OYO raised $250 million from investors, including SoftBank, in September and is ready to expand. “We believe OYO poses meaningful competition for MakeMyTrip and is not being priced in by the market. Its recent fundraising ability to grow with low cash burn, and aggressive business plans can further heighten the competitive intensity in India’s online travel market,” UBS said in an October report. It noted that OYO has lower marketing spends than MakeMyTrip. “When you look at OTAs, they are advertising so aggressively, they are discounting so much. We are not advertising as much. But when you look at market share reports that are coming in, (they) show we are probably doing a similar number of transactions,” said OYO Rooms founder and Chief Executive Officer Ritesh Agarwal.
KalaGato, a market intelligence firm, has called MakeMyTrip (with ibibo) the ‘Goliath of the Indian travel market’, while referring to OYO as ‘David’. OYO is slowly eating into the hotel market and taking a larger share of booking volumes with each passing month, it noted. It was anticipated that the battle for market share in online travel would subside after the MakeMyTrip-ibibo merger, and that discounts would soften. However, KalaGato believes the battle is far from over. “In fact, the hotel segment, which has long been the cash cow for the OTAs, is under threat.”
In response to queries, a MakeMyTrip spokesperson said the KalaGato report was not ‘representative’, as it had ‘cherry-picked’ the data. The company does not acknowledge OYO as competition yet. “OYO-branded hotels are not on our platform since they have been operating as a distributor and not as a hotel chain. We are operating on a much bigger canvas, having a wider spread in the hotels category — from mid to premium segments — as well as a significantly higher average selling price per room night.”
Nasdaq-listed MakeMyTrip has cash and term deposits worth $441 million on its balance sheet. A Citi Research report in November, however, said the OTA’s marketing spends in the hotels category are likely to remain elevated in the near/medium term, given competition from players such as OYO Rooms at the budget end, and Booking.com at the premium end.
“Aggressive pricing strategy is a function of market dynamics, and there is a shift from how it was playing out a year ago. By focussing on product and technology, loyalty programmes, content and personalised offerings — we are working on a gamut of levers to continue to grow,” the MakeMyTrip spokesperson said.
MakeMyTrip also gets significant revenues from air tickets, holiday packages, and bus ticketing. But hotels offer a significantly higher margin — of about 22 per cent — against a margin of just 7.3 per cent from air tickets. However, these high margins in hotel bookings don’t reflect in the bottom line, owing to the cash burn to discount and attract more bookings.