Online Budget Hotels in India: Aggregators to Accumulators
In June 2015, Ankita Sheth (Ankita), an avid traveller, based on her horrendous travel experiences earlier, recognized the gap for branded budget accommodations and started Vista Rooms – an online budget hotel – with just four properties in Mumbai, India and later expanded to 50 properties across 3 countries.
In October 2015, Rakesh Rana, an ex-executive of Cleartrip, too ventured into the short-term budget accommodation category with Comfy Stays Pvt Ltd, an online start-up that aggregates entry-level hotels, guest houses and service apartments. Sidharth Gupta’s (Sidharth) Treebo, Prafulla Mathur’s (Prafulla) Wudstay, Vaibhav Aggarwal’s (Vaibhav) Fabhotels and Keshav Baljee’s (Keshav) Zip Rooms were started during 2014–2016 and operate under the same category.
The advent of sharing economy coupled with internet and technology gave rise to several such Indian start-ups that leveraged on the potential of budget accommodation requirements of travellers in the country. Most of these players, started with a partial-inventory model or franchise model that gave them a rapid scale. But, the glaring minuses of the model, forced them to adopt the full-inventory model, with the hope that it would yield the expected results – overcoming the shortfalls of the partial-inventory model, higher margins and brand visibility...........................
Indian Hospitality Industry – Market Dynamics
India, which is home to multiple religions, rich cultural heritage, monuments of historic significance, stunning locations with diverse flora and fauna, and culinary delights, offered a diverse range of tourism opportunities. In 2015, there were 279.2 million2 international tourist arrivals in the Asia-Pacific region (Annexure I), of which over 8.03 million foreign tourists arrived in India, which was 4.5% increase over 2014 (Exhibit I)................
Indian Hospitality Industry – Segments
By 2015–2016, the tourism and hospitality industry emerged as one of the key drivers of growth among the services sector in India. The second-largest sub-segment of the services sector comprising trade, repair services, hotels and restaurants, with a growth of 8.9% YoY, contributed nearly $295.7 billion or 19.2% to the GDP in 2015–2016.............
Online Budget Hotels: Aggregators to Accumulators
Smartphones and the internet age transformed the way travellers planned their travel itineraries including tickets and other related services. This swapped the traditional travel agents with Online Travel Agents (OTAs) like Makemytrip, etc. – a market place that enabled customers to book travel (air, train and bus) tickets online initially, but later added other products like car rentals, cruise lines, hotel bookings, vacation packages, etc., on behalf of suppliers or service providers. OTAs became a one-stop-shop for all travel needs of the travellers. Their source of revenue was the commission (on sales) and advertising fee from the suppliers..............
Online Budget Hotels’ Business Model: Shift from Partial- to Full-inventory Model
While most of the OBHs, in 2016, operated based on the full-inventory model, it was not the case from the start. These room aggregators were earlier operating on the partial-inventory model. In the partial-inventory model, the property/hotel belonged to the third party. But the aggregator brand took control of few rooms in the hotel (agreement on a revenue sharing basis), branded them by adding standard amenities and cosmetic features and then rented them to customers through their website at low prices. However, the operations, service, staff, food and control lay in the hands of the property owner. In addition, hotel owner was free to sell the remaining rooms himself...............
Assignment Questions
I. Discuss the business dynamics of the Indian hospitality industry, especially from the viewpoint of key segments and key differentiators.
II. Discuss the business landscape of online budget hotels and debate on the role of aggregators.
III. ...............
Exhibits
Exhibit I: Foreign Tourist Arrivals in India (1999 to 2016)
Exhibit II: Foreign Tourist Visits (FTVs) in India (1999 to 2015)
Exhibit III: Domestic Tourist Visits (DTVs) in India (in million)
Exhibit IV: Classification of Hotels
Exhibit V: Overview of Hotel Performance in India and Segmental Rates in Key Markets
Exhibit VI: The Industry Mix of the Operating Margins
Exhibit VII: Number of Hotel Rooms in India and Inventory of Top 20 Hotels
Exhibit VIII: Online Budget Hotel Brands in India
Annexures
Annexure I: International Tourist Arrivals Worldwide, By Region (in million) (2005 to 2015)
Annexure II: Government of India Initiatives that Supported Tourism Growth
Annexure III: Categories of Hotels
Annexure IV: Online budget Hotels – Supporting Factors
Annexure V: Why is India a ‘Start-up’ Nation?
Annexure VI: Start-up Landscape – Mature, Traditional and Emerging Areas
Annexure VII: Funding in Travel-related Start-ups
