Corporate: No full stops for Kuoni-yet

CORPORATE
No full stops for Kuoni-yet

With Sita and SOTC already in its bag, Kuoni's plans to grow further by travelling acquisition class might just prove profitable.

By Ranju Sarkar

On December 10, 1999, Ranjit Malkani met Inder Sharma, at a 5-star hotel in Delhi, where the Associated Chambers of Commerce and Industry had organised an event to honour Richard Branson, the fun-loving, outspoken CEO of Virgin Airways. But Sharma, CEO, Sita World Travel (India), had serious stuff to discuss with Malkani, CEO, Kuoni Travel (India), the Indian subsidiary of the Zurich-based travel major. Cornering him in the melee, Sharma popped the question: ''I believe Kuoni is looking for acquisitions in India. Why don't we talk?'' They did, and a month later, Kuoni bagged Sita in a Rs 140-crore takeover deal.

After taking over Sita and SOTC Tours way back in 1996, Malkani is now eyeing both big travel houses and small companies with a monopoly in niche segments. Explains Malkani, 50: ''There's no way of growing organically. One has to grow by acquisitions. Globally-and in India-we want to become the largest travel company.'' To boost its warchest for the purpose, Kuoni is planning a Rs 200-crore Initial Public Offering (IPO) by December, 2000. Says a spokesperson of the parent company: ''The amount and the value of the IPO are still being worked out.''

With Sita in the bag, Kuoni can access the Rs 1,000-crore business travel and the Rs 700-crore inbound travel segments, in each of which Sita has a marketshare of 15 per cent. And Kuoni had already signalled its presence in the Rs 250-crore outbound leisure travel niche with its takeover of SOTC Tours in 1996, which was rechristened Kuoni Travel (India). Now, it has decided to merge Sita with itself. Today, Kouni has a 66 per cent share of the outbound travel market. And the merger makes sense as there is a complementarity of strengths between the 2 companies in the 3 travel segments.

Apart from that, Sita's corporate travel business can be expanded by tapping into Kuoni's global corporate clients, many of who have a presence in India. In addition, since Kuoni is the single-largest sender of foreign tourists to India-around 10,000 per year-it could use Sita's skills and technology in destination management. And Kuoni could expand further by grabbing a few niche travel companies specialising in, say, Himalayan tours or honeymoon packages. Malkani believes that targeting niche segments is a part of becoming a big player.

Building global synergies

Globally, too, Kuoni's acquisition strategy has been to build synergies. The company's recent acquisitions include a German business-travel specialist, Euro Lloyd Reiseburo; 3 Danish tour operators; Manta Reisen, which specialises in tours to the Maldives and deep-sea diving holidays; and a stake in Travel Promotions, a UK-based direct sales specialist. In addition to geographical expanse-Kuoni is now present in Europe, Asia, and North America-the takeovers allow the company to offer a slew of products in each area.

That's where the travel business is headed towards. Today, growth is dictated by just one factor-size. First, a global presence enables a company to fulfil all customer needs. Second, it enhances the purchasing power; for instance, the ability to buy a ticket at the cheapest price. Especially since many airlines now hike or reduce ticket prices on a daily basis depending on the passenger load factor for a particular flight. Third, size allows for economies of scale as airlines like United Airlines are trying to cap commissions (at around 7 per cent) to cut costs.

Add to all these the technological innovations-selling on-line or via television-and new marketing gimmicks that will help cut costs further. Agrees Malkani: ''Technology is not just about infotech. It's about all the processes that go into conducting a business more efficiently.'' That explains why the Swiss travel major has decided to float a joint venture with Tata Industries to create Web-based travel products, including a comprehensive travel portal offering travel information, and tourism-related e-Commerce facilities on the Net. The Tatas are expected to hold a majority 67 per cent stake in the venture.

Forging new tactics

Even globally, on-line trading is a priority for Kuoni. This February, it acquired Sweden's Apollo Resort, which sells half its products through direct-selling-and a third of those through the Net. A month before that, Kuoni acquired a 12.50 per cent stake in the UK-based television station, TV Travelshop, which is dedicated to interactive marketing of vacations, airline tickets, and leisure-travel packages. TV Travelshop has the potential to beam into 20 million households in the UK, Germany, and a few Scandinavian countries. Clearly, television can supplement the Net.

In addition, big corporate houses have resorted to what are called implants, or virtual travel agencies within their own premises. The idea is to cut costs, reduce transaction time, and deal directly with the service providers. So, for Sita, there were compulsions to sell out. Agrees Sharma: ''The future lies with either the small agents or the big boys. Mid-size firms like ours are an endangered species.'' Adds Vinoo Ubhayakar, 75, CEO, Trade Wings: ''As clients will have direct access to the principals (hotel chains and airlines), the middlemen (travel companies) will be eliminated.''

In fact, Sita has grew slower than the industry in the past 2 years. For instance, this year, its inbound business will grow only by 5 per cent, compared to the industry growth rate of over 10 per cent. Similarly, while international ticketing grew by 12-14 per cent in fiscal 1999, Sita managed a growth of just 8-10 per cent. At the same time, while Sita's net profits have grown between 10 and 11 per cent per annum, its net margins are down by a similar margin. Says Sharma: ''The business was becoming less rewarding for the stakeholders. We could have continued for just another two or three years.''

Clearly, Kuoni has emerged as the leader in travel business. And it could easily threaten other domestic biggies like Cox & Kings. With most of the mid- and small-sized corporates waiting to be gobbled by the big players, Kuoni's India strategy might just deliver the dollars.

Issue Contents Write to us Subscriptions Syndication