Disruptors continue to plough money into the Indian marketplace, with hotels a key part of the consumer landscape that companies such as Amazon and Oyo want to dominate.
Amazon, which is reckoned to have racked up losses to date of around USD1bn in its Indian operation, is set to start offering hotel bookings via its platform in India. The move comes as the company broadens the offering in the country, accessed via its Amazon Pay app.
And hotel booking platform Oyo has revealed a sixfold increase in losses during 2019, reporting a USD332m loss in the year to March 2019, on revenues of around USD900m, in a filing to Indian regulators. It reckons its Indian business will spill more red ink before turning the corner in 2022, with a projected USD45m profit, according to information seen by Reuters.
Retail disruptor Amazon has already launched flight booking via Cleartrip, and cinema tickets via BookMyShow. It is currently testing bus ticket purchases, linked to redBus, and the Times of India has spoken to insiders who suggest hotel bookings and train ticketing are in the works.
India’s vast market has some unique opportunities and challenges, with the big players all looking to provide a range of differing offers to consumers who largely browse via smartphones, under the umbrella of their own brand app.
Local startup Flipkart, which launched in 2007, had the market to itself until 2013, when Amazon launched in the country, triggering a major price war. In 2018, Flipkart was bought by US grocery giant Walmart for USD21bn, giving Flipkart greater resources; it already offers flights and hotel rooms via its app platform. More recently local conglomerate Reliance has threatened to enter the e-commerce market, while Google is looking to grow is presence – and breadth of app offerings – in India. Amazon is reckoned to have racked up losses of the order of USD1bn to date, in its Indian operations.
Oyo, which is backed by investor Softbank, is racing to establish major scale not just in its home market of India, but globally. Combining a mix of marketing platform and branding support, it will continue to haemorrhage cash for some time, with the Reuters report suggesting the Chinese operation could turn a profit in 2022, while the UK, US, Brazil, Mexico, Indonesia and Thailand operations could be making losses until 2023.
Back in Europe, budget airline Easyjet has stepped into the gap left by the demise of Thomas Cook, with a holiday offer. It has signed a five year partnership deal with Hotelbeds to provide the brand’s accommodation, building on an existing relationship the two have. The airline will combine sales from the Hotelbeds platform alongside directly contracted hotels. Hotelbeds has connections with more than 180,000 hotels worldwide, some on an exclusively contracted basis – and also white labels supplies to more than 40 airlines. Easyjet is understood to have told travel agents it will not work with them, preferring only to market directly to consumers online, but will review the situation in six months.
HA Perspective [by Chris Bown]: India, like China, offers massive potential as its enormous population starts to benefit from a developing economy. However, China is a largely closed market for outside entrants – while it’s open season across all those millions of Indian smartphones. No wonder there’s a debilitating fight for market share – and the challenge of adding further services to create the app with the mostest. Hotel bookings are just a part of that massive opportunity.
But never mind India, if Amazon gets a taste for selling hotel rooms there, will it like the look of other country markets? If so, there are plenty of people who will be having sleepless nights.
And talking of sleepless nights, they could be on the horizon, if Easyjet gains traction with its new holiday offering. One travel agent told Hotel Analyst that Easyjet is effectively doing exactly what they frequently do – bundling an Easyjet flight with a hotel and selling it with an Atol protection wrapper. “If they turn round and want to work with us in six months’ time, we might not be interested!” As Easyjet doesn’t pay any commission to agents booking flights, there could be the potential for the airline to undercut agents. But for the orange painted brand, famous for gouging customers for extras, the big question is whether it get customers to drop their Booking habit.
Additional comment [by Andrew Sangster]: The big disruptor in the hotel space in India is, of course, OYO. This chain already is already the leading player in Asia Pacific with 950,000 rooms against second placed Jin Jiang with 750,000 and third-placed Huazhu with 420,000.
At last month’s PhocusWright conference in Florida, OYO CEO Ritesh Agarwal, produced figures showing that the unbranded hotel market he was aiming at was biggest in China at 45 million rooms. Second place on the list was Europe at 35 million rooms. In contrast, the Indian subcontinent, where OYO now has a dominant market position, has 6 million rooms in the hands of independents.
The challenge facing independents, argued Agarwal, was poor design, poor rating and high cost structures. OYO’s plan is to swoop in and, with the assistance of its superior technology, help turn this around.
So far, OYO has been making losses. But Agarwal argued that it is making headway in reducing these losses in its most mature markets. He admitted that “asset owner dissonance is an improvement area”.
Where OYO wins against traditional hotel franchising companies is its artificial intelligence assisted tech that allows faster onboarding – 36 times faster, claimed Agarwal. Where as so-called legacy brand took between six and 12 months to sign a property, OYO can do it in under five days using a database of 10 million unique buildings that generates 2,000 quality leads a month.
AI is also used to improve operations. Productivity in housekeeping is up 2.5 times thanks to the housekeeping app, it was claimed.
This all sounds great, but Agarwal admitted there were issues maintaining quality and balancing cashflow with growth. He said that OYO was letting “hundreds” of assets go that were not generating attractive enough returns for the company.
This week, analysts at Goldman Sachs pointed out that VC funders of gig-economy or platform players were pulling back, with a 22% drop in money given to start-ups in the 12 months to the end of September.
Investors have become increasingly sceptical of loss making businesses as they detect that the “first mover” advantage is not proving to be the competitive edge once thought. For OYO, there are already competitors in the same space such as Zuzu Hospitality Solutions. If OYO fails to reach the scale it is seeking, then profitability will look increasingly unattainable.