October 19, 2016 TnH Global

MakeMyTrip-ibibo merger: More power to consumers; rivals better watch out

Their negotiating power and better economies of scale will allow them to indulge in aggressive pricing.

Online travel portal ibibo’s merger with market leader MakeMyTrip will create pricing challenges for players like Yatra and Cleartrip. The combined entity’s improved negotiating power and better economies of scale will allow them to indulge in aggressive pricing. Ankur Bhatia, executive director of Bird Group, which has interests in hospitality and aviation, said a consolidation is always better for the industry. “The two entities together become a large buying house and can negotiate for better margins due to sheer volumes. This will allow them to offer better prices to consumers. The deal also means MakeMyTrip will remain the market leader for a very long time,” said Bhatia.

Indian travel market has been growing, both domestically and internationall . There has been a series of deals in the online travel space this year. Indian travel market offers a great growth potential and large foreign capital is flowing in as overseas investors look to benefit from this growth.

In January, Nasdaq-listed MakeMyTrip had raised $180 million from Chinese travel major Ctrip to grow the hotel business. In February, ibibo secured an investment of $250 million from Naspers, the South African internet and media company, now one of its main shareholders, along with Chinese internet firm Tencent. In July, Yatra announced a reverse merger deal with Nasdaq-listed American company Terrapin 3 Acquisition Corporation (TRTL) that valued the Indian entity at $218 million. Yatra will list on Nasdaq.

The online travel market in India is still evolving with the rapid penetration of smart phones and low cost of data. In the air ticketing space, almost half of the market has moved to online. However, in the hotel booking only 15 per cent of the branded hotel booking is estimated to happen online. Moreover, the hotel booking space typically offers a much higher margin of 10-12 per cent against airline ticketing margin of 5-6 per cent. This is where the next fight for market share will take place. The combined entity has a close to 50 per cent share in online hotel booking space and are a dominant player in air ticket segment.

With ibibo, MakeMyTrip will improve economies of scale. The combined entity can optimise on the use of infrastructure like call centres and kiosks and bring down the cost of operations.

News Source: business-standard.com