Travel industry heads for further consolidation

by / Friday, 14 November 2014 / Published in News & Updates

Online platforms have made a significant impact on the traditional travel agency businesses

The domestic travel industry is heading for further consolidation as traditional travel agencies are finding it difficult to survive in a fast changing business environment.

With margins coming under pressure and online travel agencies fast gaining popularity, many of them, primarily engaged in ticketing service, are either up for sale or seeking mergers with financially stronger players, according to M&A (mergers and acquisitions) (M&A) experts.

“The ticketing business is becoming competitive, and the online platforms have made a significant impact on the business models of traditional travel agency businesses. Earlier, travel agencies had a safe business model, and now the business has become risky. It has become difficult for them to survive. In the last few days, we have received calls from several people who are running travel agencies for over 25 years with reasonable business expressing intention to exit or aligning themselves with stronger players,” Ajay Lodha, Partner, Singhi Advisors, a firm advising M&A deals told The Hindu.

More M&A deals likely

Experts said the travel industry, which witnessed three M&A deals recently, including Balmer Lawrie acquiring specialised travel company Vacation Exotica; MakeMyTrip acquiring Netherland-based group; and Thomas Cook India deciding to merge Sterling Holiday Resorts with itself, is set to witness more M&A deals this year.

“All trends suggest more M&A activity is coming to the travel sector in 2014. The relative sluggishness has created a pent-up demand for M&A activity, which is likely to trigger more and bigger deals in the coming years. It is also the fact that creating a market-leading business in this sector organically is becoming more difficult and expensive, and so companies are look at M&A activity,” said Anil Khandelwal, CFO, Cox & Kings. Elaborating on the reasons behind the acquisitions, Mr. Lodha said: “Companies are seeking to evolve their businesses from a low margin to high margin or consolidate their presence in the market. This could be done by enhancing service offering to customers like MakeMyTrip acquiring hotel aggregators to offer hotel rooms at competitive rates to its customers or strong ticketing player Balmer Lawrie, acquiring a business specialising in outbound tours. Consolidation also allows for reduction in cost of acquiring and servicing customers.”

According to him, travel platforms with technology edge could be benefit at a time when the sector is growing at 8 to10 per cent. “We expect consolidation of businesses to continue as stronger travel brands will emerge with an ability to offer good service and options to customers. We are witnessing significant investments happening in technology by travel platforms and that will significantly impact travel services delivery. Such platforms could become attractive acquisition targets in time to come,” Mr. Lodha added.