At a time when flashy upstarts like Ola and Oyo are making noise for their overseas moves, early bird Cleartrip is quietly scripting its own transformation.
Stuart Crighton sounds almost wistful. “India was our singular focus,” the founder and CEO of Cleartrip muses about his move to Dubai a couple of years ago. “We had no aspirations to go anywhere else.”
Like many other Indophile expats, Crighton wants you to know his love of India isn’t skin deep. He even has a great story going: Growing up in the UK, for young Stuart India was the land from the vivid memories of his grandparents, who lived long years in Mysore in the pre-Independence period. His father was born in India.
Crighton himself came to India in the late 1990s to set up business for the facilities-management company Orion CGC. He shifted jobs but stayed on in the country, married an Indian, and now holds a PIO (person of Indian origin) card. Along the way, he co-founded one of India’s earliest Internet ventures, Cleartrip, in 2005. The business he chose — online travel booking — isn’t surprising, considering it was among the first where India’s consumer Internet wave hit home.
At the time, and for years after, India offered so much to do that there was nary a need to look beyond. But that early romance has since given way to starker business imperatives — especially for a company like Cleartrip that finds itself squeezed between the big guys and aggressive upstarts, in a market that is rapidly consolidating.
Much of what is playing out in the Indian online travel-booking business bears the outsize impact of the two-year-old merger of the top two players, MakeMyTrip and GoIbibo. Then there’s continued deep discounting, and the emergence of Oyo in the accommodation business and Paytm et al in travel booking. To complete the onslaught, there’s the prospect of Google stepping up Google Flights and Google Places.
“Doing business is increasingly challenging,” says a top executive with a competitor of Cleartrip. “Customers change loyalties for just 100 rupees.”
For Cleartrip, which remains a distant third in the domestic market despite having built a loyal following among customers who swear by its unique, minimalist user experience, the need for reinvention is urgent.
Enter Dubai. Having started operations in the United Arab Emirates (UAE) in 2012, Cleartrip now claims 63% share of the Gulf Cooperation Council (GCC) region’s online-travel market. The business is growing, and accounts for 40% of its top line.
And, if things go to plan, it could be the precursor to Cleartrip becoming a distinctly un-Indian company: Notwithstanding its founder’s desi moorings, it is only a matter of time before the international business exceeds the top line of its India business.
Gains away, shake-up at home
Crighton says his own shift to Dubai was preceded by Cleartrip discovering significant traffic from the Gulf countries. Given the large South Asian population there, the interest was not unusual. But Cleartrip had limitations serving this growing user base from India, prompting it to set up the Dubai office.
Now the company caters to the UAE, Qatar, Oman, Kuwait, Egypt, Bahrain, and Saudi markets, offers services in Arabic, and runs a 350-people strong call centre in Cairo, Egypt, that attends to the needs of customers in the region. The Cairo centre is in fact Cleartrip’s second-largest office after Bengaluru.
Earlier this year, in Saudi Arabia, the company acquired a leading homegrown online travel agency, Flyin, and is considering other such deals.
Emboldened by the gains, Crighton says the company plans to expand into Africa and is also starting to look at Jordan and Turkey.
Meanwhile, at home, Cleartrip’s business continues to suffer a long and painful ennui. The acquisition of GoIbibo has helped MakeMyTrip consolidate the market. It now claims 63% of the market. A Morgan Stanley study shows the next two players, Yatra and Cleartrip, together hold 26%, and other smaller players share the rest. MakeMyTrip reported nearly USD155 million in losses last financial year on USD577 million in revenues. Its losses were mostly on account of the USD450 million it spent on marketing and promotion. It spent more aggressively in the hotel segment. Cleartrip reported INR273 crore (USD42 million) in revenues and INR65 crore (USD10 million) in losses in its India business in the year to March 2017, the latest financials it filed. The consolidated number could look vastly better as its international business is of similar size, and it claims, profitable. The company has not revealed numbers for this part of the business.
ClearTrip reported INR 273 crores USD 42 million in revenues, and INR 65 crores (10 million in loss in its India business in the year of March 2017, in the latest financial it filed. The consolidated number look vastly better, as its International business is of similar size, and it claims, profitable. The company hasn’t revealed this part of the business. We can’t compete from a balance-sheet perspective with MakeMyTrip or Oyo,” admits Crighton. But he claims flight booking, the biggest segment for online-travel players, is profitable for Cleartrip. “We have a very different set of customers who are sort of immune to the incentives being thrown by others. We grew 28% year on year in India,” Crighton says.
However, there is no getting around the fact that Yatra and Cleartrip are on the defensive, while MakeMyTrip will use its dominant position to further its lead in the domestic market. It struck successful partnerships with Oyo, Flipkart, and PhonePe that helped increase booking. That resulted in 25% growth in top line and significant decrease in losses in the first quarter of the current fiscal.
“Over the past eight years, MakeMyTrip has gained market share in gross booking, and the next two players not only changed but also have been marginalised,” notes Morgan Stanley. It predicts MakeMyTrip increasing its market share to 73%, and the combined market share of second and third player slipping to 23% by 2021.
To be sure, the market is far from being stabilised. Only 14% of hotel booking and 50% of air-ticket bookings are online now. By 2022, nine out of 10 airline-ticket purchases will be mobile-influenced, according to a Facebook-KPMG study. This means intense competition and volatility.
“India continues to be a growth market. Every segment [of travel] will grow in the next 10 years. As a growth market, we will continue to see consolidation. All the players have grown at varying paces, but those with strong financial backing will take advantage of the consolidation,” says Varun Gupta, CEO of Goomo, which acquired a nearly three-decade-old offline business, raised USD50 million from private-equity firm Emerging India, and built an omnichannel model.
The US-based financial-services firm Ebix made a string of acquisitions, including Via.com. Thomas Cook acquired Tata Capital Travel. The consolidation and the changing dynamics vis-a-vis the entry of Oyo, Paytm, and Google have also put the spotlight on investor interest in the sector.
Cleartrip’s immediate rival Yatra has Reliance Industries as a strategic investor. Reliance sold its 4G handsets Lyf with the Yatra app pre-installed. Given Reliance’s growing ambitions in the digital space, it remains to be seen how far it pushes this investment.
Cleartrip has an accidental (deep-pocketed) parent in German software major SAP. The US business travel- and expense-management software firm Concur had picked up a majority stake in Cleartrip in 2012. SAP acquired Concur in 2014 and thus became Cleartrip’s majority stakeholder. SAP’s business per se does not have strategic alignment with that of Cleartrip.
Petrodollar dreams
“The digital market in India for a long time has been growth-only at the cost of any kind of profitability. I think that will continue for a few more years. But there are emerging markets that are competitive where you can make money,” Crighton says. Petrodollars will help strengthen Cleartrip’s balance sheet, he believes, much the same way Ola is banking on its overseas drive.
In this effort, the Flyin buyout was a significant milestone for Cleartrip (it has not disclosed the details of the cash-plus-equity deal).
Crighton says investors are “very supportive” and backed the deal, its first in 13 years of existence. The company had raised an internal round from existing investors to fund the acquisition. US-based DAG Ventures, Gund Investment Corporation, and Hong Kong-based NewQuest are the other investors.
Flyin’s gross bookings stand at USD350 million against Cleartrip’s USD1.5 billion, according to the company. It has a 100 people-strong tech team based in Hyderabad and a total staff of 420.
“We will use this as a template for doing a number of other (deals),” Crighton says.
He wants to do that fairly quickly given the bullish projections around the West Asia travel market. Phocuswright, a travel-industry research firm, estimates online travel bookings in the region touching USD35 billion this year. About 65% of the region’s population of 250 million are online.
The explosion of low-cost carriers in the region have pushed outbound travel in the recent years. Among frequent destinations for people from the Gulf are Yerevan in Armenia, the island of Sardinia, and Croatia, Georgia, and Azerbaijan, all reachable within three to five hours.
“[West Asia] is at a phase where India was in 2010. Great Internet penetration, but people are still sceptical of using their cards online,” says Amanpreet Singh, chief operating officer of Rehlat, a regional online travel-booking firm. “The good thing is, there is no cutthroat competition as of now. The emphasis is on the quality of service. The average basket value is USD300-USD400 against USD120 in India.”
According to Singh, Cleartrip has a clear lead in the UAE and Saudi Arabia, though there is no clarity about other markets in the region as numbers are hard to glean. “The global leaders in the travel-booking space did not make inroads [in this region] as they did not focus on localisation, call centres, etc.,” he says.
This is working to Cleartrip’s advantage which localised its processes from the get-go. It pretty much behaved like a local travel firm and says only a quarter of its total bookings in the Gulf now comes from the South Asian diaspora.
But Crighton knows the advantage may not give it a lasting moat: Booking.com, Expedia, and even MakeMyTrip could double down on the region. MakeMyTrip, for instance, believes this market will be in growth mode for the next 15-20 years and has started building its presence there.
“Like we saw in India, once this business gets traction and the business model seems to be working, large amounts of investment will come in and the competitive intensity will change,” Crighton says. “In order to be able to manage competitive intensity, we want to achieve a critical size very, very quickly. The inorganic route is the best way to fulfil that objective.”
A lot of that will depend on what SAP et al see as Cleartrip’s true north.
In this newfound expansionary streak, what happens to Cleartrip’s famed minimalism, which has made it the idol of so many of India’s design-centric startups? Especially given the Gulf’s reputation for flash and bling?
“We have been in the region for quite a while and had a good opportunity to stress-test the overall customer experience,” Crighton says. “I think the scale we reached is a snapshot of how effective that was. There is a very big consumer culture. I wouldn’t necessarily say that translates into ostentatious design or flashy consumerism. What we see is a little bit more affluence.
“Behind the simplicity of our design is a whole lot of intuitiveness. It is a very easy, intuitive experience that delivers a very consistent, predictable set of outcomes.”
Of course, for Cleartrip’s metamorphosis to have its full impact, predictable outcomes may not be enough.