks for bargain opportunities while purchasing/booking a room night.

How it is beneficial for supplier?

An empty room is a permanent revenue loss for a hotel which can never be recovered. In such cases, something is better than nothing; it is better to sell the room at discounted price than keeping it unoccupied.

A business like hotel, where there is high fixed cost, low marginal cost and perishable nature of the product, if there is additional capacity which is inexpensive to serve, volume gains always increases profitability. For e.g.; For a hotel, costs of receptionist, room service staff, front office staff and support staff remains same irrespective of the volume of room nights sold. In such cases, it is always profitable to increase volume of sales in order to reduce variable cost per available room and to reduce revenue loss from unoccupied rooms.

Moreover, PWYW model also increases customer satisfaction as he perceives transparency and fairness in pricing which in turn generates repeat business.

What if customer quotes zero price?

The most common argument against PWYW model is, what if customer quotes zero price? Researches have shown that in a case where customers are asked to quote their own price for any product (which they actually intend to purchase), they always quote fair and non-zero price.

Who is practicing it in India?

This pricing model is relatively new in the Indian online travel market. Recently two online portals, Bid2Travel and At Your Price have adopted PWYW pricing model. These websites allow travelers to submit their quote/bid for a hotel room or air ticket. Upon submission of bid, website instantly confirms availability of provider matching his bid and consummates the sale.

With increasing competition in the online travel space, marketers need to look at alternate pricing model like PWYW for survival. Not just OTAs, hotels and restaurants can also look at implementing or testing such pricing model.

Thursday, July 23, 2009

iXiGo.com generated INR 3 Billion revenues for domesetic airline industry

One of the most prominent travel meta-search player iXiGo generated direct airline sales of INR 300 crores and helped airlines to save distribution costs up to INR 15 crores. In addition to this, as bookings were made on airline's own website, iXiGo has also enabled airline partners generate ancillary revenues of almost INR 5 crores.

According to Mr. Aloke Bajpai, Founder and CEO of iXiGo.com, "Distribution costs form the third biggest expense item on the P&Ls of airlines in India after fuel & personnel expenses. The data points we have aggregated suggest that the meta-search model's growth in India is reducing distribution costs through efficient online customer acquisition, at a fraction of existing distribution channels, and is helping accelerate ancillary revenue generation"

iXiGo provides unbiased results for the search query and enables the user to compare the results. It also saves commission and booking fees for travelers as they remove middleman from the channel by routing the bookings directly to the airline website.

With entry of more meta-search players, distribution space in the online travel industry has become more competitive.

Source: Business Wire India (http://www.businesswireindia.com/PressRelease.asp?b2mid=19574)

Wednesday, July 22, 2009

Travel meta-search players spreading their wings

While OTAs dominate the online travel industry in India, relatively new but promising element in the travel distribution channel - meta-search engine - is getting more attention from travelers than ever.

Meta-search engines aggregate search results from multiple search engines and present them as a single output to the user. Meta-search engines do not have their own database or repository of travel products, they route user's query through multiple websites of OTAs and suppliers and present the search findings in the form of list to the user.

In a way, travel meta search engines enable the user/traveler to view and compare offers/quotes from multiple OTAs and suppliers on their web page. Unlike some OTAs, meta-search engine provide complete details about the fare including taxes and surcharges hence present unbiased report.

Travel meta-search players do not have their own booking engine and have different revenue model from OTAs. Meta-search engines follow 'pay per click' or 'pay for lead/action' model e.g. whenever a user clicks on any of the search results displayed on the website, meta-search engine directs the user to a website of an OTA or airline. Meta-search engine charge OTA or airline on per click basis. Charge rates generally vary with products i.e. hotel. airline, car rental. etc. OTAs also earn advertising revenues.

Travel meta-search engine market is quite matured in western countries such as US, UK and some European nations; however, it is relatively new in the Indian context. Over the past few years, Indian market has witnessed emergence of few travel meta search engine players such as IXiGo, Mobissimo, Kayak and Zoomtra. Despite being in the industry for more than 2 years, meta-search engines struggled to gain substantial share in the online travel market pie during early days, primarily due to inadequate support from airlines. However, nowadays, c
ompanies like IXiGo have moved from traditional airline-only model to air+hotel model. It has recently added bus and rail to its portfolio. The company has also launched its mobile platform in order to target India's 60 million GPRS enabled phone users.

Increasing popularity of meta-search engines amongst travelers has grabbed attention of VC investors when Singapore based investment fund BAF Spectrum invested in IXiGo.

With gradually increasing competition in the market, meta-search engines need to upgrade their features such as innovative search or display options, fare forecasting, auction based pricing, etc.

Indian Railways (IRCTC): Growing Leaps and Bounds

Indian railways' online booking portal IRCTC clocked estimated gross bookings worth INR 34 Billion for 2008-09, accounting for nearly 38% of total e-commerce market in India. Since its launch in August 2004, IRCTC has increased its share in total railways booking to 30%.

In the month of June '09, the website made bookings worth INR 4.3 Billion involving more than 5 million transactions. Of total value of transactions, credit card payment gateways accounted for the highest 31.4% share followed by debit card / net banking payment gateways with 30.8% share.

Within credit card payment gateways, ICICI gateway accounted for 54% share. Within debit card payment gateways, SBI accounted for 24% followed by ICICI Bank with 21% share.

Cash cards accounted for 25% share in IRCTC gross bookings; ITZ cash cards and Done card collectively accounted for 90% share in total cash card booking in June '09.


Online Travel Industry in India is on a Roll


The second most populated country in the world with rapidly increasing online population holds tremendous potential for online travel marketers.

Evolution

Since 2004-05, when low-cost carriers along with government led Indian Railways laid the foundation for online travel industry, there has been remarkable increase in the online travel activities in the country. Besides this, improvement in Internet infrastructure, introduction of secured payment gateways and emergence of OTAs have acted as catalysts for growth of online travel industry in India.

Number of factors have also conspired to limit the growth of the industry such as, low credit card and Internet penetration, relatively smaller aviation market and inadequate supply of hotel rooms.

Online Travel Sectors and Emergence of OTAs

Like any other evolving online travel markets, Indian online travel industry is predominantly driven by aviation sector. De-regulation of aviation sector in India, which saw emergence of several low-cost airlines will go in the history books of online travel industry in India. The initiative not only increased the competition amongst airlines but also compelled them to device successful online strategies for themselves.

Entry of Online Travel Agents has further intensified the competition in the online air travel industry and also presented online travel buyers with other travel products for online bookings such as hotels, car rental, buses and packages.

As industry is moving up the life-cycle curve, other products than airline tickets are gaining attention from both online marketer and online travelers. Leading OTAs are shifting their focus from airline to hotel rooms and have channelized their energies towards adding hotel room inventory to their portfolios.

OTA space in India is getting crowded with more than 20 OTAs competing for online travelers ' attention by luring them with lucrative offers and discounts. Backed by PE or VC funding, OTAs are leaving no store unturned to aggressively market their products and services and to increase their share in the online travel industry pie.

Conclusion

Considering all the growth drivers and challenges on the way, Indian online travel industry is poised for tremendous growth in coming years.