STRATINNOVA CASE STUDY - 2012

Exploring New Avenues

2012

1|Page

CONSULTANCY@SIMSR PARTNERING IN EXCELLENCE

Mr Ashwini Kakkar, Executive Vice Chairman of Mercury Travels (MT), sits comfortably in the board room as he sips the hot cappuccino while rejoicing over the recent good revenue growth exhibited by MT. After having 2 years of losses in the business owing to the recession in 2008 and the terrorism activities of 2009 which impacted the number of tourists on and off India, Mercury Travels had a good year in 2010 with profits of 12 million USD. 2011 year is also expected to perform equally well. But the calculations in the white board in his background suggest that this is just the beginning of a rather grand plan. There is a need to demonstrate our global services credentials and indicate our experience in solving highly complex travel requirements, forging strong partnerships and long-term relationships. We need to explore more avenues, new ways of business; but what?? Mercury Travels: The Company and the Product The company was established in 1948 as a subsidiary of East India Hotels Ltd (EIH), which owns the Oberoi Hotels & Resorts group. In 2006, Mr Ashwini Kakkar acquired a 74.9% stake in Mercury Travels and with his entrepreneurial spirit has made the company grow manifold. Mercury Travels has 22 offices in 16 cities in India and sales offices around the globe. It has locations in Mumbai, Agra, Ahmedabad, Bengaluru, Bhubaneswar, Chennai, Cochin, Goa, Gurgaon, Jaipur, Kolkata, New Delhi, Pune, Secunderabad, Udaipur, and Varanasi, India, as well as in the United States, Germany, the United Kingdom, and Argentina. The services are tailor-made to suit the personal requirements of the clientele. In 1998, Mercury Travels Ltd established a subsidiary in Germany called Vision Travels GmbH. EIH Ltd., which owns 25.1% stake in Mercury Travels, deals in the hospitality business and owns or manages a chain of high-end luxury of hotels in India and overseas. Setting up Mercury Travels in the travel related services was in synergy with EIHs hospitality business Mercury Travels offers a bouquet of travel related services including customized holidays for inbound and outbound customers, airline ticketing, transportation, hotel reservation, foreign exchange, travel insurance, passport and visa assistance and airport assistance. The company also handles MICE (Meetings, Incentives, Conferences and Exhibitions), incentive management services along with business travel for corporate clients which includes organizing meetings, incentive tours, conferences, conventions, and other events for corporates in India. It also operates on a huge scale internationally. Mercury Travels not only helps the passenger with flight bookings and tours but it also helps them find the best hotels in town. Users can create their accounts on the companys website

and maintain their travel plans there itself. One just has to go to the website, key in their information and preferences and he/she will get a host of options to choose from. The shopping cart will give the details of current bookings. The website also has detailed plans put up for the different tours available and specifically mentions the costs that would be incurred. It also clearly specifies all the facilities which are included in the package. There are separate packages for family outings and honeymoon. Far away islands, Middle East, Europe, Africa, America, Australia and New Zealand packages are available in abundance and one will also find a lot of options to suit their needs. International ticket and travel reservations are done online. The international packages include Egypt, Kenya, Rwanda, South Africa, and Tanzania to name a few. The company has Indian and international holiday packages with specific information about each. Luxury train holidays, cruises, wildlife holidays, luxury lodges, self drive vacations, mountain holidays, travellers cheques, Forex are some of the kind of services one can expect from Mercury Travels. Exciting holiday packages include outbound holidays, adventure holidays, beach holidays, spa and eco tours. The company handles business travel for corporates, manages meetings, events and conferences for high end clients. International travel agents, air flight bookings and travel insurance are also offered. Associate Companies of Mercury Travels Via (www.via.com), Explore Travel Channel (http://www.exploretelevision.com/) and Mercury Himalayan Explorations (http://www.himalayanadventure.com/) are some of the associate companies of Mercury Travels. Mercury Himalayan Explorations Ltd (MHE) is an associate company that specializes in adventure holidays. The company was founded in 1982 as a joint venture between Mercury Travels Ltd. and the legendary Indian mountaineer of Everest legendary Indian mountaineer of Everest fame, Col. N. Kumar fame, Col. N. Kumar. MHE offers the largest trekking and adventure travel network in the Indian sub adventure travel network in the Indian sub--continent. From Ladakh trekking to high altitude safaris, from Himalayan mountaineering expeditions to white water rafting down the Holy Ganges, MHE specializes in a variety of adventure sports in India.

Branding The company recently graduated in its S & P rating from BB+ to A having risen all the way from C when it started. This very well talks about its reputation and services. The clientele has included renowned people like Satyajit Ray and currently boasts of celebrities like Mukesh Ambani, Sachin Tendulkar, Diana Hayden, Sushmita Sen, to name a few which further reiterates the fact that the company is quite well respected in the industry. The corporate clients are Hinduja, Mitsubishi, L&T, Samsung etc. The company has international presence with offices located in Argentina, Germany, UK and US. It stands among the top most companies in service quality ratings and its training speaks volumes about the company itself. Each employee who joins the company undergoes the famed Oberoi Training Orientation which is very well known and highly appreciated. Mercury Travels is highly service oriented with 350 employees skilled in travel related services. Owing to this reputation of Mercury Travels and the high quality service delivered by its employees to customers, Mercury Travels charges premium prices and effectively caters to the premium high end segment. Mercury Travels believes in charging honest prices and reaches out to people who will not mind paying that extra buck for better service. The Travel Market in India The travel industry offers wide array of travel related services to the travellers. Distribution system in travel industry involves three types of intermediaries the tour operators, speciality channels and travel agents. Distribution system of travel industry is changing at a very fast pace. Initially, with the commissions provided by the Airlines or hotels, travel agents were able to meet the challenges. But, in todays era, information technology has brought in new set of challenges to the existing business models. Global travel industry has started receiving significant improvements in the current year as compared to previous years especially to that of 2008-09. Business travel has boosted again while Leisure segment has shown strong signs of improvements worldwide. According to World Travel and Tourism Council (WTTC), the global travel and tourism industry was a 1.79 USD Billions market in 2010. After witnessing negative growth of 3% in 2009, travel industry is growing at 13% in current value terms.

As far as India is concerned, since 2001, Indias tourism industry has been booming due to rush of foreign tourists and increased travel by Indians to domestic and overseas destinations. The travel business is about 8.9 billion USD just in India. A rise in middle class incomes prompting more households to spend on vacations abroad or at home I have to see the world has become more common a line amongst Indians today. At the same time, the view about India is changing and more tourists are coming for varied reasons like spiritual, religious and also for medical tourism. Also with the online tourism business it is increased manifold and it will be very important to cater to this business going forward. Mercury Travels - Business Model and Operations

Mercury Travels

Leisure

Corporate

Foreign Exchange

Travel Insurance

Inbound

Outbound

Domestic

Mercury Travels is principally broken down into 4 segments of business operations Leisure Holidays (Inbound and Outbound), Corporate Travel, Foreign Exchange and Travel Insurance. Corporate segment accounts for 34% of the overall revenues whereas Leisure, Foreign Exchange and Travel Insurance accounts for 45%, 19.5% and 1.5% of the overall revenues. The Leisure business is further broken down into the inbound, outbound and domestic business sub segments. Outbound packages consist of Mercury Travels Leisure Holidays that represents customized, premium holidays and promise unforgettable experiences. The company crafts holidays that

provide extraordinary, magical and life changing experiences. It helps people create unbreakable bonds with their family thus making their life more fulfilling. Mercury Travels is India's leading independent tour operator and has played a pioneering role in the development and promotion of tourism in India. The company customizes holidays for domestic travellers and tourists travelling to India under the inbound business segment, in addition to handling the ground operations for individuals, groups and charters. The company has tie ups with Insurance Companies for providing instant travel insurance for overseas travel which acts as an added benefit for the clients. Mercury Travels also deals in foreign exchange like currency notes and travellers cheques. Mercury Travels buys and sells a range of 26 world currencies. When travelling overseas, one can pick up the currency of the destination where they are travelling to. It is especially needed on arrival in a foreign land, to pay for taxis, tips etc. In most cases, the company will have the clients local currency requirement, available over-the-counter at their offices. In case of unavailability they try to arrange for these in a day or two. American Express Travellers Cheques are available in 6 currencies including US Dollars, Euro, GB Pounds, Australian Dollars, Canadian Dollars and Japanese Yen. These cheques are accepted at establishments worldwide. They are a safe and secure way of carrying foreign currency as they can be easily replaced. It was also one of the first travel and tourism companies to use IT in business. In mid-2008, the company engaged Oracle Certified Partner CRM IT (India) to deploy Oracle CRM On Demand. Today, it is used extensively in foreign exchange and booking services. This application helps the company target the right kind of customers, who are interested in certain travel destinations and activities based on the data collected using Oracle CRM On-Demand. The Web-based solution allows staff to build profiles on individual customers, to speed up consultation times, cut operating costs, and improve customer service levels. The company has graduated from 28 to 350 laptops owing to huge business and demand. Promotions and Targeted Marketing Mercury Travels puts up advertisements on advertorials and print commercials on newspapers like DNA and Economic Times. These are usually full page or half page advertisements targeting both outbound and inbound travellers through various country

packages (both India and abroad). Also Mercury Travels had launched a TV commercial in 2009 to appeal to their target audience. Last year their marketing budget was around INR 10 crores. Consumer Behaviour and Decision Making Consumer behaviour is critical in the business of travel services because understanding them becomes crucial to figure out how value can be added in the business, says Mr Kakkar. Consumers respond and behave in a different way when dealing with tour operators and when dealing with online travel agents simply because the online interface is absent in the former. Travellers in Outbound leisure segment (consisting of residents of India who travel internationally) are extremely price sensitive. Increasing competition from the online tourism companies like Makemytrip.com and others who offer integrated travelling packages has further complicated the process of wooing these customers. But on the flip side, outbound purchases online are still seen with apprehension by many Indians which are a benefit for a brick-and-mortar tour operator like Mercury Travels. Mr Kakkar says, It takes about 3-4 visits for an outbound traveller to the companys outlet before he/she purchases the travel package. Such visits are required by the clients to get a confirmation that the average amount hes investing in the package is going into safe hands and will be handled professionally, which normally cant be proved while purchasing instantaneously over the internet. As far as the domestic business is concerned which includes travelling within India, the consumer is the most price sensitive to prices. Since these are short haul trips and relatively lesser priced and instantaneous booking is more important than finding value for money, online travel companies have taken the larger market share here. Inbound travellers have greater reliance over the internet so internet outreach can be more impactful for them. Hence, the customers in the industry can be primarily divided into two segments. The CashRich-Time-Poor customers who are less cost conscious but extremely conscious of the convenience of services. The other group is the Time-Rich-Cash-Poor customers who are more value conscious and can straddle amongst companies providing travel services

dependent on the prices offered. 85% of Mercury Travels target customer has been the Cash-rich-time poor segment the premium high end segment. Competition The major competitors of Mercury Travels are Kuoni, Thomas Cook and Cox and Kings which offer related services. But MT with its interest to move into the online domestic booking segment also wants to consider the online strategies and marketing methods adopted by Makemytrip.com, Yatra.com, Travelchacha.com, Cleartrip.com, Travelguru.com and Clubnet.com. Moving On With the advent of the internet dominated travel business, the company is looking out for ideas with which they can tap the potential market in the domestic areas by improving their online strategy. With the growing penetration of mobiles the company is also planning to get into mobile commerce to reach out to more number of prospective clients and thus improve the services offered. The challenge is to integrate the travel services in such a way that the customer sees value add in the products used by Mercury Travels. So for example, if Mercury Travels comes up with a travel application to be used on a Smartphone by its potential customers, then what are the unique features in the app that will pursue the customer to download ONLY your app. Mr Kakkar also ponders of possible ways through which the travel insurance business can be augmented apart from the basic travel insurance services already provided by the company. With new companies and online portals coming up, what are the major challenges for Mercury Travels? Could MT succeed against all odds and ride out the challenges smoothly sailing on the basis of their current business structure? What are the steps and strategies it requires to act and react in the rapidly changing environment? What is the next obvious step? In addition to the above questions, the following 4 questions have to be answered specifically:1) How can Mercury Travels develop its online strategy to appeal to an increasingly internet savvy target audience? 2) How can it use its website and other marketing media to appeal to its already existing HNI customers?

3) In an era of growing smart phone usage in the world, how should Mercury Travels integrate mobile commerce in its business model to engage its customers? 4) How should Mercury Travels increase its revenues from the domestic business segment? To achieve this, how should it diversify from its present audience of time-poor-cash-rich customers to cash-poor-time-rich customers without diluting its brand positioning?

For each question, details about the Idea, justification of idea, implementation and tentative budget/resource allocation for the same are to be known.

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Exhibit 1: Inbound Tourism Statistics

Source: Ministry of Tourism, Govt. of India

Exhibit 2: International Tourists Arrival in India

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Source: Ministry of Tourism, Govt. of India

Exhibit 3: Percentage Change in Foreign Tourist Arrivals

Source: Ministry of Tourism, Govt. of India

Exhibit 4: Destination Wise Outbound Travel of Indian Nationals

Source: Ministry of Tourism, Govt. of India

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Exhibit 5: Travel Industry Sales Distribution System

Suppliers Carriers Lodging Food Services Three-Stage System Car Rental Firms Attractions And Entertainment Cruise Line Resorts Etc. Wholesaler, Tour Operator, or Speciality Channeller Travel Agent One-Stage System Travel Agent, Tour Operator, or Speciality Channeller Two-Stage System Buyers Individual Or Group Traveller

Four-Stage System Wholesaler or Tour Operator Travel Agent Speciality Channeller

Source: Gee, Chuck Y, J.C. Makens, and D.J.L. Choy (1997), the Travel Industry, Third Edition, Van Nostrand Reinhold, New York

Exhibit 6: Average Revenue Structure of a Travel Agency

Travel Agency Income

Car Rentals, 7% Others , 7% Hotel Rental Sales, 10%

Cruise Sales, 14% Air Sales, 62%

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Source: Gee, Chuck Y, et al (1990) Professional Travel Agency Management, Prentice Hall, New Jersey.

Exhibit 7: Top 5 Travel Sites by Total Unique Visitors (000) In India

Source: Comscore Media Matrix, 2011

Exhibit 8: Hierarchy of Mercury Travels Pvt. Ltd.

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Source: Mercury Travels Website

Exhibit 9: Host of Business Operations by Mercury Travels

Consolidators

Website Content

MT Operations

Car Rentals

Airlines Hotels

Source: Mercury Travels Pvt. Ltd., Mumbai

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Exhibit 10: Advertisement Samples of Brochures and Print

Source: Mercury Travels Pvt. Ltd., Mumbai

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Exhibit 11: Screenshot of the Companys Website

Source: Mercury Travels Website