The State of India Outbound Travel 2018

by Meghan Carty + Skift Team - Aug 2018

Skift Research Take

The India outbound travel market is poised to boom in a matter of years. The global travel industry needs to make itself aware of this market and why it matters now, so they’re not scrambling to catch up later.

Report Overview

India has all the components necessary to become a formidable outbound travel market. Boasting the world’s second-largest population and the fastest-growing major economy, we are already seeing signs of this market’s power, as well as signals that the real growth is yet to come. In this report, we provide a closer look at the India outbound travel market. First, we provide an overview of the market by the numbers, currently, and looking into the future. Then we examine the key factors that are driving the market’s growth. Next, we dig into the behaviors and preferences of Indian consumers and travelers, starting with those related to technology, and then zooming into travel-specific trends, pointing out disparities between urban and rural regions. Finally, we provide examples of ways that travel brands and destinations around the world are laying the groundwork and forming strategic partnerships in an effort to capture a share of this growing market.

What You'll Learn From This Report

  • Market size and expenditures of Indian outbound travelers
  • Key factors driving the growth of the Indian outbound travel market
  • Technology adoption and use trends in India and how they are shaping the travel market
  • Trends in the travel behavior and preferences of Indian travelers, from booking methods to destinations
  • How global travel brands and destinations are laying the groundwork and forming strategic partnerships to prepare for market’s boom

Executives Interviewed

  • Deep Kalra - Founder, Chairman, and Group CEO, MakeMyTrip
  • Apurva Chamaria - Chief Revenue Officer, RateGain

Executive Summary

India has all the components needed to become a major force of an outbound tourism market. As the second most populous country and the fastest growing major economy in the world, India is home to a lot of people who are earning more and more disposable income to spend on travel. The World Bank and India Ministry of Tourism report that 21.9 million outbound tourists traveled from India in 2016, compared to just 3.5 million 20 years prior. This astounding growth makes it the fastest growing outbound market behind China. While 21.9 million outbound travelers is still dwarfed by the 135 million that originated from China in the same year, many signs point to an impending boom in India’s outbound market, much like the one China experienced just a few years ago.

This isn’t to say that we can expect India to follow exactly the same kind of trajectory that China’s outbound travel market experienced. Both countries are extremely populous and have experienced economic liberalization that drove high-levels of economic growth (China’s about a decade earlier). So there is some merit in making comparisons. However, India and China are also very different from each other and present unique challenges to travel brands and destinations looking to capture shares of each market. We have already looked closely at the China market in our previous reports Best Practices for Attracting Chinese Outbound Tourists and A Deep Dive into Ctrip and the China Online Travel Market. Now, we turn our attention to India.

In this report, we provide a closer look at the India outbound travel market. First, we provide an overview of the market by the numbers, currently, and looking into the future. Then we examine the key factors that are driving the market’s growth. Next, we dig into the behaviors and preferences of Indian consumers and travelers, starting with those related to technology, and then zooming into travel-specific trends, pointing out disparities between urban and rural regions. Finally, we provide examples of ways that travel brands and destinations around the world are laying the groundwork and forming strategic partnerships in an effort to capture a share of this growing market.


The Market by the Numbers

A number of economic policy changes in India in the 1990s spurred overall economic growth in the country, driving outbound tourism growth with it. According to data from both the World Bank and the India Ministry of Tourism, 21.9 million outbound tourists traveled from India in 2016, the last year for which complete data is available, compared to just 3.5 million 20 years before. In terms of absolute numbers, this puts India in second place behind China in the fastest growing outbound tourism market rankings

 

Exhibit 1: Indian outbound tourism has been growing since the 1990s, with larger increases in recent years.

Source: World Bank and India Ministry of Tourism

 

While 21.9 million outbound travelers is a respectably sized market, that number of travelers makes up just 1.6% of the country’s total population and just 1.3% of the total global outbound travel market, even though the country is home to 18% of the global population. A report by CAPA India, an aviation consulting, research, and data company, and Expedia put this another way: the ratio of outbound trips per 100 people in India is just 1.2. This is low, even compared to other emerging markets. The same ratio for Indonesia is 3.2, China is 8.7, Sri Lanka is 9.9, the U.S. 24.9, the UK is 107.6, and Singapore is 168.5, to put this in perspective. When it comes to overseas outbound leisure travel, the number is even more miniscule, with just 0.3% of the country’s population traveling overseas in a given year according to CAPA India.

Clearly, there is incredible potential for growth in India’s outbound travel market, which forecasters expect to continue seeing at high rates in coming years. The World Tourism Organization (UNWTO) estimates that the number of outbound tourists from India will more than double the 2016 number just two years from now, reaching 50 million by 2020.

In addition to the size of the market, the growth of its international tourism expenditure also makes the Indian market an attractive one. In 2016, Indian outbound travelers spent $19.185 billion on outbound tourism related expenses. This amount puts it in the top 20 countries in terms of outbound tourism expenditure according to the World Tourism Organization (UNWTO). Based on the 21.9 million outbound trips taken that year, this amounts to an average per-person, per-visit expenditure of $876. Compared to high-spending and even other emerging markets, this per-visit spend is comparatively low. The report by CAPA India and Expedia calculates the average spending by Indian outbound travelers on short-haul trips is about $857 per trip per person, and long-haul trips is about $1,687.

 

Exhibit 2: India’s per-visit expenditure is comparatively low …

Source: Skift Research, The World Bank

 

Exhibit 3: … But this number will likely increase, as total expenditure has been growing quickly.

Source: The World Bank

 

From 2006 to 2016, India’s outbound travel expenditure increased 7% on average year-over-year, and this rate seems to be increasing. From 2015 to 2016, the market saw an 8.5% increase in expenditure, which is higher than the rates China, Indonesia, Brazil, the U.S., and Germany experienced in the same period (4.5%, 2.5%, -16.5%, 7.1%, and 2.5% respectively). If the outbound tourism market grows as quickly as forecasters like the UNWTO estimate, we can expect that the market’s expenditure will also increase rapidly. We just have to look at China to see how dramatically outbound tourism expenditure can grow in a short period of time. The China market’s expenditure was growing at a similarly steady rate that India is experiencing now until about 2010, when growth exploded. If India’s economic growth and other driving factors continue as they have been and are currently, then this market could experience a similarly dramatic boom well within the next decade. In fact, between 1996 and 2016, the compound annual growth rate (CAGR) of outbound tourism expenditure for India, at 23%, was higher than that of China at 17%, so signs are already pointing to a boom.

 

Exhibit 4: China and India were experiencing similar levels of growth in outbound tourism expenditure until about 2010, when China experienced a dramatic increase.

Source: The World Bank

 


Key Factors Driving the Growth of the Market

There are several key factors that are combining to drive the growth of India’s outbound travel market. In this section, we will cover a few of the main factors.
 

Economic Growth

India’s economic growth is the single most important factor enabling the country’s travel market to expand. According to the International Monetary Fund (IMF), India was the fastest growing major economy in 2016, with GDP growth of 7.1%. The IMF also forecasts that India will remain the fastest growing economy for at least the next five years. This overall economic growth is translating on the individual level. According to the CAPA India and Expedia report, India’s high-income and upper-middle income populations grew 15.6% from fiscal year 2010 to 2015. The report estimates that 50–55 million Indians live in high-income households, with annual incomes over $30,000, and another 45–50 million live in upper-middle income households, with annual incomes between $15,000 and $30,000. The report posits that the upper-middle income is a reasonable threshold at which international travel, at least to nearby destinations, is reasonable. If this is the case, then less than a quarter of those who have the financial ability to travel internationally did so in 2016. Even if the threshold was actually at the high-income mark, the number of outbound travelers is still a small amount of the total population in that income bracket, which further signals growth potential.

Obviously, India is a large country and there is still a high amount of income inequality. A report from Oxfam reported that the richest 1% of Indians owned 73% of the national income in 2017, up from 58% the previous year. In an interview with Recode, James Crabtree, author of the book The Billionaire Raj, further explained that India’s development has mostly benefited the very rich. He explains that “if you take India and China when their economies were about the same size, then India has 10 times as many billionaires as China did then,” and as their share of the national GDP has increased, it has decreased for the middle class.

This inequality also affects the way the outbound travel market is developing. Cities in India have been classified into tiers by the government, according to factors of development and costs of living, in order to calculate housing allowances and tax exemptions for government employees based on where they live. This tier system is a useful classification to track India’s development overall, including the growth of its travel market. Outbound travel has largely been driven by tier-1 cities, or the largest metropolitan areas, which also have the highest proportion of high-income households. According to estimates from CAPA India and Expedia’s report, however, tier-2 cities are likely to drive the next phase of outbound tourism growth, due to their increasing populations of high-income households. From fiscal years 2010 to 2015, the number of high-income households in tier-1 cities grew at a CAGR of 16%, compared to 19% in tier-2 cities. Tier-3 and tier-4 regions will likely follow suit over time. We can expect outbound travel will expand to lower tiers as economic growth spreads through the country in the years to come.

Another way to view the economic growth in India is through per capita income. In 2017, India’s GDP per capita was $1,940. Forecasts by Trading Economics estimate that this amount will increase to $3,500 by 2020. Skift Research spoke to Apurva Chamaria, India-based chief revenue officer at RateGain, a company that provides software solutions for the travel and hospitality industry. He explained that based on the rates of growth for GDP in India, it is likely that per capita GDP will reach $5,000 per year by 2025. “The average family in India requires about $1,500 to $2,000 to subsist,” he explained, “So I would say that travel is really going to explode from 2022 onwards, because that is when higher disposable incomes will really start to kick in in people’s lives.” However, more than just a growing economy and increased spending power are required to facilitate this sort of boom.

 

A Young Population

Another factor driving the growth of India’s travel market is its young population. According to the Indian Census, nearly half of the country’s population was under 25 and two-thirds were under 35 in 2016. This is setting it up to have the world’s largest workforce by 2017, with about 1 billion people between the ages of 15 and 64. This is in stark contrast to the other major outbound markets, like China, Japan, the U.S., Korea, and many European countries that have aging populations.

This isn’t to say that older populations don’t travel. The extra time from being empty-nesters and/or retired actually makes them an important travel demographic, and they have their own behaviors and preferences. However, older populations shrink quickly and if they are retired, their travel funds may be limited. Young people, on the other hand, are not limited in these ways and are more accustomed to using the internet to research and book travel on their own. We will discuss more travel trends based on age later in the report.
 

Expansion of Air Travel

The rapid expansion of air travel within and out of India is also a key facilitator of travel market growth. According to the International Air Transport Association (IATA), as reported by CAPA India and Expedia, Indian domestic and international air passenger traffic has grown at a CAGR of 14% and 8.6% respectively between FY2012 and FY2017. This growth has been largely driven by the proliferation of low-cost carriers in the market, and their popularity with Indian travelers. According to the report, low-cost carriers have been increasing their market share for both domestic and international travel in the last few years, and now take an impressive 67% of the domestic market. The share is quite a bit less for international travel, at 22.9%, but it still represents a 17.2% CAGR, which is much faster than the 8.6% overall growth of international passenger traffic. This growth has been even faster in tier-2 cities.
 

Exhibit 5: Low-cost carriers capture the majority of domestic passenger traffic, and their share of international traffic is growing quickly.

Source: IATA + CAPA India and Expedia 2018

 

International flights are most likely to leave from tier-1 or tier-2 cities. In 2016, the busiest airport in India, the Indira Gandhi International airport in Delhi, was also the world’s fastest growing airport in terms of passenger traffic. It grew 21%, compared to second-fastest growing Incheon, South Korea, at 17%. The Indian government has taken steps to increase connectivity across the country, even in rural, low-population regions. In 2017, the Ministry of Civil Aviation announced the UDAN Regional Connectivity Scheme to help make air travel from tier-2 and -3 cities more affordable by increasing domestic air routes. Through the scheme, the government offers monetary incentives to airlines to fly to these isolated regions and offer seats at reasonable prices. The program has shown promising results, with 109 regional airports and heliports connected to major hubs so far.

The success of this scheme and the increasing volumes of passengers at airports around the country come with some challenges. According to the Airports Authority of India (AAI), the infrastructure of airports around India is being pushed to the limits. Because of this, AAI established a plan in 2017 to streamline operations and implement new technology, like biometric, face recognition, and body-scanning technology, to increase efficiency and cost effectiveness in at least 50 of its 125 airports.
 

Increasingly Powerful and Easily Available Passports

When it comes to international travel, the power and availability of a country’s passports are paramount. Passport Index, a website empowered by Arton Capital that provides real-time global rankings of 199 countries’ passports as new visa policies are updated, ranks India’s passport 66th out of 89 (many countries have the same ranking, which accounts for the ranking being out of 89 currently) as of August 2018. This ranking is based on the country’s Visa-Free Score (VFS), which combines the number of countries for which the passport allows visa-free entry or visa on arrival. At the time of this writing, India’s passport allows visa-free entry to 25 countries and visa on arrival at 40, adding up to a VFS of 65. This also leaves 133 countries for which visas must be obtained before traveling.

A ranking of 66 out of 89 might not sound too impressive, but it’s actually quite close to China, which is ranked 56. China has a VFS of 77 with 28 countries with visa-free entry and 49 with visa on arrival. As their respective outbound travel markets become more attractive to destinations around the globe, China and India are experiencing growth in the power of their passports. Just in a matter of a few weeks while researching and writing this report, we saw both countries move up four spots in the ranking, as more countries are easing their visa requirements for these desirable markets. This has been happening over the last few years for Chinese travelers, and is now becoming more noticable for Indian travelers. According to an article from The Economic Times, a number of countries have eased visa procedures for Indian tourists in just the last year, including the United Arab Emirates, Japan, Israel, and Oman. As more countries realize the potential of the market, we can expect India’s passport to continue to increase its power.
 

Exhibit 6: India’s passport is not very powerful currently, but is likely to grow in the coming years.

Source: Passport Index

 

According to the Indian Ministry of External Affairs, just about 5.15% of India’s population currently have a valid passport. Given the very low proportion of outbound travelers that we discussed previously, the low number of passports is not all that surprising. Even so, with its improving economy and growing opportunities for international travel, India’s government has made progress in increasing citizens’ access to obtaining and renewing passports. Citizens need only their government-issued identification card or their voter identification card to obtain or renew passports at one of the 93 (and counting) passport government offices, which are currently available in all states and union territories in the country. The government has also made the process of receiving a passport quicker. In 2016, 86% of passports took less than one week to get issued, and half of those took fewer than three days. These improvements have helped passports get into the hands of both traditionally underserved and high-traveling populations. India is now in third place in passport issuance behind China and the U.S. As the number of passports in India grows, it’s only logical that the outbound travel market will follow suit.


Understanding Indian Travelers

Technology Usage and Preferences

Technology use in India is largely driven by the economic development and distribution in the country, heavily varying depending on access and resources. As most outbound Indian travelers are on the wealthier side, they tend to not be limited in their tech use by these disparities. Even so, tech adoption in India is on its own path, and outbound travelers have developed some unique habits. As the market matures, it is important to understand where the technology use landscape in the country currently stands, even for those least likely to travel abroad, in order to best reach the audience as it develops.
 

Internet Use and Penetration

Internet penetration is one area where India’s economic disparities are exceptionally evident. According to a report by the Internet and Mobile Association of India (IAMAI) and Kantar IMRB, there were 481 million internet users in India in December 2017, up 11.34% from December 2016, and was expected to reach 500 million in June 2018. In absolute numbers, 481 million people sounds high, but it means that internet penetration in India has only reached about 35% of the country’s population. This places it in 11th place of Asian countries according to a report by UNWTO and Global Tourism Research Centre (GTERC).
 

Exhibit 7: India’s internet penetration is still low.

Source: UNWTO and GTERC, 2017

 

The gap in India’s internet penetration is striking. The report from IAMAI and Kantar IMRB explains this in detail. Urban India currently has has 295 million internet users, versus rural India’s 186 million. The population differences between the two, however, show the true depth of the inequality, as rural India has an estimated population of 918 million compared to urban India’s 455 million. This means that internet penetration in rural regions has reached 60.6%, while it is only 20.3% in rural regions. Given its immense room for growth, rural India is experiencing penetration growth at a faster rate than in urban India, with growth of 14.1% compared to 9.7% between December 2016 and December 2017.

The report also shows other disparities in internet use across the country. Internet use frequency, for example, also varies by urban and rural regions. Of internet users in urban regions, 62% use the internet daily, compared to 53% of internet users in rural areas. Internet use is also heavily gendered, especially in rural areas, although this is improving over time. It is estimated that women still make up only 30% of all internet users. Lastly, internet use varies heavily by age. Students and children make up 60% of internet users.

A recent survey by Pew Research found similar results, reporting that just 25% of adults over the age of 18 in India use the internet at least occasionally, tying it with Tanzania for the lowest average use of the 39 countries surveyed, which have an average use of 75%. While India’s overall average growth may be low, we can expect growth over time, as digitally native young people mature into consumers. In addition to the extremely high internet use by students and children mentioned above, the Pew survey also showed comparatively high internet use among young adults (ages 18-36) compared to adults age 37 and older, with 35% of young adults reporting occasional internet use or owning a smartphone, versus 13% of older adults.
 

Mobile Use and Preferences

When it comes to actually accessing the internet, India is an extremely mobile-first market. Data from web analytics company StatCounter shows that by February 2017, 79% of internet use was accessed through mobile phones, compared to just 20% from desktop computers and less than 1% from tablets
 

Exhibit 8: Mobile is the dominant device for accessing the internet in India.

Source: StatCounter, July 2018

 

India’s mobile centricity becomes even more apparent when compared to other countries. For example, in February 2017, 79% of internet use in India was through mobile. This was more than twice the rates of the U.S. and the UK, and put it in the number one spot in mobile internet usage among the other G20 countries (The G20, or Group of 20, is a forum of 19 countries and the European Union that account for 86% of the world’s economy). The report from IAMAI and Kantar IMRB estimated that India would have 478 million mobile internet users by June 2018 out of the projected 500 million total internet users. This translates to nearly 96% mobile internet penetration, which would put it on par with China’s 2017 penetration of 98% as estimated by the China Internet Network Information Center, and ahead of eMarketer’s projected 2017 U.S. mobile internet penetration of 93%.
 

Exhibit 9: India led in percentage of internet usage from mobile among G20 countries in February 2017.

Source: StatCounter, July 2018

 

One reason that mobile internet access is so widespread in India is because of how inexpensive it is in the country. According to Kleiner Perkins’ Internet Trends 2018 report by Mary Meeker, the average price for one gigabyte of data was under $0.50 in March 2018 versus about $4.50 in March 2014. One of the biggest contributors to this has been the mobile network company Reliance Jio which launched in September 2016. The company, founded by Mukesh Ambani, India’s richest man, offers mobile call and data plans at extremely low prices. As a result of its launch, it has forced other mobile network providers in India to drop their prices to stay competitive.

The price of smartphones is also low. According to market intelligence and advisory firm IDC, smartphones cost an average of $157 in India in 2017 compared to $184 in China, $567 in the U.S., and the worldwide average of $363. In addition, “smart” feature phones, which are normally cheaper than smartphones but have similar features, are a booming market in India. Apurva Chamaria of RateGain explained that in India, “Buying a mobile phone is ridiculously cheap, and so is accessing data and internet. Buying a laptop is still expensive, like $600 or $700, plus it’s bulky and cumbersome. In India, most people spend a lot of time on the road commuting between home and work. The average commute time in big cities and mini-metros is about 75 minutes.”

Like with general internet penetration, there is also a disparity in mobile internet use based on rural and urban residence. The IAMAI and Kantar IMRB report indicates that 77% of urban internet users and 92% of rural internet users consider mobile to be their primary device for accessing the internet, mainly due to the affordability and availability of smartphones, even in poorer, rural areas. More affluent, urban residents are more likely to use desktops to access the internet. This is reflected in travel research and booking, which we will discuss later in the report.

Indian mobile phone users have unique habits when it comes to their mobile internet use. A report by philanthropic investment firm Omidyar Network found that the average mobile internet user in India spends about 70% of their mobile internet time on social communication apps and music and entertainment apps. This share of time is high in comparison to U.S. mobile internet users who spend just 50% of their mobile internet time on these types of apps, while also spending a fair amount of time on mobile news, commerce, and gaming.

Apps owned by Facebook (Facebook, Whatsapp, and Instagram) capture 38% of the time Indian mobile phone users use social and entertainment apps, compared to just 18% for U.S. mobile phone users. Whatsapp especially stands out in terms of its popularity in India, with its 200 million plus monthly active users making it the app’s largest market. The IAMAI and Kantar IMRB report provides even more nuance in mobile internet use based on urban and rural residence. Findings of the report show that urban mobile phone users are more likely to use mobile to access email, social networks, and shop online, while rural users spend most of their use time consuming video and audio entertainment content.

In a Times of India article about the Omidyar Network report, Roopa Kudva, partner and managing director of the company’s India branch explains that the domination of Facebook’s apps has created opportunities for locally grown tech startups: “Currently, Whatsapp and Facebook constitute 95% of social apps in the India. This is just 55% in the U.S., where people spend their time on other local apps too … As the cost of data goes down, there is a big opportunity for entrepreneurs to use this space.” The government is also taking steps to help homegrown Indian companies to take a bigger piece of the market. An August 2018 Wall Street Journal article reported that Indian policy makers are planning on imposing new rules to limit the power of American tech giants, like Amazon, Google, and Facebook, in the market. The rules would give India control of its citizens’ data, requiring it to be stored in the country and be made accessible to the government. Through these types of regulations, the government hopes to create a tech ecosystem similar to China’s, where restrictions on foreign tech companies have allowed hugely successful, homegrown companies to flourish. If and when these rules are implemented, it will be interesting to see what impact it has on the apps and online platforms Indian citizens use as the country continues to develop.
 

Payments

In November 2016, India’s prime minister declared that all high-value banknotes (500 and 1,000 rupees) would no longer be legal tender. This move, called demonetization, removed 86% of the value of paper currency that was in circulation at the time. The aim of this plan was to get rid of counterfeited currency and to eliminate cash that had been hidden to avoid tax payments. Demonetization has also helped spur digital forms of payment. According to eMarketer, India became the fastest-growing “proximity mobile payment” market (meaning payments made by performing a certain action with a mobile device at the point of sale, usually using apps or mobile wallets) in the world following demonetization. The data shows that mobile payment users increased over 75% from 32 million in 2016 to 56.2 million in 2017. This means that mobile payments were used by about 30% of the country’s total number of smartphone users in that year.
 

Exhibit 10: The number of users of proximity mobile payments in India is expected to continue to grow, but at a slower rate than immediately following demonetization.

Source: eMarketer

 

Despite this growth, India still largely relies on other forms of payment at the current time. Data from the Reserve Bank of India shows a slightly different picture from the eMarketer data, in that while digital payments did indeed surge post demonetization, the growth rates of volume and value have been slowly decreasing each month, even as the number of users increases. Even so, forecasts like those by eMarketer and Credit Suisse — which forecasts digital payments in India will reach $1 trillion by 2023 from the current $200 billion — are driving the creation of a tech infrastructure that can support this growth. The non-profit National Payments Corporation of India developed the Unified Payments Interface (UPI) in April 2016, which facilitates interbank transactions and essentially makes mobile payments possible and streamlined. For example, UPI enables payments through India-based digital wallet company Paytm — which is 49% owned by China’s Alibaba Group and Ant Financial — and expects to have 500 million users by 2020. Whatsapp is also looking to take advantage of the country’s growing digital payment user base by also using UPI to enable person-to-person payments. Given the app’s popularity in the country, it could claim a huge market share if it eventually expands into business payments.
 

Travel Behaviors, Preferences, and Market Trends

The general technology usage and preferences of Indian travelers (and Indian citizens who could be travelers in coming years) can help us understand how they interact with the travel industry — and how it can reach them — now and in the future. In this section, we will narrow in on more travel specific behaviors, preferences, and market trends. As we pointed out previously, the disparities between urban and rural regions, or city tiers, in India are visible in many areas, and this holds true for travel-related behavior as well. Most of the current outbound travel market has originated from tier-1, major metropolitan areas, while much of the next phase of growth will be driven by tier-2 cities, which are quickly catching up in development. As we mentioned earlier in the report, we can expect that more residents of lower tier regions will travel internationally as the country continues to develop, and the travel market matures with it. As this happens, the behaviors, preferences, and trends we will discuss here will likely trickle down too.
 

Offline Booking Is Still Prevalent, But Online Is Growing

Offline booking, including through traditional travel agents, is still very common in India. According to data provided to Skift Research by ForwardKeys, the majority of outbound travel is booked through traditional travel agents, but online channels, especially OTAs, are gaining ground. The data shows that traditional travel agents captured 57% booking share in 2017 compared to 26% for online travel agents. Compared to 2016, however, traditional travel agents experienced just 18% growth versus 28% growth for online travel agents. In an interview with Skift Research last year, Rajesh Magow, co-founder and CEO India of MakeMyTrip, India’s largest online travel agency (OTA), told us that the company had seen up to triple-digit growth rates in outbound travel bookings in recent years, “There is significant room as we see in terms of shift from offline to online penetration. That is one of the biggest opportunities this year.”

Even with increases in online bookings, we can expect that traditional travel agents will still maintain a stronghold on outbound travel bookings in the near future, especially because first-time outbound travelers are more inclined to book with an agent. CAPA India and Expedia found that 65% of travelers in this segment have this preference. Given the expected growth in the number of outbound travelers from India, we don’t see traditional travel agents losing much booking share any time soon.

Skift Research also spoke with Deep Kalra, MakeMyTrip’s founder, chairman, and group CEO. He went into more detail about four of the main challenges OTAs face with converting offline travel bookers to online channels. The first challenge is internet access, which, as we discussed earlier, has been improving, especially since the launch of Reliance Jio. The second issue he relayed was that of trust. He explained that through customer labs and research, they have found this to be an especially big challenge when it comes to independent hotels. They found many people believe that “what you see online is not necessarily what you’ll get, and therefore they needed to know that the pictures were verified, customer pictures, etc. to assure them that what they see if what they’ll get, and that reviews are genuine, etc.” The next challenge, which is related to trust, has to do with rates. MakeMyTrip’s research found that “a lot of Indians with leisure-travel needs would actually tend to show up at the hotel and negotiate across the counter to try to get the best deal.” He explained, “That clearly meant that when these people are online, they don’t believe that they will get the best deal online. We did some ads in local languages to aim at this challenge.” The final challenge Kalra mentioned is perception about cancellation fees. “People think that cancellation fees are going to be very high if they book online,” he noted. MakeMyTrip has worked to address this perception through advertising and also by offering a subscription-based tier of its Black loyalty program called DoubleBlack. By paying about $20 to $25 annually, DoubleBlack members “get not only all of [the loyalty rewards] you get from Black, but also zero-charge cancellation across multiple flights and hotel bookings that you make throughout the year,” Kalra explained.

Through a combination of efforts like these, and a growing population of more experienced travelers, OTAs are starting to be viewed more favorably as booking channels in India. The article “Analyzing Consumer Preferences for Online Booking of Tourism and Hospitality in India” from Atithya: A Journal of Hospitality, projects that online travel booking will reach over $34 billion in revenue by 2019. Through a survey, the researchers found that online travel agencies appeal to Indian travelers because they save time, offer advance booking, and provide discounted rates. As internet penetration increases in India, we can expect online travel booking to follow suit.
 

Mobile Dominates General Internet Use, But Desktop Rules Outbound Bookings

As previously discussed, mobile phones are the primary device Indians use to access the internet in general. Interestingly, when it comes to online travel research and booking, desktop or laptop computers are the most widely used devices. This could be because international travelers tend to be from upper-middle class and so have the ability to access more expensive, non-mobile devices. And as international travel is usually more expensive and requires more extensive research and planning, desktop or laptop computers are often preferred, as they are in many other markets for this purpose.

By analyzing more than one billion traveler intent data points along the path-to-purchase, data-driven travel marketing company Sojern found that mobile accounted for only 35% of travel-related searches and just under 7% of online trip bookings. A survey of 1,200 Indian travelers by Amadeus Asia Pacific found similarly high use of desktop for travel research and booking, with 80% of respondents selecting laptop/desktop computers as a device used the most to complete these tasks. However, these results show more nuance in behavior, as respondents here were able to select more than one device that they use frequently. The results revealed that 63% prefer mobile phones to research trips, and 55% prefer them to book their trips — both higher than the average of the Asia Pacific region.
 

Exhibit 11: Laptop/desktop computers are most frequently used to research trips, but mobile phones closely follow.

Source: Amadeus Asia Pacific, 2017

 

Exhibit 12: Mobile phones are slightly less popular for booking travel, but they are still more popular in India than the APAC region on average.

Source: Amadeus Asia Pacific, 2017

 

As outbound travel becomes more popular in parts of India where mobile phones are far more common than desktop or laptop computers, we can expect that mobile will take a more central role in travel planning. A 2017 survey by Think with Google found that 87% of smartphone users in India are comfortable researching, booking, and planning their trips to new destinations entirely on mobile. This is very high compared to the other countries surveyed, with Brazil coming next at 67%, followed by 59% for Japan. The Indian OTA Yatra has also reported an increasing amount of bookings through its site coming from mobile. From 2016 to 2017, it saw mobile bookings grow 35% and mobile app traffic grow 82%. We can expect that as online booking becomes more widely spread in general, mobile will become a more widely used tool to plan and book trips.
 

Reasons for Travel Are Diverse, and Growth Is Imminent in all of Them

India’s growth in outbound tourism is being driven by many types of travel, including business and leisure, luxury and more. Traditionally, two of the most common reasons for international travel were for business or employment purposes and longer trips to visit friends and relatives who lived abroad (called VFR trips). These reasons for travel have not gone away, but we have seen new types of travel grow in popularity recently, and expect this will continue.

Business travel by Indian citizens has been common since the country liberalized. It is currently the seventh largest business travel market in the world, up from 10th place in 2017 according to GBTA, which forecasts it will enter the top 5 by 2022. Indian business travel has been — and will continue to be — propelled by employees of the services sector, which contributes about 53% of the India’s gross value added (GVA) according to the India Brand Equity Foundation. The meetings, incentives, conferences, and exhibits (MICE) segment is one part of business travel in particular that is forecasted to experience high growth from India. According to forecasts by MICE India and Luxury Travel Congress (MILT) and Mastercard, outbound MICE travel from India is expected to grow at a CAGR of 8.6% through 2020.

The same dataset by MILT also forecasts the growth of outbound luxury travel to be at this same CAGR (8.6%), while estimates from Amadeus projected growth of 12.8% between 2015 and 2025. Either way, the outbound luxury market is outpacing the growth of the overall Indian outbound market. The growth rate forecasted by Amadeus puts India in the lead for luxury travel growth compared to the other BRIC countries (Amadeus projects 4.2% for Brazil, 9% for Russia, and 12.2% for China), and ahead of all the other 25 countries analyzed.

The economic development that is allowing business and luxury travel to grow is also spurring leisure travel in general, as more citizens have disposable income to spend on taking vacations abroad. A December 2017 report by MakeMyTrip found that 39% more Indians took vacations in 2017 than in 2016, and that international leisure travel had grown faster from 2016 to 2017 than domestic leisure travel, with 60% growth compared to 37% growth. Still, outbound leisure trips make up just 30% of all outbound trips from India, with business, employment, visiting friends and relatives, and pilgrimage capturing the rest according to CAPA India and Expedia. When compared to the global average of 53%, we can see that leisure trips abroad still have room to grow to catch up in popularity.

CAPA India and Expedia noted that one way leisure travel has become more accessible to Indian travelers who may only be accustomed to traveling for other reasons is by adding leisure travel time on to other types of trips. Like with travelers from other markets, it has become a trend for Indian business travelers to extend work trips to include leisure travel time (bleisure, if you will). More unique for Indian travelers is extending VFR trips to include independent leisure time and activities in the destination.
 

Destination Choices Are Expanding, But Distance and Cost can Still Be Prohibitive

The destinations Indian travelers go to vary based on the type of travel. The most popular leisure destinations tend to be within a 5 or 6 hour trip from their starting airport. Destination data collected by ForwardKeys, Sojern, and CAPA India and Expedia shows that the top leisure destinations include Thailand, United Arab Emirates, and Singapore. Other top leisure destinations that are a bit further away, but still capture high numbers of Indian travelers, include the UK, France, and Italy.

Other destinations are almost exclusively traveled to for business or employment reasons. These include Bahrain, the U.S., and Saudi Arabia (which is also a popular destination for religious pilgrimage). As we mentioned earlier, business travel from India is poised to grow in the near future, and so attracting this segment of the outbound travel market is desirable for destinations in its own right. However, the trips that are most common in these destinations are very different from typical leisure trips. Data from the U.S. National Travel and Tourism Office (NTTO) shows that from 2009 to 2016, the number of arrivals from India to the U.S. grew 113% to 1,172,000. Only 18% of these 2016 arrivals, however, traveled to the U.S. for leisure travel, while 44% were business travelers and 39% were VFR travelers. Because of the nature of business and VFR travel, the average stay of Indian travelers to the U.S. in 2016 was a whopping 39.6 days. This length of stay provides plenty of opportunities for Indian travelers to interact with, spend money, and partake in leisure activities in a destination, even if this is not the main purpose of a trip.

Leveraging the presence of business and VFR travelers in this way might be the best strategy for long-haul destinations like the U.S. to get a piece of the Indian outbound travel market. Although the number of travelers to these destinations will likely continue to grow along with the market in general, the proportion of leisure travelers selecting them is unlikely to get much higher. As Apurva Chamaria of RateGain explained, “People do travel to the U.S., and it’s increasing, but the percentage is not likely to drastically change.” There are a number of barriers to this growth which he laid out. First is the flight time: “Distance is a huge barrier to travel, especially leisure travel, and that won’t change. Leisure travelers usually want to reach their destination painlessly … A direct flight to the U.S. is 14 hours from Delhi and 15 and a half from other places, and that’s a direct flight that takes you just to the east coast. If you’re going to the west coast, the flying times are 26 to 28 hours,” he said, and very few direct options currently exist. CAPA India reports that 80% of long-haul international travelers from India have to connect at least once on their way to their final destination.

Additional barriers include cost and value. Chamaria explained that traveling to places like Dubai or far east Asian destinations like Thailand is “ridiculously cheap, yet the quality of service is very high.” In these destinations, he said, “even a two-star hotel would be full-service,” which is not true in places like the U.S. Especially for inexperienced travelers, these factors can be major deterrents. “Indian consumers are very risk averse,” he explained. As India’s per capita income is still quite low (but growing), “Outbound leisure travel is not casual for them. It’s a big affair. This means that people want to be sure about where they’re going because this might be the only trip they make in a year or two years.”
 

Young Travelers Are Shaping the Future of Indian Outbound Travel

Similarly to the China outbound travel market (and others), young Indian travelers are a key driving segment of outbound travel trends. Young travelers from both markets have displayed their adventurous nature and prioritization of experiences, which translate into a higher propensity to travel. A July 2018 article from Jing Daily that compares Chinese and Indian millennials points out many commonalities between the groups, as their countries follow similar paths of development. One thing that sets Indian millennials apart, however, is their country’s relative integration with “the west.” Stemming back to British colonization, Indian millennials are more likely to speak English than their Chinese peers. Additionally, they are much more likely to use global social media and online entertainment platforms. These characteristics might make Indian millennials more confident to travel abroad, especially to destinations that are very different from their home country, and also make them easier to target as potential customers.

The results of the survey by CAPA India and Expedia further demonstrate the adventurous nature of Indian millennials when it comes to travel. This survey found that 45% of 18–25 year olds went on their first international trip by themselves or with friends — a surprising 20% went solo. The survey also showed that young Indian travelers don’t rely so much on having comforts of home available to them when traveling. 60% of millennials said that the availability of Indian food does not influence their choice of travel destination, while 65% of travelers age 45 and over said it plays a significant role in this choice. In an interview with The Inbound Report, Guldeep Singh Sahni, president of the Outbound Tour Operators Association of India also noted this trend. “There has been a changing pattern of outbound travelers nowadays, with more young travelers travelling out of India. Hence, the demand of authentic or conservative Indian food is also diminishing as the young India travelers are relatively open to experimenting with a particular country’s cuisine,” he said. Indian millennials are also more open to staying in lower-tier hotels according to a 2017 survey by Yatra. This survey also found that this age group is more interested in taking shorter, but more frequent trips. Despite the shorter length of their desired trips, they are also more interested in remaining in the same destination for the entirety of the trip, unlike the traditional group tours that move to new places quickly. These characteristics make young Indian travelers a particularly attractive segment for travel brands and destinations, and they will shape the future of Indian outbound travel as they continue to become a larger segment of the market.
 

Cultural Factors Contributing to Outbound Travel

Certain aspects of India’s vibrant culture contribute to the outbound travel market and will continue to do so. As Indians gain more disposable income, they are being driven by a desire to live aspirationally, especially inspired by popular culture that is always accessible to them through social media. Here, we will discuss a couple of ways this is manifesting.
 

Inspiration From Bollywood Films

More and more Bollywood films are being set and/or filmed outside of India, in countries all over the world. Seeing these destinations in popular, blockbuster films often provides the first exposure Indian viewers have to new places, and often inspires them to travel. A 2014 study in the academic journal, Hospitality Review, found through surveys of Indian movie watchers that European countries frequently portrayed in Bollywood films are perceived more positively than those that have not been featured.

An article by the Airline Passenger Experience Association (APEX) provides two prime examples of this phenomenon, with movies by the filmmaker Zoya Akhtar, both set in Europe. One of her films features adult siblings and their parents on a cruise of the Mediterranean. The film showcases high-end, luxury travel that Indian viewers aspire to experience for themselves. According to APEX, a number of Indian travel agents experienced an increased demand for cruise vacations after the movie came out.

The other Akthar film follows friends who take a road trip vacation through Spain. In the year following the film’s release, Spain saw nearly twice as many tourists from India as the previous year, and Indian travel agents still sell packaged tours featuring sites and activities from the movie seven years later. APEX reports that the Indian ambassador to Spain at the time said that the movie, “was single-handedly responsible for making Spain a household name in India.”

In addition to the sites featured in the films themselves, Indians are also heavily influenced by the travels of movie stars and other celebrities. Airbnb is one travel brand that has taken advantage of this with a recent campaign. The campaign features Bollywood stars in advertisements staying in Airbnb accommodations abroad, and engages with the stars as influencers to post on their own social channels about their Airbnb experiences. In an article with LiveMint, Amanpreet Bajaj, country manager, Airbnb India, explains this campaign: “Indians are passionate about movies and stars have inspired travel. We see more and more travellers wanting to holiday like their favourite stars and put up at places they’ve opted to stay in. Going forward, we feel that influencer marketing will continue to play a critical role in our strategy and we will continue to look at engaging our audience with innovative content.” The great power Indian celebrities have on influencing outbound travel is likely to grow in importance with the market, similarly to key opinion leaders (KOLs) in China (see reports Best Practices for Attracting Chinese Outbound Tourists and WeChat Marketing Strategies for Global Travel Brands).
 

Aspirational Wedding and Honeymoon Tourism

The Indian wedding market is estimated to be a $50 billion industry. As the upper-classes continue getting richer, the traditional (yet elaborate) wedding in the bride and groom’s hometown is no longer aspirational enough. As a result, wedding tourism is becoming increasingly popular. MRSS India, a market research company, and the Federation of Indian Chamber of Commerce and Industry (FICCI) published a report about this trend in 2017. According to estimates in the report, India’s wedding tourism industry (including destinations within and outside of India) was worth about $3.2 billion in 2017 and expected to grow to almost $6.5 billion by 2020. A survey in the report also showed increased interest in destination weddings from people in upwardly mobile classes. While traditional weddings were still preferred most often (by 40% of respondents), destination weddings followed with 28% preference.

Relatedly, outbound tourism for honeymoons is growing in popularity for similar aspirational reasons. Google India noted travel related search inquiries was among the fastest growing category from 2016 to 2017, with 27% growth. The top searches within this category included destination searches for “honeymoon,” “safari,” and “luxury.”

Celebrities play a major influential role for these types of travel as well, as many share photos of their own destination weddings and honeymoons on social media. As this trend catches on and grows as a status symbol, destination weddings are expanding around the globe. In a November 2017 article in Tribune India, Prerana Saxena, founder of India-based destination wedding planning company, Theme Weavers International explained that global destinations are even hosting all-expenses-paid familiarization trips for Indian wedding planners to attract this segment of travelers. This is just one way the travel industry is prepping for the Indian outbound travel boom.


Global Travel Brands and Destinations Are Prepping for an Indian Travel Boom

The real boom in Indian outbound travel is likely still a few years off, but we are already seeing global travel brands and destinations taking steps and forming initiatives to prepare for it. The efforts we have observed so far are attempts to lay the groundwork and form strategic partnerships to hopefully capture a share of the soon-to-burgeon market. Over time, travel brands and destinations will need to do their due diligence to understand the deeper nuances of the market, like which segments of it are most relevant to them and how to appeal to them most effectively. For now though, building the infrastructure to address some of the barriers Indian travelers might face in traveling internationally is a good place to start. Here are some travel brands and destinations that are doing just that.

  • Japan: Since January 1, 2018, Japan relaxed its visa requirements for Indian tourists in an effort to attract tourists and business travelers. Japan is now issuing multi-entry visas for short-term stays, which encourages repeat visitation. The documentation required to receive such a visa was also simplified, making the process less intimidating. This visa revision is part of Japan’s plan to attract 40 million tourists by 2020. Initially, the government’s goal was 20 million by that year, but that number was reached early, in 2016. These visa relaxations show that Japan anticipates India will be a major contributor to its tourism market and will help it reach this goal.Other countries are already having discussions about relaxing their entry policies for Indian travelers. The Royal Commonwealth Society, a UK-based think tank, for example, is campaigning with parliament to reduce the cost of visas for Indian travelers visiting the country in order to better compete with France, which attracts a larger number of Indian travelers. A number of UK travel brands and organizations are supporting the measure.
  • Radisson Hotel Group: Radisson Hotel Group has had the India market on its radar for a few years now, even boasting close to 100 properties in the country. In order to attract more of the Indian outbound market, Radisson Hotel Group announced a partnership with MakeMyTrip in May 2018. The partnership includes a distribution agreement so that all 1,400 plus of Radisson Group’s hotels and resorts will be available to book on the platform, MakeMyTrip will provide centralized reporting to provide insight into the the travelers booking at the group’s properties, and the companies will work on advertising campaigns together.
  • Tourism Australia: The Aussie Specialist Program (ASP) from Tourism Australia is an initiative for the destination marketing organization to strengthen its distribution network around the world. The program does this by educating global travel agents through online training programs to teach them about Australia’s tourism offering and best practices to promote it as a destination to clients. Tourism Australia puts special emphasis on building the program in countries that are already showing promise as source markets and are also highly fragmented in terms of travel distribution, like China and India. As of December 2017, there were 3,712 qualified Aussie Specialists in India, up from 2,100 in December 2015. China’s 8,500 Aussie Specialists show the kind of growth that’s possible for a program like this in a fast-growing, high-population travel market, especially as it spreads outside of major cities, where 75% of India’s Aussie Specialists are currently based.
  • Air France-KLM: In November 2017, Air France-KLM deepened an existing partnership with Jet Airways India to enhance their cooperation on routes between India and Europe. The agreement means that the airlines will work together to offer more routes and improved service in their combined network which includes 44 Indian cities and 106 European destinations. This partnership complements Air France-KLM’s transatlantic partnership with Delta Airlines, offering Indian travelers connecting opportunities to over 200 destinations in North America. Travelers will also be able to use any of the airlines’ loyalty programs for flights on the others.
  • Moroccan National Tourism Office: Although Morocco saw just 21,850 visitors from India is 2017, the tourism board and government are still making it a focal point to develop it as a source market. In late April 2018, the Moroccan Ambassador in India stated that the country aims to double its number of Indian tourists in 2019. The ambassador has spearheaded a strategic plan to help reach this goal. The plan includes opening tourism board offices in Indian cities, relaxing visa policies, and educating Indian travel agents about Moroccan tourism.
  • Mexico Tourism Board: Mexico is also a little-traveled-to destination for Indian tourists, welcoming just 22,431 of them in 2016. Still, the steady growth Mexico has seen from the India market (and the general outbound boom that’s expected from it in the years to come) has led the Mexico Tourism Board to set a goal of attracting 200,000 Indian tourists by 2022. Working with the Embassy of Mexico in India, the Mexico Tourism Board has launched advertising campaigns in India to work toward this goal.

 


Key Takeaways

  • While valid comparisons can be made between India and China’s outbound travel markets and their growth trajectories, they also have their own unique challenges and driving factors.
  • India is already the second-fastest growing outbound travel market. Economic and demographic factors signal that the real boom in growth is still to come.
  • Economic development is increasing the spending power of Indian outbound travelers, making them a more desirable market for travel brands and destinations to attract.
  • In addition to economic development, other key factors are contributing to the growth of the outbound travel market, including expansion of air travel from the country and an increasingly powerful passport.
  • Cultural factors like Bollywood and weddings are also contributing to outbound travel from India.
  • Many disparities in development exist in India today that impact the way the travel market is developing. Most of the growth in the market so far has been driven by major, tier-1 cities, but the coming growth is expected to come from tier-2 cities, and will likely trickle down over time.
  • Internet penetration is still very low in India, especially outside of major cities, so the online travel industry has a lot of room for potential growth as internet access improves.
  • India is an extremely mobile-first market because smartphones and data plans are very inexpensive. Mobile will therefore become an increasingly important tool for researching and booking travel.
  • The growth in outbound travel from India will be driven by the growth of particular travel segments, including business travel, luxury travel, and general leisure travel.
  • Indian outbound travelers are expanding their destination selections beyond south east Asia, but distance and cost can still be prohibitive.
  • India has a very young population and young travelers are a key driving segment of travel trends for the market.
  • Before the impending boom in the India outbound travel market, travel brands and destinations around the world must lay the groundwork and form strategic partnerships in preparation.


Endnotes and Further Reading

  1. AIN Online, “India’s Airports Feeling the Strain of Traffic Growth,” February 5, 2018.
  2. Bloomberg, “India’s Youth Are the World’s Future,” September 7, 2017.
  3. Boston Consulting Group, Demystifying the Indian Online Traveler,” June 2017.
  4. Business Line, “All you wanted to know about … UDAN,” January 29, 2018.
  5. Business Standard, “India will account for 50 million outbound tourists by 2020: Report,” January 8, 2018.
  6. Business Today, “Only 5.5 per cent of India’s population have passports: report,” July 24, 2017.
  7. Business Wire, “India to Generate 6.5 Million Outbound Luxury and MICE Tourists Annually by 2010,” June 24, 2017.
  8. CAPA India, “CAPA India and Expedia release ‘The inflection point for India outbound travel’ report,” February 1, 2018.
  9. Destination Report, “Destinations Woo Indian Outbound Traveller,” March 1, 2018.
  10. Financial Express, “WhatsApp now has 1.5 billion monthly active users, 200 million users in India,” February 1, 2018.
  11. Forbes, “WhatsApp, Already India’s Favorite Chat App, Wants To Be Its Leader In Digital Payments Too,” February 9, 2018.
  12. Hotelier Maldives, “Capitalizing on the growth of the Indian outbound market,” April 22, 2018
  13. IAMAI, Internet in India 2017.
  14. Jing Daily, “A Tale of Two Millennials: India and China,” July 25, 2018.
  15. Ministry of Tourism, Government of India, India Tourism Statistics 2017.
  16. NTTO, Forecast of International Travelers to the United States by Top Origin Countries, 2017.
  17. Passport Index, Global Passport Power Rank 2018.
  18. Quartz, “In 2018, China’s seeing its most powerful passport in years,” January 15, 2018.
  19. Quartz, “Making a phone call in India is now nearly free,” July 20, 2018.
  20. Skift, “Asia’s Fastest Growing Airport Is in New Delhi, India,” February 6, 2018.
  21. Tech In Asia, “Step aside, China: India is now the world’s fastest-growing mobile payment market,” January 11, 2018.
  22. Think with Google, “How smartphones influence the entire travel journey in the U.S. and abroad,” February 2018.
  23. The Times of India, “France, Singapore among 5 most popular leisure destinations for Indian travellers,” January 31, 2018.
  24. The Times of India, “Indians spend 70% of mobile internet time on social media, entertainment,” December 19, 2017.
  25. Travel and Hospitality, “Yatra reveals India’s top travel trends for 2017,” December 27, 2017.
  26. UNWTO, UNWTO/GTERC Annual Report on Asia Tourism Trends – 2017 Edition.
  27. Wall Street Journal, “India Looks to Curb U.S. Tech Giants’ Power,” August 13, 2018.
  28. World Economic Forum, “Demonetisation: A year after India killed cash, here’s what we can learn,” November 6, 2017.