India: How Far it Has Come…Still Miles to Go

May 8, 2009

Ram Badrinathan, PhoCusWright's general manager, Asia Pacific, describes the potential of the Indian online travel market in the article below. It was recently published in the Travolution magazine.

At first glance, the Indian online travel scenario might come across as a market "still waiting to happen." Indeed, a number of factors have conspired to limit growth, including: an inadequate supply of hotel rooms, low Internet and credit card penetration, and a significantly smaller aviation market than China, its neighbor to the north. Yet despite these very real challenges and limitations, India still has perhaps the most dynamic and innovative online travel market in the entire Asia Pacific (APAC) region.

India's deceptively robust online travel market can be attributed to several conditions. For starters, the country boasts the largest travel Web site in the entire APAC region in terms of transaction volume—the government-owned Indian Railways. Owing in large part to the popularity of rail travel in the country, the Web site has been a key driver of online travel, e-commerce, and competition across a range of supplier categories.

Another compelling factor that has spurred this growth has been a high level of deregulation, especially when compared to Japan and China. This deregulated retail travel environment has permitted entrepreneurship to flourish, and has taken innovation to new heights. The entry of low-cost carriers (LCCs) into the market in 2005 is perhaps the clearest example of the effects of deregulation. On certain routes, consumers now have as many as eight different carriers from which to choose. This vibrant market has driven competition, much of it taking place online.

But this vibrancy extends beyond competition among air carriers; online travel agencies (OTAs), hotels, bus companies, tour operators, social networking sites and others are all competing to attract and retain Indian travelers. At the same time, India's sophisticated banking infrastructure has laid the foundation for e-commerce in the country. This, coupled with India's tech-savvy, urban population has given rise to an online travel scenario characterized by consumers who have embraced a variety of online travel applications, and are ready to search, shop and book online.

While it is clear that India's online travel market has flourished, this has come despite significant challenges that have limited growth and which still threaten to impede future progress. Chief among these is the poor Internet penetration in the country; while the country's middle class has exploded, only about 2% of the population has Internet subscriptions. Connectivity speeds are relatively slow, and therefore rich media travel applications have failed to take off. Similarly, mobile travel applications have not gained traction, even though India has one of the largest mobile markets in the world. Credit card penetration is just 2-3% in India, and many consumers are wary about the security of booking online. And many of the country's airports, roads and hotels are badly in need of an upgrade to help the market better realize its potential.

Lastly, India's airlines and OTAs continue to battle it out over the issue of travel agent commissions, instead of focusing on developing a partnership paradigm that is consumer-oriented, and which would exploit underdeveloped opportunities like cross-selling of products, dynamic packaging and more. Considering these obstacles, it is remarkable how far the Indian online travel market has come. Assuming that some of these challenges will be addressed or mitigated in the coming years, there is little doubt that the outlook for India's online travel market is brighter than ever.

PhoCusWright's in-depth Special Report study of the Indian travel marketplace has recently been completed. Extensive data from executive interviews and a consumer survey is available in conjunction with a customized Webinar and a detailed PowerPoint presentation. Contact PhoCusWright for further details: sales@phocuswright.com or +1 860 350-4084 x501.

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