Some liken it to fulfilling what Admiral Zheng He, the great Chinese explorer, started in the 14th century when the eunuch mounted expeditionary voyages across the world, from Asia to Africa.
Some see it as the awakening of Asia, a time when Asian giants have the ambition, appetite and, most importantly, the means to expand beyond their own home markets and the region.
Still others see it as a necessity – expand or stagnate.
Whatever the reaction, there is no doubt that the news of Ctrip investing US$180 million into MakeMyTrip marks a significant milestone in the Asian travel market and will set the tone for what will unfold in the rest of 2016 and the Year of the Fiery Monkey which the Chinese will mark on February 8.
Think about the significance of this move which also makes Ctrip, valued at over $10 billion, the single biggest shareholder in MakeMyTrip and gives it a seat on the Indian company’s board.
It brings together two of Asia’s largest online travel companies. It brings together two of Asia’s largest travel markets – many people have spoken of the “Chindia” effect, two remarkably different markets yet technology in many ways is bringing them closer together.
In many ways, it was inevitable that it would happen – these two companies are led by two extremely smart and savvy leaders, James Liang and Deep Kalra who both hold similar beliefs that in the age of disruption, you have to disrupt yourself or be disrupted.
Liang said it at a Phocuswright conference two years ago and I found it interesting that Kalra echoed that belief during the WIT Conference last year in Singapore when he said you have to be paranoid and disrupt yourself particularly in the age of the mobile Internet.
During that session I also asked Kalra the specific question about the coming together of China and India – China’s Didi Kuadi had invested in Ola and Alibaba had invested in Paytm, a mobile payments and e commerce business.
His answer – it’s obvious that that if someone was looking for the next big market in the Internet economy, they’re going to ask, what’s the next China and it wouldn’t take a genius to say India. “It’s going to happen, they (investors) are training their guns.”
Asked about the cultural fit between a Chinese and Indian company, he said it’s less about the culture, more about the philosophy that guides investors – “in lucre we trust”.
So take away the culture equation – in fact, one travel insider who’s close to Liang and Kalra, dismissed the notion saying “the entire senior team at Ctrip has spent years abroad working, studying” – let’s look at the lucre side of the story.
The benefit has been immediate for MakeMyTrip whose stock price has been flat last couple of years. Its share price rose by 23.5 percent at the close of trading last Thursday to give MakeMyTrip a market cap of $689.4 million.
“In my view,” said one investor close to the deal, “the two questions to ask are, is MMT a good asset and what value is it to Ctrip to buy one-third? The negative view is that MMT is really a flight business, has not proven the flight model, and faces fierce competition from Booking and Agoda. The positive view is MMT is another Ctrip, undervalued and has a long runway of growth.”
At the WIT Conference, Kalra spoke of the shift in MMT to more of a hotel model with almost half its revenues now coming from hotels, and he pointed to the promise of unlocking the independent hotel market in India when by 2017, there will be 500 million people on the Internet. “Obviously not everyone can buy a fancy hotel but they can buy a budget hotel, air, rail or bus.”
Mobile will be the game changer and disruptor, he said, and Ctrip certainly has command in that space as well with almost 70% of its transactions happening on mobile. MMT sees about 40-45% of transactions for hotels on mobile “and this number was zero 18 months ago”, said Kalra.
Let’s not kid ourselves though that this is purely an Asia play. Priceline has significant investment in Ctrip. Last December, it agreed to invest an additional $500 million into the company, on top of the $250 million it had made earlier. So if anything, it speaks of the continuing consolidation of the online travel market with major players trying to solidify their hold in the world’s fastest growing and most promising market.
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