David vs Goliath: OYO catching up fast with MakeMyTrip

Oyo Founder and CEO Ritesh Agarwal.
SoftBank-backed OYO, the country’s largest hotel network with an inventory of 70,000 rooms through 8,500 hotels, is being seen as an emerging competitor to MakeMyTrip in the hotel booking space. MakeMyTrip, which also owns the ibibo Group, had delisted OYO from its platform two years ago. Earlier this year, MakeMyTrip had dropped Treebo Hotels before deciding to bring it back. 

OYO has more than doubled its hotel and room capacity over the past two years to emerge as a potential competitor in terms of hotel nights sold. It has moved from a simple distributor model — where it sold the part inventory of a hotel as OYO Rooms, while the hotel sold individually on online travel agencies (OTAs) — to an exclusive model where all rooms are OYO-branded. Currently, about 70 per cent of OYO’s inventory is exclusive and more rooms are being converted. The firm sells these rooms on its own platform, as well as on portals such as Booking.com and Yatra.com. 

OYO claims to have a run rate equivalent to an annualised volume of 15 million room nights, while MakeMyTrip (along with goibibo) may end up doing 22 million room nights, going by 10.9 million room nights sold in H1FY18. Its room nights grew 32 per cent in H1FY18, while OYO claims to have triple-digit growth year-on-year. MakeMyTrip operates across segments, against OYO operating only in the budget category. The OTA also gets 10 per cent of its room nights from overseas bookings. Yatra.com had also delisted OYO in 2015 but got it back on board this September. 

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.