Since the past decade, travel sector in India has witnessed a sea change. The makeover first came with the entry of foreign travel agents. In the last three years, technology has made a huge difference in the way this business is conducted. The industry has now become highly specialised with many more segments added to it.

The changes are taking place, not just in the travel agents segment but also in the allied services like car rental, hotel and money exchange services. Several foreign car rental players are entering the country through franchise agreements by tying up with hotels and airlines to offer their services while money exchange business is reaching out to smaller towns, by leveraging the strength of franchising.

Travel and tour operators

Today, top 10 companies control around 15% of the business and the rest is still split between “bits and pieces” players. But outside the metros and the mini-metros, travel primarily remains unorganized business with big brands hardly having any reach. Broadly speaking, travel services can be focused either on walk-in customers or the corporates, and to service them, there are online as well as offline players. Thomas Cook, Cox & Kings, Kuoni, SOTC, Raj Travels, Uniglobe Travel, VIA and TravelPort are some of the prominent offline players who are tapping the franchise model for faster growth.

Especially as the FDI policy for organised retail still doesn’t encourage direct entry of foreign retailers, franchise business models are emerging as the biggest beneficiaries. Says Arun Varma of Primetravels.com, “With low investment, zero inventory and low manpower cost, franchising is an attractive option for a potential entrepreneur. The franchise model has been successful for almost all the brands in the travel segment.”

The basic requirement of travel companies is similar in most of the cases ---fully-furnished, air-conditioned retail outlet (minimum 250 sq.ft.) at prime locations that should preferably be owned or taken on lease for at least four-years, two telephone lines, a fax line, printer and computer with internet connectivity. The franchisee is expected to depute two or three employees with travel-related knowledge and take care of the operating expenses. In turn, the company assists in marketing, offer training to the staff and shares the products and IT-enabled services for the outlet to dispense services with faster turnaround to customers. “Issues like change in airline commission structure to zero percent, rising cost of air travel and the airlines’ decreasing dependence on travel agents make it imperative for the travel industry to carve a niche and redesign their products and services based on the changing environment. More so, for travel companies who are focused only on revenues from air-ticketing”, says Sunil Gupta, COO, Kuoni Holidays and SOTC.

Kuoni, India’s largest travel company dominating the outbound market for more than a decade is also betting big on franchising. The company has appointed 45 franchisees for their outbound business and has seen the business grow at the rate of 25% per year. Speaking about the success of the franchise model, Zubin Karkaria, CEO and MD, Kuoni India and South Asia says, “Franchising has allowed us to expand our distribution and grow our business in an effective manner. So we have decided to expand our travel education (Kuoni Academy of Travel) business as well through the franchise route.”

For Kuoni franchise, the fees and the investment depend on the projected business volume and vary from region to region. At every franchise outlet the company appoints a business manger who conducts the business to ensure consistency in service quality and continuously monitors the performance of the location and deploys effective strategies to ensure healthy ROI. Kuoni promises break-even for franchise operations within 18 months depending on market developments and the franchisee’s ability.

Another leading player, Thomas Cook with operations in 52 cities across 160 locations has already appointed 27 franchisees and is open to having many more. A Thomas Cook franchisee should have an investment capacity of Rs. 12 lakhs and possess a fully furnished retail outlet in a high street measuring at least 700 sq. ft. The company imparts training and expertise to manage the business, provides marketing support through advertisements and extends sales support for large group bookings and share leads generated via call centres with the franchisees. Vishal Suri, COO, Leisure Outbound Business, Thomas Cook (India) Limited, assures that their franchisees should be able to break even in about one and a half years and earn an annual ROI of Rs. 1.2 million to Rs. 1.4 million.

Claiming to be a leader in travel distribution and corporate loyalty solutions TravelPort boasts of 75 franchised outlets. Sarvajeet Chandra, Head of Franchising, TravelPort, states, “Our franchisees can break-even anywhere between three months and 12 months and on an average the franchisee achieves an ROI of 25%-50%.”

Cox and Kings, one of the oldest brands is relatively new to franchising with the first franchisee appointed in January this year. The company which already has 13 operational franchisees plans to have 100 franchisees in 18 months. There are four different franchise models and the franchise fee ranges from Rs 3 lakhs for a tier III town to Rs 10 lakhs for a metro. An ideal franchisee for the company should have a travel industry background, a proven track record of success in a sales/marketing function for at least five years, firm commitment to customer service and the drive to go beyond consumers’ expectations.

The biggest success story is of VIA, which like Cox & Kings set out on the franchise model in January this year. It already has 1000 franchisees. Shirley Alex, GM, (Marketing) of the company, informs: “We have franchises who have either shifted their entire business to travel or have started with VIA in the travel business and are making huge profits today. This is because our business model is so simple that even a grocer or a florist can sell the travel products. There are different models for IATA members and non-IATA accredited agents.” The company is open to the idea of having a store in a posh neighbourhood boutique or in the middle of a busy market but the underlined need is enthusiasm to participate in this growing industry. Being a technology-based company, which is completely process-driven, VIA gives its franchisees full back-end support like its 24x7 customer service centres that forwards queries quickly.

Franchising is happening in niche travel segments as well. Uniglobe Travel’s area of speciality is the SME (small to medium size enterprise) segment of the business travel market. V.K. Modi Group owns the master franchisee for Uniglobe Travel International’s South Asia region (covering India, Nepal, Sri Lanka, Bangladesh, Bhutan and Maldives). Their franchise system operates under a master sub-franchising plan. As the master franchisor, they appoint new or existing independent travel agencies as regional franchisees who then appoint unit franchisees in their respective regions. The regional franchisee will have to oversee marketing and sale of franchisees to existing agencies or individuals wishing to get into the travel business, extend support and services to those agencies and see that they streamline their energies and resources to build a successful business and guarantee a well-oiled administration and financial operation of the unit outlets. “Our franchisees get access to training, software and new programme development, branded marketing materials, to help them sell better and win corporate customers. Thus we assist them in achieving at least gross revenue of 10%,” avers Ritika Modi, Regional President, Uniglobe Travel, South Asia. In exchange, the units are expected to create a profit centre to compete and take advantage of the rapidly changing nature of the travel business. Another niche player, Inorbit Tours & Travels that specialises in MICE (Meetings, Incentive, Conference and Exhibition) is working on a plan to adopt the franchise model by 2009.

That franchising is paying dividend is evident from the fact that even smaller players are taking to it for faster growth. Bangalore-based Comfort Leisure Travel and Tours is keen to expand its horizons through the franchise route by 2010 and will focus on tier I and II cities in South India. It plans to tie-up with International Air Transport Association (IATA) accredited agents who specialise in selling outbound packages. The franchisees will carry the branding of Comfort Leisure Travels and Tours and will get a commission starting from 10%. Surat-based Ace Travels & Tours has already embarked on franchise path with over half a dozen operational franchisees.

From online to offline

In the late 1990s, the dotcom boom saw every second company jump for the online model. The onset of online travel portals has provided a variety of choices to the end-customer. Airlines and railways too have realised the potential of the internet and are using the technology to reach out directly to the end-customer. According to a study, Indian online travel industry has a share of at least Rs 7000 crores and 80% of travel products sold online are simple point-to-point air tickets/rail tickets. Probably, that is the reason portals that started as pure online travel agents (OTAs) have now set up brick-and-mortar shops across the country.

Makemytrip.com, the travel portal, began with booking counters at Spencer’s and Subhiksha stores but now has exclusive brick-and-mortar outlets in 23 cities where customers can walk in and purchase travel products. Promoted by Norwest Venture Partners, Reliance Capital and Network18, Yatra.com has set up what it calls Holiday Lounges in 10 cities, apart from travel desks in Reliance World outlets and Hughes’ NetFusion centres. They plan to open 100 lounge offices, targeting business worth Rs 20 crores a month from their outlets. New initiatives such as self-booking kiosks and a tie-up with non-banking financial institutions to provide spot loans to customers are also in the pipeline. They have tied up with Sify Technologies to increase the reach of their travel-related services. If the concept becomes successful, soon they will introduce the franchise model and take the lounge concept to tier-II and tier-III cities.

While online companies are normally accessible beyond geographical boundaries, these companies often have to take strategic decisions regarding location when it comes to offline stores. Travelguru, for instance, has six retail stores and plans to launch 15 more this year. They wish to launch stores in metros, tier II cities and places which get high footfalls. “A shopping mall is a great place where people spend their weekends. It is also a place where one can get their vacations planned”, says Amit Kapoor, Associate Vice-President (Business Development), Travelguru. Another travel portal, Cleartrip, has, in less than a year after its launch, chosen to launch kiosks in Big Bazaar outlets because they offer the right environment to reach out to millions of middle class Indians.

PrimeTravels is another such model with offline presence in India, UK and USA. They are adding franchisees for their offline retail centres at the rate of one franchisee a day to the existing tally of 15 franchisees in order to extend their reach to local cities/towns across the country.

Travelfranchisee.com claims to be the first click and brick travel company in the country with a network of 70 franchisees, catering to the B2B segment. The travel agents who wish to be its franchisees will have to sign a five-year contract and pay a one-time fee of Rs 2 lakhs. The agents get access to their online technology, training and material. Pawan Jaiswal, the portal’s proprietor, confirms that the agents will break even in a year, getting a ROI of as high as 20 percent. Taking a leaf from the potent combination of online and offline model, many offline travel agents like TravelPort and Cox and Kings are simplifying a lot of their products and making them available online. TravelPort recently signed a strategic alliance with online player Travelocity, to offer best deals in international air ticketing and packages and also making it easier for their franchisees to provide great service.

Justifying the shift in offline format, Deep Kalra, Founder and CEO of MakeMyTrip, explains, “While customers are happy to research online, we have experienced that the buying decision requires physical reassurance.” Customers have many questions and concerns, especially when it comes to travelling overseas or on a long itinerary to multiple destinations in a country. Stuart Crighton, founder and COO, Cleartrip.com, echoes the same view when he says that in India, majority of the transactions are offline because of limited internet penetration, the existence of a cash economy and loyalty to offline travel agents.” Karkaria is convinced that the future of good brick-and-mortar tour operators is secure. Suri of Thomas Cook endorses Karkaria’s point by adding that products like foreign exchange, foreign travel and visa services can be provided only through the offline set-up. But Ram Badrinathan, Senior Director (Research), PhoCusWright, a US-based travel market research firm with offices in Mumbai, differs. He asserts that despite the growth in offline stores, India will remain a technology-enabled online model and real business can only be built through direct online distribution. Taking the middle path is Chandra of TravelPort, “Online travel agents will continue to get bigger but will not displace the offline business in the foreseeable future as Indians who are not too comfortable using a credit card, need credibility and control over the booking process. Moreover, most of the people need hand holding, which a savvy offline travel agent can provide,” he says.

It is ironic that the whole idea of being exclusively online has gone offline. According to Varma, “Online e-commerce business helps the principals to do away with intermediaries but thinking that everything will happen online is utopian. Even in the West, the online model is used for air ticketing and short-haul trips. Long vacations and complex itineraries still remain the domain of the regular travel agents.” Travel as a segment caters to a diverse target audience with distinct media consumption habits. So, both online as well as offline format will work very well for this industry. Online serves people who have grown with the internet and use it comfortably. The offline model targets the elderly, the not so net-savvy section. So they don’t necessarily compete but complement each other!

Car rental services

The car rental services with leading players like Avis, Hertz, Europcar, Sixt, Travel House and Oais have emerged as a formidable segment of travel business, offering franchise opportunities. “The organized car rental industry account for just 11% of the market share and is presently worth Rs 45 billion. The market share is slated to double by 2011”, according to Sakshi Vij, COO of Carzonrent India Private Ltd, the master licensee for Hertz India.

The driving factor that contributes to the growth in this segment is that corporates and expatriates prefer to rent a car and driver on requirement basis, rather than bearing the cost of ownership of car and driver over a number of years, says N K Sabharwal, Country Manager, Europcar. “Owing to the booming economy and the consequent need for mobility for corporate executives and increase in the inbound and domestic tourism, growth has been strong at 30% year on year for the organised sector”, says Rajesh Lamba, CEO, Eco Rent A Car.

Almost all the car rental players offer similar services that include spot rentals, long-term hire to corporates, all-India network bookings of hotel travel services, airport counters, ground transportation for conferences and event management, self-drive service, weekend getaways and pre-paid value transfers. While players like Sixt, Oais, Carzonrent are betting only on company-owned outlets, few other players are taking franchise route for faster expansion and growth.

Jetfleet Private Limited, a Jetair-promoted entity and the master franchisee of Europcar is looking forward to expand to other cities like Pune, Goa, Ahmedabad etc. by early 2009 through the franchise route. Anyone who has a capacity to invest in 15-20 cars besides the required infrastructure can become their franchisee. According to Sabharwal, “If the franchisee is already a local car rental provider, he can break even in a month’s time.”

The domestic players are also trying to match up with the foreign affiliates. One among them is Eco Rent A Car, specializing in hotel pick-and-drop with presence in Delhi, Noida, Gurgaon, Mumbai, Pune, Hyderabad, Chennai and Kolkata. They are now expanding to tier 2 cites through franchising. As franchisees, they are seeking service-oriented individuals or small and medium enterprises/business houses who wish to diversify into the tourism/corporate services sector. “Depending on location and number of cars required, the investment will vary between Rs 5 lakhs to Rs 1 crore and the franchisee is likely to break even in three years with minimum 20% ROI”, says Lamba.

Realizing the potential of franchising, ITC-promoted Travelhouse is also in the process of formulating a franchise model for its travel counters, now located in various hotels, to provide services to tourists. According to Jehangir J Ghadiali, MD, Travel House, “With a franchisee the company has someone to share the risk, customer reach is enhanced and trust level for the brand increases locally because the preferred sales agents already have a market and loyal customers in their local area. But for all this to commence, we are awaiting ready license from the government.”

Mercury Car Rentals Limited, the master licensee of Avis Europe plc in India. A joint venture between Avis Europe and the Oberoi Group, is mulling to appoint sub-franchisees in smaller towns.

A huge chunk of the rental business comes from the corporates but growing at even faster pace are the modern radio taxi brands like Meru Cabs, Easy Cabs and Mega Cabs targeting city commuters. Lack of reliable and safe public transport has made radio cabs a viable option for commuters.

The radio taxi business of Carzonrent called Easy Cabs is preparing to introduce their franchise model very soon starting with Delhi. “To reach out a larger number of people, Easy Cabs has tied up with Delhi Metro Rail Corporation (DMRC) to set up kiosks at 25 metro stations in the capital. Trained and verified drivers, technology back-up and the parking space will be allotted to the franchisee”, informs Ashok Vashist, CEO, Easy Cabs. In return, the company expects the franchisee to manage the day-to-day operation. Ideally therefore they are looking for someone with a background of taxi business who can maintain the set standards of the company and deposit a non-refundable fee of Rs 10 lakhs that will be valid for three years. The franchisee will be given 50 to 100 cars and a certain amount of money to maintain them. He will have to pay a monthly rent of Rs 22,000 for the kiosk and appoint 3 to 4 people as staff. Presently, Easy Cabs has 400 cars in Bangalore, 350 in Hyderabad and 25 cars in Chandigarh. Vashist asserts, “We expect to earn Rs 20 lakhs each month and in return the franchisee will be paid 10% of the revenue generated which will be around Rs 2 lakhs”.

Meru Cabs, owned by Mumbai-based V-Link Taxis Private Limited, has a unique franchise model. Mark Pereira, CEO, informs, “Ours is a business-to-business relationship wherein we help create a demand for the usage of cabs which in turn becomes a business opportunity for the cab subscriber. He pays a daily subscription of Rs 600 from the time he signs on with Meru. Besides that, he is entitled to the profits he generates. The drivers are given five days of rigorous in-house training before their cabs hit the roads.” This year they have extended their services to Delhi, Bangalore and Hyderabad and exploring markets in Chennai, Kolkata and Pune.

The future of car rental industry seems to be quite bright because of domestic and international inbound tourism industry, airport and infrastructure development, growing BPO and MNC industries, buoyant airline and hotel industry and the need to replace existing fleet of radio taxis in all major cities.

Hotels and holiday homes

At a time when owned-managed and management joint venture model are the order of the day in the hospitality sector, scope for franchising does exist through high fee structures, franchisees’ lack of experience and high real estates costs are a hindrance. Holiday homes have emerged as a sunrise segment in the travel industry, offering franchise opportunities.

Mahindra Holidays & Resorts India Ltd., India's No.1 holiday brand, has over 100 authorised franchisees across the country. Club Mahindra has witnessed an annual growth rate of 48% over the last four years with its franchise partners contributing significantly to its success. Aniruddha Haldar, Head – Marketing, Club Mahindra states, “Seventy percent of our franchisees have been with us for over three years and their business grown with the brand. We have franchisees who have achieved break even levels from the very first month of operation.” While Club Mahindra charges no franchise fee, a refundable deposit is mandatory and the investment is largely limited to office space and working capital for operations. The returns are very impressive and linked directly to business volumes. Also there is a handsome commission programme. Halder adds, “The franchisees are selected based on past business success and also the relevant infrastructure and manpower availability to conduct business. The preference is for partners who have operated in the services sector, concept selling and direct sales.”

Franchising offers intangible benefits like a smooth start to hotel operations, instant recognition to the property and good brand recall due to co-branding. Hotel chains like Carlson Hotels Worldwide-Asia Pacific and Club Mahindra are open to the idea of franchise partners. Says Sonica Malhotra, Executive Director, MBD group, which has set up Radisson Hotel in Noida, through a franchise partnership with Carlson group, "Although there are fewer franchise-managed properties than management control, it in no way suggests that franchise operations are not doing well. We have put in a lot of effort and received appreciation from our partners to emerge as a strong entity.” Like Carlson, another hotel chain, Roots Corporation that operates Ginger hotels is exploring franchise option for expansion.

Money exchange

This is yet another growing segment of travel trade that has a scope for prospective franchisees. To provide easier conversion facilities for travellers and tourists, RBI allows authorised dealers (ADs) and full-fledged moneychangers (FFMCs) to enlarge the network of money changing facilities in the country. In 2002, restricted moneychangers (RMCs) were allowed to be agencies or franchisees of ADs or FFMCs. Banks and non-banking companies like Wall Street Finance Ltd, Weizmann Forex (a Western Union Agent since 2001), Cox and King and Thomas Cook fall under the category of ADs. While FFMCs are allowed to both buy and sell foreign exchange against Indian rupee, the RMCs can only buy foreign exchange against Indian rupee. Indian postal service has a FFMC license. LKP, was one of the leading player that has now merged with Thomas Cook. The franchisees of these travel agents automatically get access to the forex services.

The franchisor needs to declare that while selecting the franchisees, adequate due diligence has been carried out and they will comply with all the provisions of the franchising agreement/prevailing RBI regulations regarding money changing. Approval to franchise has to be issued by the RBI for the franchise arrangement. Thereafter, as and when new agency/franchise agreements are entered into, it would have to be reported to the Reserve Bank on a post-facto basis along with similar declaration as indicated above. This stringent process often dissuades exclusive money exchange services like Weizmann Forex to go slow on expansion through franchising. Nevertheless, franchising continues to play its important role in the money exchange business.

Future outlook

The size of India is ideal for franchising model particularly in the service sector like travel trade. The best part about the franchise model is that a company can cater to a huge market with lower capital requirements and thus grow to exceed the targets. With travel and tourism making big strides and travel companies out to strengthen their goal of becoming an ultimate travel service provider, it may well prove to be a bonanza for prospective franchisees.