The travel market in India is subject to a unique blend of forces driving growth, in an online channel that is projected to quadruple in just two years. Drivers on the supply side are dovetailing with social and economic forces on the demand side to both boost online travel adoption and enable India to leapfrog distribution technologies, according to the new PhoCusWright report The Emerging Online Travel Marketplace in India. The result is booming travel demand and rapid uptake of online transaction methods.
The nearly US$14 billion travel market in India presents massive online opportunities for legacy and startup travel companies. In a country with over one billion people, whose population is projected to exceed that of China by 2045 according to the United Nations, the market potential ultimately surpasses that of the U.S. and Europe combined. As far off as this sounds, especially for a developing nation, consider that the middle class of India is expected to exceed 100 million before the end of the decade.
The Indian online leisure/unmanaged business travel market is expected to reach nearly $800 million in 2006, up from less than $300 million in 2005 (see Table 1). This hot market is projected to pass $1.3 billion in 2007 and swell to over $2 billion by 2008, a nearly sevenfold increase in just three years. The 2005 online leisure/unmanaged business travel gross bookings figure represents just 2% of the total travel market in India (see Table 2), but by 2008, online penetration should be close to double digits.
Supplier direct sales dominate the online channel, led by low-cost carriers (LCCs). While online travel agencies will not significantly diminish supplier direct share in the next three years, they will help spur overall online travel bookings as they quadruple their share of the channel. Traditional travel agencies will see their online share shrink dramatically. Their current role as a bridge to the online world (mainly booking LCC flights online for clients via agency login Web pages) will be largely displaced by the invasion of online travel agencies.
In 2005 and 2006, at least eight startups or subsidiaries of established entities have or will have launched sites in the market, including Makemytrip, Yatra.com, Cleartrip.com and Indiatimes Travel. With an estimated $60 million in venture capital backing online travel agencies in the past 12 months, Travelocity India in the wings and an Expedia entry certainly not far behind, significant investment in the online channel in India is well underway.
Growth DriversTravel demand has been spurred by the following contributing factors:
- sustained economic liberalization and growth;
- heavy infrastructure investment;
- a growing middle class; and
- a cultural disposition more attuned to travel.
At the same time, supply factors have driven e-commerce in the travel sector, including:
- travel supplier partnerships with the banking industry promoting online payments;
- the early online success of Indian Railways:
- an emerging technology sector permitting homegrown online solutions; and
- the explosive growth of LCC traffic.
This two-pronged drive to the Internet is in sharp contrast to other travel markets in the Asia Pacific region such as in China, Japan, Korea and Singapore, where demand is the primary force in the development of the online channel.
An early catalyst of e-commerce in India was Indian Railways, a continuing online success. Indian Railways teamed with banks to boost online transaction comfort levels and increase the number of electronic payment options available to consumers. Now, both LCCs and traditional airlines are driving consumers and agents to book domestic tickets online, with LCCs now taking nearly two fifths of all domestic air gross bookings after less than three years of operations. There is no major market in the world in which LCCs have grabbed so much share from traditional travel providers in such a short period of time.
The Indian travel market and Indian travelers have been underserved, receiving poor customer service and limited choice. Online travel agencies will rapidly change the old paradigm, providing customers a sophisticated online retail and shopping experience, enabling access to a fragmented travel supply market, and consolidating Indian travel options with a pan-Indian approach.
PhoCusWright's "The Emerging Online Travel Marketplace in India" covers these and other market trends in India, including segment and channel breakouts, penetration by supplier segment, and online travel agency trends and is available for purchase. The Emerging Online Travel Marketplace in India is available on The PhoCusWright Channel for subscribers.2006 PhoCusWright Inc., Sherman, CT USA +1 860 350-4084. All rights reservedwww.phocuswright.com 
