11 Aug 2016 12:37 IST

Will the hotel segment click for MakeMyTrip?

The firm, which has been making losses, hopes to make profits in 18 months

Online travel portal akeMyTrip expects to make profit in 18 months with continued focus and investments in opening up the country’s online hotel market.

“From a profitability roadmap perspective, we should take a year-and-a-half for investments, and post that you will see people making money. Our investors are comfortable with it because growth and market leadership are important. And the investment to open up the hotel market is important,” Rajesh Magow, co-founder and CEO-India, MakeMyTrip, told BusinessLine.

The company has chalked out a roadmap to drive growth from its hotels and holiday packages businesses. The firm’s net loss in the quarter ended June 2016 widened to $14.3 million, compared with a loss of $6.9 million in the quarter ended June 2015.

“Post our IPO, in 2010, we made consistent profits for two fiscals (2011, 2012) because it was a steady-state air business model and the hotel market hadn’t really opened up. From a capability standpoint, in the internet business model, you have to reach a particular threshold to be able to start making money.”

The company’s marketing and sales promotion expenses also shot up to $52.7 million in the quarter ended June 2016, from $12.3 million in the corresponding quarter the previous year.

“The hotel business has just begun to open up. Smartphones have helped us get momentum in hotel bookings. This momentum will continue. Therefore, our investment in the hotels space, which is currently resulting in operating losses, will continue. The majority of the investment is going into sales promotion and marketing,” Magow added.

Innovation fund

In September 2014, MakeMyTrip had announced a $15-million innovation fund to back early-stage travel companies. The company has made acquisitions and investments in niche travel companies such as HolidayIQ, GoFro, Simplotel, Mygola, Easytobook.com and US-based Inspirock.

This is in line with the company’s strategy to become a one-stop shop for all travel-related needs of the Indian customer.

MakeMyTrip is looking at the alternative accommodation space through Rightstay where it has built an in-house team to provide service apartments, guest houses and home stays.

All these investments are to ensure that the hotel and holiday business, which contributes 54 per cent to the company’s revenue, can go up to 70-75 per cent in three years.

The focus on hotels for growth comes as the market for flights has become “somewhat mature” for the company, though there is some headroom in the relatively less penetrated international air segment.

The revenue from its hotels and packages businesses increased by 32 per cent (38.9 per cent in constant currency) to $95.6 million in the quarter ended June 2016, from $72.4 million in the quarter ended June 2015. Asked what else is left to capture in the travel pie, Magow said: “Nothing is left in the pie as such, but there are 2-3 areas where there is a lot of headroom. One is the domestic hotel market. Fifteen per cent of all hotel bookings are happening online. This will go up to 45 per cent in the next three years. We will then look at alternative accommodation, for which we will start making investments now.”

The company also sees an opportunity in the international hotels segment. “When we did our international-only app fest, we saw huge traction and online bookings that day.”

While competition is heating up in the hotels space, MakeMyTrip is not keen on looking at travel companies such as OYO Rooms or FabHotels from a consolidation standpoint.

Magow added: “These budget chain operators started as hotel aggregators for budget properties and, therefore, were competing with us. Now, their focus is taking over properties and managing them like a hotel chain. If it continues on this path, we don’t have any problem; we would even sell them on our site. There is no competition then.”

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