MakeMyTrip Flying High on Airline Bookings

MakeMyTrip Airline BookingOnline Travel & Hotel Bookings site MakeMyTrip management Mr Rajesh Magow (Co-founder & CEO – India) and Mr Mohit Kabra (CFO) in a call highlighted the status of their business amidst most airlines have already reduced OTA (online travel agents, such as MMYT) commissions to 1% (from 5-6% earlier), but allowed OTAs to charge a convenience fee on bookings. Management thinks that the revenue model might shift to a ‘convenience fee only’ model with zero commissions in the worst-case scenario.

MMYT delivered a solid Jun-14 quarter with USD 35.5 million in revenues i.e. 26% of the upper-end of its FY15 guidance of USD 136 million. Despite the strong quarter, the company did not increase guidance primarily to ensure that the demand uptick witnessed in the seasonally strong Jun-14 quarter is not a one-off. Management intends to see the traditionally lean/weak quarter (Sep-14) off to be comfortable with the continued strength of the demand environment particularly in the Air Ticketing business Mr Magow and Mr Kabra remain confident of a Y/Y improvement in net revenue margins for the Hotels & Packages (H&P) business, but continue to manage our modest expectations on the Air Ticketing net revenue margin front.

Domestic air traffic accounts for 60% of MMYT’s Air Ticketing business, while ~25% of revenues originate from outbound international traffic. Inbound traffic (traffic from abroad to India) accounts for the remaining 15% of Air Ticketing revenues. Outbound international traffic is witnessing faster growth (of about 25-30% Y/Y) among the three categories as more people are travelling outside India and also because of the offline-to-online shift

Even in the absence of improved economic growth, this offline-to-online shift drives some base-level growth. The impact of these factors is different for different segments. In the Holiday & Packages segment, the perception of / actual improvement in income is the swing factor, while for Hotels both economic growth & the shift from offline to online are equally important (as many hotels/agents are yet to get online). Air Ticketing business is primarily online; hence, this business is relatively more levered to economic growth and the fortunes of the airline