According to a
report released in June from the United Nations, World Population Prospects 2019, India will surpass China as the world’s
most populous country by 2027 and then continue to widen that gap in the years
that follow.
The population of India stands at 1.37 billion
people today and is expected to grow by another 273 million by 2050.
And the majority of its citizens are young.
As of the country’s last census in 2011, India had more than 50% of its
population below the age of 25 and more than 80% below the age of 50.
That’s helping to spur a strong economy – a
January report from London-based financial services company Standard Chartered predicts India will become the
world’s second-largest economy by 2030 with a GDP of more than $46 trillion,
behind only China and surpassing the United States (which loses the top spot
beginning next year).
These factors – a massive and growing population
of young people and a strong economy – combine to fuel a very active travel
market in India.
According to Phocuswright’s India Online Travel
Overview, “Indians,
particularly the middle class, are traveling more than ever. The average Indian
online traveler took three leisure and four business trips in 2017.”
Phocuswright
projects gross travel bookings will exceed $34 billion this year and reach
nearly $44 billion by the end of 2022.
The massive value
of the market is fueling interest from entrepreneurs and investors to get in on
this growth, creating and funding solutions that will modernize the travel experience.
For the second
part in our series on India, we talk to two of the country’s most active
investors in travel about their outlook for the sector and to some of the
founders about their work to create successful travel startups.
Investment activity
According to a report
last week from EY, in the first half of 2019
private equity deals in India came at a record high level of $23.4 billion.
That’s 27% higher value than the deals in the first half of 2018. The number of
deals (536) was up even more – 43% compared to the same period last year.
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Vivek Soni, EY partner and
national leader of private equity services, says, “... Indian PE/VC investments
appear to be well on course to surpass the record highs of 2018.”
And investors that specialize in the
travel sector are similarly optimistic about the potential for growth.
“It’s a very large market, and
still a large part of it is unorganized. So as a travel investor in India I am
very excited and looking for more startups in this space,” says Mayank Khanduja,
principal at SAIF Partners, one of the most active venture capital firms in
India and an early stage investor in MakeMyTrip, Ixigo, Treebo, TravelTriangle
and AirBlack.
Challenges
While the online travel market in
India is still relatively young, there are some established players that
dominate in certain sectors, including MakeMyTrip, ClearTrip, Yatra, OYO and
Ixigo.
Investors say the challenge for
entrepreneurs is to create something distinctly new, with a clear value
proposition – and with a big enough bank account market the idea in a way that
creates a sustainable business.
“The cost of acquisition of
a traveler in India is notoriously high. Everybody is relying on the channels
of Google, Facebook to get traffic – companies have not been able to crack the
organic channel or social channel or any other channel to get traffic at a
reasonable cost,” Khanduja says.
Karthik Reddy has been investing in Indian startups since
2010 when he co-founded Blume Ventures, now a $100 million fund with
investments in RailYatri, HotelLogix, TripVillas and Rizort.
Reddy says the challenges of customer acquisition are also
tied to what he calls the “cultural DNA of India.”
The cost of acquisition of a traveler in India is notoriously high.
Mayank Khanduja - SAIF Partners
“We are value hunters. We have been a starved
economy for as long as we can remember post-independence. Strip out the top five
to ten million people - everyone is looking for value,” Reddy says.
“So you have to have very deep pockets to be able
to sustain that kind of customer acquisition and continue throwing discounts or
offers at them before they migrate into long-term value positive customers.”
A focus on getting value for money spent on
travel may be one of the dominant characteristics of Indian travelers –
repeated multiple times by both investors and founders we interviewed - but it
is not the only one.
For example, Khanduja says particularly in the case of
international travel - still a new experience for most Indian consumers – there
is a need for assistance in the research and booking.
“The majority of Indian travelers are not do it
yourself international travelers,” he says.
“These travelers are not going to be
conversant in English, so solving for their regional language is important. And
then while traveling they will need more assistance maybe through support
staff. So the startups who bake this into their economics, into their
business model, will do better because they are estimating the cost of doing
business in a much better manner.”
In fact, a report from Amadeus found Indian travelers
are well above the average across Asia-Pacific in wanting “home comforts of
facilities” at their destination, such as staff that speak a language they
understand (73%) and food and beverages from their home country (63%).
Social startup
Indian consumers are also very active on social media.
According to
the Digital 2019: India report from We Are Social and Hootsuite, 87% of India’s
population – about 1.19 billion people – have a mobile subscription and 41% of
the population is using the internet – that’s up 21% compared to one year
earlier.
The report says
India has the largest Facebook advertising audience in the world - 260 million
people over the age of 13 - and the country is the biggest user of WhatsApp, with
nearly 200 million users daily. Instagram is also very popular. India has the
third largest audience in the world on that platform.
One of the
startups SAIF Partners has invested in is hoping to tap into this combination
of Indian consumers need for travel planning assistance and an appetite for
social media.
Airblack connects people interested in international destinations with
experienced travelers who can help them plan and book their trips.
I’d say about 90 to 95% of all capital that plays into new age digital companies in India is all global money,
Karthik Reddy - Blume Ventures
Through
on-the-ground research, Airblack co-founder Videt Jaiswal and Pulkit Pujara found
that frequent travelers were already getting flooded with questions any time
they posted about travel and were, in effect, influencing millions of dollars
in travel purchases.
“In India, the
propensity to talk to others before you make an international travel decision
is very high,” Jaiswal says.
Airblack puts
structure around that interaction. The company earns a commission when
users book trips on its platform from supplier partners such as Expedia and
Booking.com, and then it pays a portion of that to the people giving
recommendations. The site launched in February and in May raised a $1.5 million
seed round from SAIF Partners.
“We felt that there is an explosive opportunity
here – India is at an inflection point. Twenty to 25 million people traveling
internationally, and we conservatively feel that in the next six to seven years
it can easily become 80 to 100 million,” Jaiswal says.
Airblack aims to have more than 500
experienced travelers providing recommendations through the platform by next
February and as many as 20,000 in four years.
And thus far the startup is not challenged by
high acquisition costs – Jaiswal says they are handling more than a thousand
chat messages daily and are “keeping 20-30% of leads we get and we acquire them
at dirt cheap cost because there’s so much inbound pull.”
OYO Rooms at The Phocuswright Conference
Ritesh Agarwal will speak at the 2019 event in Florida, U.S.
Ground transportation
Trains and buses are the primary form of transportation
around India, and investors see opportunities for startups to modernize the
user experience now that residents in even far-flung parts of the country have mobile
internet access.
“You need the audience to be technologically
enabled for the market size to open up to building half-billion or billion-dollar
companies,” Reddy says.
“Now the combination of cheap phones and the
massive explosion of cheap data has meant that this is on everyone’s
fingertips. It’s become a utility.”
And Reddy says the ability for consumers to see
schedules and buy tickets on their mobile phones rather than taking time away
from work to go to train and bus stations will be very powerful, particularly
for lower-income Indians.
“The challenge is how do you monetize those kind
of audiences. You have to build massive scale. You have to build frugally. You
have to sustain that growth,” Reddy says.
“There has got to be clever ways – if Flixbus can
become such a big company in Europe... if these kind of models are able to work
in the first world, imagine how large they can be in a market like India where
80 to 90% of the population is looking
for a budget travel option from point A to point B. And we don’t have 500
airports like China or the United States.
We basically survive with 10 hub
airports and maybe another 50 or 100 ancillary airports. So there is going to
be a lot of this local travel or intercity travel need, which I think is going
to stay very vibrant.
Founded in 2011, RailYatri has found success in
this sector. It began providing information about train schedules and later
expanded into rail and bus ticketing, with about 90% of its traffic now coming
on mobile.
In the last year RailYatri has also launched its
own branded buses – giving it better control of the passenger experience.
“These are smart buses that work for the middle class," says RailYatri co-founder and CEO Manish Rathi.
"We see ourselves expanding to associate trains
and buses together."
Global outlook
In recent years, investors from around the world have started
to take notice of the Indian market as well. Reddy says Blume Ventures’ first fund
was 100% money from India whereas its current $100 million fund is about 75%
investments from overseas.
“I’d say about 90 to 95% of all capital that plays into
new age digital companies in India is all global money,” he says.
At the same time, Reddy sees opportunities for India-led travel
software startups that can have global reach.
One such investment he has made is in Rizort, which launched
in April 2018 to reimagine luxury vacation planning. The platform begins by
asking the user about their intent for travel and then provides curated
experiences that meet those needs.
The company has been created by the founders of InMobi, India’s
first startup valued at $1 billion, with a corporate headquarters in San
Francisco, a product and technology center in India and a target market of
luxury travelers from all over the world.
“If Rizort had come to pitch me and said this is an India
only play for the next five to seven years, I probably wouldn’t have given them
money - though I know the founders very well - because those are limited short
term plays,” Reddy says.
“The venture industry is super greedy for speed.
So we are saying how quickly can this thing scale. If you tell me some of these
opportunities are going to be restricted only to India, I’d probably take a
back seat.”
India,
part 1: A vast travel opportunity, now led by digital