[The Outline By Inc42 Plus] The Travel Roller Coaster Climbs Up

As I write this from my workation, dozens of families around me are revelling in their vacation, seemingly having put the trials of Covid behind them — and for many of them, it’s their first holiday in nearly two years.  If this mini Diwali holiday is any indication, the good days are back for the Indian travel industry, amid a recovery phase in late 2021.

Or at least, it’s the first signs of a big enough recovery for travel tech companies and startups in India, enough to look beyond the slowdown of the past two years.

In the first half of the year, it wasn’t quite clear how the travel sector’s recovery would pan out. Many had cautioned about too much optimism due to the fact that the so-called third wave of Covid had yet to hit India. As it turned out, according to many in the industry, that was indeed the third wave, and since then things have been looking up.

The prospects for the market have been positive ever since domestic bookings bounced back in July this year, and now, startups are positively bullish about travellers coming in by the hordes.

As per IPO-bound ixigo, the demand for festive travel for September and October 2021 has been encouraging in flights, trains and bus segments, even compared to last year. The company said train travel is seeing a faster recovery than air travel and is already close to pre-pandemic levels.

The Road To Recovery

Since June, domestic air travel traffic in India has been on a V-shaped recovery course, reaching 59% of 2019 or pre-Covid levels in September, just ahead of the major festive season.

Plus, the number of departures in September 2021 were higher by roughly 6%. Capacity deployment on domestic routes has also been pushed up to 85% from 72.5% with effect from September, which has directly resulted in demand being bumped up on the major air  routes.

In the rail travel segment, IRCTC reported a five-fold increase in net profits and revenue grew four-fold in the July-September quarter compared to last year, which indicates that train travel is also on track for strong recovery.

Besides this, thanks to the improving vaccination penetration in India, particularly in the metros and Tier 1/2 cities, there is a notable growth in leisure air travel. The domestic passenger traffic stood at roughly 69 Lakh in September 2021 — 38% lower compared to pre-Covid levels, but roughly 74% higher than September 2020.

Hurdles In The Path

But this wave of resurgence in the travel market on the back of leisure travel is still not enough to claw back the lost ground due to the pandemic.

In its October report, credit ratings agency ICRA has maintained a negative outlook on the Indian aviation and travel sector, due to continued international travel restrictions and subdued demand from the corporate travel segment.

As is evident, business conferences and trade shows, which account for a majority of corporate travel, have not yet revived. Offices in India are only just now opening up, but employees are unlikely to undertake major work trips even then, given that clients or partners may not be in a similar position.

Given this, the expectations for 2022 revolve around maximising revenue from leisure airline passengers and hotel guests, through advance booking promotions and other features that help maximise retention.

Going Offbeat In 2022

Nearly all companies believe that the demand for offbeat and unexplored Indian and foreign destinations is set to shoot up. This is also likely to mean that big annual family trips will soon be replaced by micro-holidays and short getaways to such destinations. Many travellers are also warming up to the concept of staycations or workations, according to IPO-bound hospitality giant OYO.

Besides offbeat travel, there will also be an increase in spending habits of the average traveler both for domestic and international trips, as they have not spent anything on travel over the last 20 months.

“We have witnessed a rise in the revenge travel phenomenon, especially during the festive season as we have seen a rise in bookings during these periods. We are also seeing an increase in bookings for business class tickets, which signifies that travellers are now spending more on travel as well,” added EaseMyTrip cofounder Prashant Pitti.

Already, air ticket bookings to and from Tier 2 cities have been significantly higher than metro cities since June, which means even less-affluent travellers are spending more.

According to ixigo cofounder Rajnish Kumar, there’s a clear shift in purchase patterns — share of bookings for travel beyond 30 days increased in September, as compared to the higher last-minute purchases during the lockdowns and Covid waves, indicating the higher demand for travel in October and November.

Search queries for luxury holidays have seen an incredible growth of more than 70% for the month of October this year as compared to October 2019, Pitti added. EMT has witnessed a 50% jump in international travel bookings in the past quarter as compared to January-March 2021, and 2x growth in advance bookings for the segment.

IPO Frenzy In Travel Tech

According to McKinsey analysis, the travel industry must look to aggressively build capacity in high-demand areas such as leisure travel and short-term holidays.

Startups also need to invest aggressively in harnessing the data to provide innovation. Large OTAs and travel aggregators will likely turn to mergers and acquisitions for collaboration opportunities with travel technology platforms, as innovation in travel — either for savings or unique experiences — will continue to drive retention.

For instance, last month, NSE-listed EaseMyTrip said it is in talks with multiple businesses for acquisitions to increase its revenue in the ‘non-air’ space.

Beyond travel trends, on the technology side, startups expect the emergence of ‘vaccine tech’ that will look to collate and leverage data related to a traveller’s Covid vaccines and test results.

One travel aggregator founder told us that leveraging data to derive insights in anticipating demand and optimising pricing will be key in the months to come. Flexible pricing models will come to the fore as consumers will look to eliminate the unpredictability and friction in travel.

Aggregators are likely to drive a lot of the business to hotels and airlines given that they are in a unique position to harness the data.

It’s interesting that even though the recovery is less than firm right now, the mood in the travel industry is certainly upbeat. The IPO plans for OYO, RateGain and ixigo in particular indicate that the industry is more confident than it was last year.

A major reason is that stock prices and liquidity in the market are at an all-time high, while VC funding in the travel industry is at an all-time low. Most travel tech companies typically have an asset-light model, which makes procuring loans and debt from banks a trickier deal.

In such a situation, IPOs are seen as a fundraising tool as well as a way to provide exits to existing investors. Even so the IPO route is fraught with perils for those companies that do not have a clear recovery path.

Is this purely a result of the confidence that stems from having survived through the unfamiliar experience of lockdowns last year, or truly reflective of the mood of the market? The next couple of months will give us a clear answer.

Till we meet again,
Nikhil Subramaniam

Images: Gayatri Sharma

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