As India, the world’s second-most populous country, went under lockdown in March to safeguard its 1.3 billion people from the novel coronavirus pandemic, the travel and hospitality industry became one of the worst casualties of the crisis. In March, the travel industry saw 90-95% cancellation in the upcoming bookings. And the situation has gotten worse since then.
New Delhi-headquartered EaseMyTrip, which claims to be the third-largest online travel agent (OTA) in India with 11% share in airline ticketing and 6% market share overall, said their daily bookings have come down from 30,000 to around 900 bookings (for the future dates).
The 12-year-old company said not only did the business in March spiral down, but the cancellations that happened in March also wiped out its previous revenue. The company’s turnover of about INR 4100 crores (USD 542 million) till February, needs to be adjusted accordingly. It has also postponed its USD 67.5 million IPO plan by three to four quarters.
In a candid interview with KrASIA, Abani Kant Jha, chief financial officer at EaseMyTrip, said at a time when the business is in a deep slump, OTAs are being forced to make refunds from their own pockets, leading to a severe cash crunch in the industry.
KrASIA (Kr): What is the situation OTAs are dealing with?
Abani Kant Jha (AKJ): Although the travel industry is facing a huge challenge, everyone is talking about mainstream businesses like hotels or airlines. Nobody seems to worry about OTAs, which is one of the largest contributors to the tourism industry.
To give you the context, out of every 100 tickets that an airline sells, OTAs book roughly around 70. When the lockdown started, the Directorate General of Civil Aviation (DGCA) came with a notification that all the tickets booked during the period from March 24 till May 3, and now it is May 17 [due to the extended lockdown], will be refunded without charging any cancellation fee. All the airline companies are advertising on their website and social media that they are refunding the money to the customers without deducting any cancellation fee. But that is true only for the 8% direct booking that has happened from their website. All the bookings and cancellations that have happened through OTAs, have to be refunded from the OTA’s pocket.
OTA’s modus operandi is that when we book tickets from the airline companies, we pay them for the tickets in advance which goes in a digital wallet which we have with them. What has happened now is, instead of wiring the ticket cancellation money in our bank account, they [airline companies] credit the money into our virtual wallet. The money in the wallet can’t be used for refund purposes. So while our wallet is getting bigger and bigger, it can only be used for future bookings. But we need money in our bank account to refund the customers. Currently, we are using our own reserves to honor the DGCA guidelines.
Although we have INR 75 crores (USD 9.9 million) lying in our virtual wallets of different airlines, we have had to spend our own INR 50 (USD 6.6 million) crore to refund money to our customers.
We have been making profit since the beginning of our operations. So we have maintained enough reserves, but how long can we sustain this? Therefore, we wanted to present this to the government and the public at large, that we are in a bad situation. We can’t afford to continue like this for long, where we maintain the employees, pay taxes, as well as refund customers from our own pocket. We are not sure if the government will look at us if it bails out others in the travel industry.
Kr: We have seen travel demand returning in China after the COVID-19 cases declined. Do you have that kind of outlook for India as well?
AKJ: Domestic travel will definitely start. Firstly, there are a lot of people stuck in different places in India, who would start returning to their home towns. Secondly, at a time when there is so much negativity, as soon as things get normal, people would go out.
A lot of business activity has already started happening. There will be restrictions. Airlines are already talking about leaving the middle seat empty in a row of three seats. So, while maintaining some kind of social distancing, they can start afresh.
We think while domestic travel will happen, overseas will take some more time. We are largely in the domestic business. There are a lot of global economists who are saying that the only two places in the world which will be less impacted are India and China because their internal demand is so much that they don’t need overseas (demand).
Kr: What is the revival plan for the company?Â
AKJ: Our responsibility right now is to not lose the customer base and to maintain our existing employees. To do that, we need to focus more on cash flow rather than any structural issues. Ideally, since you keep booking tickets every day, you refund whatever cancellations happen out of that cash flow. Now, that structure has completely gone haywire. There are a lot of companies in the OTA industry that are going to go bankrupt after things settle down.
Kr: By when do you see travel demand coming back?
AKJ: If airlines are allowed to function even by May end, travel will gradually start happening by June-July. Airlines and hotels are already working on it. It will take a quarter or two to get normal. The industry was growing at 25% CAGR before coronavirus. It might take a year or so before we get on that growth curve.
The problem is that our economy was not doing very well before coronavirus. On top of it, airline is a business where things are not very rosy all the time. Moreover, airlines have to pay even if their planes are just parked. How much can the government support them to run and maintain? That is why the government can’t continue the lockdown for very long. Once airlines start working, they can manage the loss very quickly, because oil prices are at an all-time low.
Kr: A lot of other companies have started laying off their employees. Is that an agenda for EaseMyTrip?
AKJ: We have over 165 employees as of 31st March 2020. We have laid off some of the people, but those were the industrial trainees who were not even graduates, who were handling customer talks, etc. Barring that, we have not removed anyone.
Kr: Did you shut down your offices since it has been a zero revenue period for travel companies?
AKJ: We have been working from home. For us, one part of the operation is revenue generation. But the team that deals with customer support has to work to cancel their tickets and process refunds. Since the government has not allowed offices to operate, we had to buy around 150 laptops within a day or two and distribute them to all the employees in customer care.
Kr: How are the other players going to deal with the situation?
AKJ: We have limited knowledge of this, but when we meet them in the industry forums, everybody shows that there is a cash problem. For instance, Deep Kalra [co-founder of MakeMyTrip] on a public platform, said that they were badly hit and now they are looking for the concessional debt from the banks. This shows that there is pressure on the cash flow side.
Since the beginning of their business, MakeMyTrip has been in loss. Last year, they posted a loss of over INR 1,000 crores. But they survived because they had two things: unaffected cash flow because of regular bookings, and they had their investors’ backup. Now the cash flow part has completely gone out.
