By Sean O’Neill, Skift – Jan 24, 2019 11:15 am
Some hoteliers in India have begun singing from the same song sheet as hotel groups in North America and Western Europe as a chorus of complaints about online travel agencies has swelled up in recent months.
But the complaints were drowned out Thursday by a report of strong financial results from India’s leading online travel agency group, MakeMyTrip, which continued to take online market share at the expense of hotel direct bookings.
In December, hoteliers drew national media attention and viral social media posts on the WhatsApp platform to their complaints against MakeMyTrip Group.
About 270 hotels in Ahmedabad, a city in northwestern Gujarat state, said they would “boycott” MakeMyTrip and its sister brand GoIbibo — two portals that together form the country’s largest online travel group.
“There was a time when online booking portals used to charge only 15 to 18 percent as commission,” said Abhijeet Deshmukh, a spokesperson for the Hotels and Restaurants Association. Hoteliers alleged that in the past two years since the merger the two portals now effectively charge commissions of 40 to 45 percent.
After one week of a boycott, MakeMyTrip Group promised to cap commissions at 22 percent for hotels in the city. The owners and managers called the protest off.
But the drama didn’t end. Last week, hotels in Sikkim, a state in northeast India, banded together to launch a similar boycott, making similar claims of excessive commissions. They also said they were frustrated that MakeMyTrip and GoIbibo offer “indiscriminate” discounts on hotel rates that make it difficult for them to manage their businesses. The Hotel and Restaurants Association of Western India threatened to call for a nationwide protest.
In both cases, hoteliers threaten to cancel bookings once guests reach a hotel and then rebook the guests offline at the same price. This boycott is imperfectly done in practice. The hoteliers have to manage a delicate dance of not upsetting customers. By banding together, they hope to avoid legal retribution from the online travel agency for breaking their contract.
IMPROVING FINANCIAL PICTURE
The protests may have gotten wide publicity. But they didn’t seem to cause any dent in the financial performance of MakeMyTrip Group.
In the last three months of 2018, which coincides with a peak holiday travel season in India, MakeMyTrip Group boosted the number of hotel room nights booked on their own, up 27.1 percent to 6.85 million. If you add in room nights booked together with flights, the volume was even higher, though not specified by the company.
MakeMyTrip executives avoided talk about the hotel protests during a call with investors Thursday. But in response to an analyst question about its commission rates, Rajesh Magow. co-founder and CEO of MakeMyTrip’s flagship India brand, said the company planned to bring commissions down over time. Magow said that converting offline shoppers into online ones has required a marketing expense and that it has had to charge hoteliers for the cost of offering “performance-linked incentives to drive higher occupancy rates for them.”
“We believe that over a period of time, the promotional expense will go down, and we will pass along the benefit along to the suppliers,” said Magow.
MakeMyTrip Group continued to grow. In the last three months of 2018, MakeMyTrip boosted its adjusted revenue rose 31.4 percent, year-over-year, to $179.9 million. Adjusted revenue numbers reflect a more accurate picture than the unadjusted, according to Skift Research, because last year MakeMyTrip switched to a new national accounting standard without restating past performance. The adjusted numbers also smooth out significant swings in currency shifts between the Indian rupee and the U.S. dollar during the period.
The company remained unprofitable, which has eaten into its liquidity. As of December 31, it had $300.9 million in cash, down 28 percent from a year earlier. But the company has been narrowing its losses. For the quarter ended December 31, it lost only $29.3 million, as compared to a loss of $45.3 million in the same period a year prior.
Ragow said it may take about another four quarters before the company is breaking even. Balancing the company’s needs for profitability with supplier relationships will be a key challenge toward getting in the black.
Since 2017, hoteliers have seen MakeMyTrip and rival online travel companies rapidly dominate online bookings. For more backstory, see this month’s Skift deep dive: What India Reveals About the Future of Online Travel.
In recent months, some online travel agencies located India have had a large number of complaints, but these comments were limited by MakeMy Trip, a leading group of online travel agencies, who took a large part of the online travel market direct reservations to hotels.
Due to several inconveniences that the hotel chains of the place have witnessed, they decided to present in December of last year, innumerable complaints against the online travel agency, mainly due to the increase of commission charges to hotels and restaurants that previously was from 15 to 18% and currently is from 40 to 45% approximately. For the inconvenience caused, MakeMy Trip decided to limit its commissions to 22% for hotels, and calm negative comments.
However for the company, located in India did not represent the aggravating inconveniences in their sales, it is so that the last months of 2018, the company registered an increase in reservations in different hotels.
- Hotels and tourist services establishments have noticed a reduction in direct sales as there are online reservation platforms that are currently used by travelers.
- The MakeMy Trip and Golbibo group despite the negative comments they have had, in recent months have seen an increase in hotel bookings mainly.
- Constant complaints from different accommodation and food establishments have generated a negative image for the main online booking agencies.
- The inconveniences by the tourist services establishments managed to reach agreements with MakeMy Trip regarding the fees charged.
- Online travel companies, day by day, are one of the main services for users of the travel industry, because there are an optimal digital tool.
- Digital tourism services allow users to facilitate the booking process for different establishments in their trips.
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