SUMMARY
Indian Railways operates over 13K passenger trains and 9K freight trains daily
Online ticketing passengers overtook the over-the-counter passengers for the first time in 2014-15
But will tight profit margins in railway ticketing block the entry of new players ahead of railways being privatised?
Come summer vacations, the mind and heart of almost every adult in India is etched with the memory of planning their visit to grandparents or an exotic hill station to escape the heat. But train travel is not just about the summer months. Long before air travel became the default choice for Indians who are enjoying the higher per capita income in the last two decades, trains were for years the only way to see the country. And it’s no wonder then that many millennials still love the idea of a train journey and the rituals that are invariably part of every such train ride.
Despite the long hours and questionable comfort, train journeys are associated with an experience that’s unmatched by an air or bus journey. Over 23 Mn passengers travel by Indian Railways trains daily in India.
The passenger traffic stood at 8.44 Bn in FY19 and is expected to increase to 15.18 Bn by FY20. Indian Railways currently has a fleet of 13,452 passenger trains and 9,141 freight trains, which run every day, making it the world’s third-largest rail network.
The Birth Of IRCTC
Like with most ticketing in the country, railways also moved online in the early 21st century. IRCTC became the only destination for booking railway tickets online in India and each morning millions throng the website trying to get the daily tatkal or short-notice ticket. This ease of access to online tickets has been a catalyst in driving up the number of passengers travelling in trains in India.
IRCTC has come a long way since its inception in 2002. Often mistaken as a synonym for Indian Railways, the Indian Railway Catering and Tourism Corporation (IRCTC) is a subsidiary of the Indian Railways that handles the catering, tourism and online ticketing operations. IRCTC facilitates around 550K to 600K bookings every day.
From 29 tickets booked in a day in 2002, it has reached to 13 Lakh tickets a day as of now. It is reported that the IRCTC system is currently capable of booking 15K tickets a minute online and can handle 3 Lakh concurrent users to handle any surge in demand.
Next Generation e-Ticketing System (NGeT)
The Next Generation e-Ticketing System (NGeT) was first launched in April 2014 to handle increased capacity for ticket booking as the existing system was not ready to handle the traffic. The booking capacity was increased from 2K tickets per minute to 15K tickets per minute in 2015.
This resulted in the percentage of internet ticketing passengers overtaking the percentage of counter ticketing passengers for the first time in 2014-15, just as the 4G revolution was hitting India.
Growth in the number of people opting for the online route to make their train bookings resulted in the birth of various OTT platforms offering this service. The likes of MakeMyTrip, Cleartrip, Yatra, Goibibo, Ixigo, EaseMyTrip and HappyEasyGo among others thereby found their way into the devices of the Indian audience.
Earlier this year, IRCTC made a sparkling debut on the public markets in three days of its initial public offering (IPO) as shares were oversubscribed by over 111.85 times.
The IPO had been postponed due to the waiver of service charge on e-ticketing by the government, after demonetisation, that wiped out INR 500 Cr in annual revenue for IRCTC. Later, the finances improved as IRCTC utilised the website for advertising, data monetisation, e-auctioning, and retail management. It also saw an increase in revenue from its catering business and the sale of Rail Neer (the bottled water brand of IRCTC) in the last two years. In the fiscal year 2019, its sales rose 25% to INR 1,899 Cr and the profit grew 23.5% to INR 272.5 Cr.
The Rise Of Online Ticket Booking
While IRCTC remains the only government-run ticketing platform for the railways, private players began entering the online train ticket booking business in India around the early 2000s. Train ticketing became one of the fastest-growing verticals within the online ticketing market.
MakeMyTrip was one of the early entrants (founded in 2000) in the online ticket booking sphere which not only offered services for railways but also flight, hotel and bus booking catering both domestic and international markets. Similarly, Cleartrip came on the scene in 2006 with flights and hotel bookings, but soon expanded to train tickets.
Another player, RailYatri launched its operations in 2011 as the India online train ticket booking market grew rapidly in the years between 2006 and 2016.
In 2017, Paytm was the first horizontal ecommerce major to enter the travel business, a domain that has hitherto been dominated by vertical players. The company’s online rail booking platform at a point was doing more bookings than any other private online B2C player in India.
Paytm told Inc42 that its strength lies in keeping things simple and convenient for customers. “We have closely analysed user behaviour and researched the key pain points faced by train travellers. Our train booking experience has been tailor-made to address these pain points and provide a delightful experience to our customers. This has helped Paytm organically grow its train booking volume month-on-month since its launch 3 years ago and today we boast of a loyal customer base of 7 Mn users that have booked a train ticket on Paytm.”
Other major horizontal ecommerce players are also now enabling train tickets via their application. Flipkart is expected to start train bookings soon, while Amazon has recently forayed into the online bus ticket booking space in India and has claimed that it wants to go into train ticketing too. Inc42 reached out to Flipkart but our questions did not elicit any response till the time of publication.
Among vertical ecommerce players solely dedicated to operating in the travel booking industry, Confirmtkt, a train booking, and prediction platform recently reported a net profit of $37.31K in FY19, compared to a net loss of $50.59K reported a year ago. The startup told us its major expenses were people cost and the payment gateway costs, including the cost of providing payment infrastructure. The Bengaluru-based startup which was launched in 2014, predicts confirmations of waitlisted train tickets on any given route, using a score of 0-100 by tracking passenger name records (PNRs) and other data points. Confirmtkt also offers train, bus, and air ticket booking directly on its mobile app.
There are other platforms that offer a similar functionality too. One such is Trainman and cofounder Vineet Chirania told Inc42, “In the trains ticketing industry the major direct costs are the IRCTC annual maintenance cost and the payment gateway charges which we incur on every transaction.” He added that employee salaries are another major operating cost, but despite these elements, the startup founded in 2014 claims to be turning a profit for the last three years. Trainman is an application where people can check PNR status prediction for waiting list tickets, train seat availability, live train status & fare inquiry before IRCTC ticket booking.
New Players On The Block
In the Indian context, whenever a new business model finds success, it gets reworked with every new entrant trying to capture that particular market segment. The introduction of private platforms for railway ticket booking attracted many players including big names such as Google.
As the market witnesses growth in the number of players entering this space, Paytm believes that if any player wants to succeed here they need to develop a deep understanding of the problems faced by a train traveller. The company told Inc42, “We have been doing that for the last three years and continue to learn and build solutions that have helped us create a fast and seamless ticketing experience. New players will require time to undergo this learning curve.”
Confirmtkt is also undaunted about the competition. Cofounder Sripad Vaidya told us that the entry of bigger players is a good validation of the opportunity that the market has. He compares this market to flight ticketing in the initial days and says that till the last couple of years, the market was a closed-loop and controlled by IRCTC. But the things are opening up.
To combat competition, Vaidya believes in offering something unique to the audience. He tells Inc42, “We made the platform multilingual to help the non-metro user-base and will soon be launching multilingual voice-based train booking which will make the train booking experience more seamless for these users.”
Trainman’s Chirania is of the opinion that being focussed on just one ticketing vertical works best for them and says, “I think we are the only one whose sole focus at the moment is railways. Being focussed helps us achieve this much even with a lean team.”
Adding that the railway industry is very different from others, he said a lot of big players including the popular OTAs are struggling with their train product, making it difficult for any new player to venture into this market.
Demand Is Great, But Where’s The Money?
The online train ticket booking platform business is not just challenging because of the need to know the customer deeply for product development, but also because there is no room for commission for the OTAs. In fact, most OTAs lose money on every train ticket they sell, according to Paytm.
On the cost front Paytm told Inc42 that 70% of the cost is attributable to the annual maintenance cost of INR 12+GST per ticket that the OTAs are required to pay to IRCTC on a daily basis. Other cost elements comprise payment gateway charges for processing credit and debit cards and internet banking transactions.
While Paytm stated that they are exploring several revenue channels to make train booking profitable, the company declined to comment further on the revenue model. It also refused to reveal how many bookings it has got in the last three years.
Confirmtkt and Trainman also spoke about the fees, but both companies claimed to be profitable.
With many startups venturing into this market the question that arises is why would a customer opt to purchase a ticket from an application rather than the IRCTC website directly? What value addition are they really offering to the customer?
Until 2017, IRCTC was accessible only on a desktop or laptop computer. It did not have a mobile application, thereby missing out on a big chunk of potential customers. Paytm believes that the deep penetration of its app in tier 3 and 4 towns has helped in introducing online train booking experience to newly online users.
It added that more than 95% of the train bookings come from the Paytm app. “We believe these are app first or app-only users that may not have access to a desktop/laptop hence might have never accessed any website for train booking. Many of these users have probably booked their first online ticket on Paytm. We are therefore looking to grow the online train booking market size by bringing more offline users to the online channel.”
Other applications are also banking on providing services that IRCTC does not offer at present, besides the booking of train tickets. Chirania says that people use Trainman for all sorts of train queries, be it checking PNR status and waitlist confirmation prediction, train seat availability or train live location.
Vaidya of Confirmtkt added that much of the time, passengers are simply looking for peace of mind, “Creating an assurance in users’ minds that if they come to Confirmtkt, they will travel for sure with a confirmed ticket is the biggest factor which is driving them to our platform. Already, we are seeing 70% of the bookings are from repeat users on a daily basis. This itself validates it [the model].”
The Track Ahead With Railway Privatisation
Low margins and high government regulation come across as two major impediments for the online train ticket booking business in India.
Trainman’s Chirania said that the segment is only right for those startups that can run a tight ship. “The regulations here are much stricter than the other industries and the margins are capped. The only play is how can you bring volumes and keep the costs down.”
That sentiment is shared by Confirmtkt as well as Paytm.
“The train is a low margin and high volume business. So until and unless you have a certain volume of bookings you will not be able to run the operations with positive unit economics. Managing the operations and giving the best experience to the customers with wafer-thin margins is the biggest challenge.” – said Vaidya of Confirmtkt.
India is projected to account for 40% of the total global share of rail activity by 2050. This allows great potential for the online ticket booking platform industry. But what the companies really need to figure out is a way to minimise cost and increase the revenue channels. With the influx of more competitors in this business, the customers will have a variety of platforms to choose from. The growth of this market will give a direct boost to the Indian railway industry.
Paytm has recently committed INR 250 Cr investment in its travel vertical, which includes train, flight, bus and hotel bookings. The company plans to use this money for expanding technology and product capabilities to help accelerate its efforts for driving innovation and disruption in online travel space.
Confirmtkt is expanding horizontally into buses and flights. They are also betting big on multilingual voice-based bookings With respect to seeking help from the government, Chirania believes that if the railways can relax some of the rules for B2C players, and make technical integration smoother, then all startups in this space will be happier.
The government has experimented with privatizing parts of the Indian railways — be it in development and maintenance of railway stations or through the first private train named Tejas Express. As it looks to divest public sector undertakings, the government has committed to privatising 150 passenger trains.
However, railways minister Piyush Goyal has recently been reported to shun-off talks about privatizing the Indian railways.
Chirania told us that when full power resides with the government, it creates monopolies. “And monopolies usually result in poor customer experience even if the intentions are good. Allowing private players means competition and for end-users, nothing is better than having a plethora of choices.”
