Evaluation of Indias Online Travel Industry

Evaluation of Indias Online Travel IndustryMANAGERIAL ECONOMICSPROJECT ONLINE TRAVEL persistenceGROUP MEMBERSNikita Goenka (PGP30324)Padmaja Agnihotri (PGP30316)Sandeep Kumar (ABM11034)Ravali Malka (PGP30317)Vishwas Nandan (PGP 30353)Saurav Kumar (PGP30340)Rohan Kokane (PGP30336)BACKGROUNDIndia is a country with vast demography and a wide spectrum of opportunities. Better job avenues submit gifted the youth with greater discretional power. Rising use of internet plastic money has made the field of e-commerce an exponentially growing field in recent periods.Why E-Travel as a subject of research?E- impress in India has a lions dowery in the Indian E-commerce contributing to a whopping 82% to the entire commercialise share in the year 2013 ( chart 1). Also, E-travel exhibited a marvelous annual result of 53% in 2013 over 2012. This is further complemented by the fact that the Indian tourism industry is the 2nd fastest growing in the world. The present paper aims at unravelling va rious facets of this booming industry and studying its position in the cliquish sector, especially e-commerce industry.Other meritsOnline travel demands least capital infrastructure personifysQuick delivery of services enhances consumer satisfactionEVOLUTIONBased on the angiotensin converting enzyme idea of easing travelling in India, online travel services started around a decade ago. Booming of IT sector in India was one of the major factors affect online travel. Online travelling segment constitutes around 70% 80% ($25 billion) of all e-commerce activities and has been a major driver of the industry. Key schemes and policies implemented by e-commerce industry throw out be considered as major factor for success of the segment. Exhaustive assistance, user friendly websites, customer grievance redress are the major attractions prevailing in the segment. Makemytrip, Yatra.com, Redbus are some websites which nourish seen rocketed growth as presented in Graph 2 and Graph 3.PRIC E ELASTICITY OF DEMANDPrice Elasticity is defined as percentage change in demand due to one percent change in charge. Online travel industry faces more level of price sensitivity than traditional channels, majorly because of ease of access to-PRODUCT INFORMATIONPRICE INFORMATIONCHANNEL SELECTIONFORWARD LINKAGESNowadays Travel industry is not restricted to its conventional travel business only. It has extended to forward linkages like bus tickets, travel insurance firm hotels. Share of each linkage has been presented in Graph 4Regulations Introduced by the government and its impactThe restrictive norms laid down by the government of India are aimed at promoting growth of the market which have effect on the online travel industry. With the customers slowly moving from traditional ways of booking to online, these norms have greatly influenced the growth of online travel industry.A few regulatory norms laid are as followsCOST STRUCTUREThe cost structure of online travel can be analy sed in two waysTraditional cost analysis through study of the PL statementABC (activity based costing ) by analyzing the cost driver for each specific segmentThe following sections explains both the above stated view confidential informationsTraditional costing analysisThe income statements of various big players of the online travel industry are available for study. One such player is Makemytrip.com, a confidential information firm in online travel.Graph 5 summarizes the various expenses of Makemytrip for 4 consecutive years in descending order.Activities of online travelThe various activities of online travel have been are categorized asCore ActivitiesandSupport ActivitiesThe activities are studied considering their respective drivers in terms of the resources allotted and some other factors such as time and space devoted etc.PRODUCTION STRUCTUREOnline travel industry offers services to its customers as a product. There are various types of services which online travel industry offers-Core servicesAir, Rail and hotel advance bookings and ticketingDiscount fares programEvent management serviceValue added servicesTracking of journey24 hours emergency serviceTicket approval using email systemInsuranceGraph 6 Traffic generated from mobile devices.Graph 7 have of travel portals (India and Global)Graph 8 Profit Margin by segmentsPRODUCTION FUNCTIONA production function gives relationship between inputs (capital, labour and other factors) and outputs (goods and services). Online travel agency have high initial and fixed cost which it makes as less labour intensive sector.U= U (P, Y)Y= F (K, L)Where U = utility function of cost (P) and trips (Y)F = Production function of capital (K) (travel agencies)In short run, if labour is increased, the performance and maintenance of the online portal volition be improvised. So this in-turn might increase number of trips for some time period then falls as online travel agency is more engine room based and improving labour d oesnt increase much of output.In long run, an gain in the state of technology shifts the production function up, leading to an increase in output per player for a given level of capital per worker. The higher the technology, higher Y for a given K and L. An improvement in the state of technology shifts the production function up, leading to an increase in output per worker for a given level of capital per workerCOST FUNCTIONCost function is effect of level of production on the cost which the firm is incurring. Since in online travel industry we dont have any such physical product, we can relate the level of production with the sales generated by company.Cost analysis for Thomas Cook has been through with(p) in Table 1 and Graph 9.TABLE 1 Thomas Cook- Average and Marginal cost of the service deliveredYearSales(INR in mn) come in Cost(INR in mn)ACMC2010345530860.89322011401730940.77030.012012438633000.75240.557201313031102690.78810.80Source www.securities.com/emis/ Industry- Onlin e travelGraph 9 Cost analysis for Thomas Cook (All money figures are in INR million)InferencesThe data given in Table 1 shows the average and marginal cost of the service delivered. From graph 9 we can see that the average cost reaches a minimum value of 0.45 at a sales value of INR 8700mn approximately. As the scale of operations of Thomas Cook went up beyond this token the average cost also increased. Clearly it is evident that the company isnt operating at its minimum cost point. Due to sudden increase in scale of operations, the company might not have optimized its value chain.REGRESSION ANALYSISIRCTC E-ticket bookingIRCTC started its e-ticket booking initiation from 2005 August. By that time there was already i-ticket booking in IRCTC where tickets will be delivered through courier to the house after booking through internet. Once IRCTC launched E-ticket booking, the sales through I-ticketing started declining and this new facility increasing sales of IRCTC. Number of people using internet in 2012 is 11.4% of total population as compared to 4.5% of total population in 2005. This rapid growth in internet users resulted in increment of number of tickets booked through IRCTC.Graph 10 Regression Analysis for IRCTC E-ticket bookingInferencesIn 2005, internet guild Sify had announced its tie up with Indian Railway Catering and Tourism Corporation (IRCTC) to make online railway ticketing service available at over 3,400 iWay cybercafs across 154 cities, on cash payments.In 2008, With 8 lacs tickets sold every day on its website, IRCTC had announced its expansion policy to give services and transport airline tickets.With overall increase in train travel quality and increase in train travelling, e-tickets are in demand.PROFIT OR difference ANALYSISMAKE MY TRIPwww.moneycontrol.comYearRevenueTotal CostProfit2011$124,721.00$119,891.00$4,830.002012$196,599.00$189,951.00$7,048.002013$228,822.00$256,411.00($27,589.00)2014$255,375.00$276,281.00($20,906.00)Graph 11Inf erencesBased on the above analysis MakeMyTrip has achieved its break-even point somewhere in between 2012 and 2013.After that point it has been experiencing losses.PROFIT OR LOSS ANALYSISTHOMAS COOKwww.moneycontrol.comYearRevenue(In Cr.)Total Cost(In Cr.)Profit(In Cr.)2009242.00184.0058.002010282.00193.0089.002011340.00232.00108.002012386.00270.00116.002013383.00267.00116.00Graph 12InferencesFrom above graph, Thomas cook has passed its break-even point and has been experiencing profits for last 5 years.APPENDIXGraph 1 E commerce Market shareGraph 2 Growth trend in the online travel market Graph 3 Percentage of online usersGraph 4 E commerce market share (including the forward linkages)Graph 5 Summary of expenses of Makemytrip for 4 consecutive years in descending orderSource http//www.nasdaq.com/symbol/mmyt/financials?query=income-statementGraph 6 Traffic generated from mobile devices Graph 7 Reach of travel portalsSegment% ageAir Travel7Train Travel5 carriage Travel12Car Rentals15 Hotels tours and Packages20Graph 8 Profit Margin by segments 2013Source E Y