Thanks to the middle-class boom, rising income levels and India emerging as a destination of choice, this travel company is going places
It could be the sign of the times we are living in or it could be pure business
conservatism. Whatever the reasons were, nobody would have thought the coming together of SOTC, one of India's premier travel company with its distinctly Sindhi image, and the Kuoni Group, a global major with its characteristic Swiss sang froid, would mark one of the greatest success stories in the Indian travel industry.
TRAVEL-BUGGED: Zubin Karkaria, MD (India & South Asia), Kuoni, looks to the expanding tourist circuit to swell his company's coffers
It's been a decade since the two companies joined together to form one happy family, but it's not been too easy to begin with. In fact, SOTC tying the knot with Kuoni was such a defining moment in the history of both the companies that their staff went through an identity crisis in the initial days of the marriage. But except for these few nervous moments, one could say the Kuoni Group has never looked back in India.
The proof of the company's success lies in its numbers. Kuoni Travel Group India, a 100% subsidiary of Kuoni Travel Holding, Switzerland, reported a turnover of
Rs 1,500 crore in 2006, a CAGR of 21% from Rs 470 crore in 2000. With 347 offices, 2,900 employees and over three million customers, it is also the country's largest travel services provider, standing tall among its peers such as TCI, Thomas Cook and Cox & Kings.
What has also contributed to the company's success is the benign macro environment. India has been the leading story in the international travel circuit and the numbers from the Ministry of Tourism vouch for it—the country witnessed a 13% growth in total tourist inflow in 2006 with 4.43 million visitors, compared with near 3.92 million visitors in 2005. The travel industry has also made the country's forex kitty swell, with its contribution growing to $6,570 million (Rs 29,604 crore) in 2006 against $5,731 million (Rs 25,172 crore) in 2005, a 14.6% growth. And, naturally, Kuoni is one of the largest beneficiaries of this travel boom.
And what makes the company tick? For one, its drive to dominate the market completely and its fleet-footedness in acquiring companies for the purpose of scale and presence in strategic segments of the industry.
Much of the credit for what the company is today goes to Ranjit Malkani, the former CEO (South Asia and Middle East) of Kuoni Travel Group. Malkani, who forayed into the industry in the late 60s and acquired SOTC in 1981, has many firsts to his name. He was instrumental in SOTC offering packaged holidays as a way of differentiating itself from run-of-the-mill travel agents, a strategy considered too risky by many at that time.
Malkani also organised the company into strategic business units (SBUs), with each unit focusing on a separate market. The SBUs included holiday travel for groups, holidays for individuals, sports holidays and trade fair tours, and were managed by professional managers who ran each SBU as an independent profit centre. Over a period of time, each of these profit centres reported revenues of more than Rs 10 crore.
This made SOTC an Indian multinational in the 1990s, selling products across the world with its market-specific and product-specific SBUs.
In 1996, Malkani joined hands with the Kuoni Group of Switzerland, which picked up a 51% stake in SOTC. The next year, the Kuoni Group raised its stake to 100%, making SOTC a fully owned subsidiary of the Swiss parent.
Kuoni's acquisition spree did not show any sign of abatement, and in 2001, it acquired 100% stake in SITA World Travel. The same year, it also acquired Tour Club, which was dealing with in-bound Middle-East traffic. Around the same time, Kuoni amalgamated SITA and SOTC outbound, to avoid competition in inbound and outbound business.
Sales: Rs 1,500 cr
MD: Zubin Karkaria
Number of employees: 2,900
The company is re-inventing itself—that means innovative strategies, new forays, and M&As—in a bid to achieve its 30% y-o-y growth objective
In 2003, Kuoni bought a 9% stake in Business Travel International Worldwide (Kuoni has since sold its stake in BTI Worldwide while retaining its Indian operations). In 2004, the company acquired Resnet, an online booking engine that offers comprehensive reservation solutions to the hospitality industry, from Traveljini.com (an ICICI-funded online venture).
In July 2006, Kuoni acquired Distant Frontiers, a Delhi-based destination management company. The company now plans to integrate Distant Frontiers with SITA inbound travel, which will position the former as the company's premium brand.
As can be seen, Kuoni has used the acquisition strategy to telling effect to increase its market share and emerge as the industry leader. But like any good investor, the company also has a dynamic exit strategy, as evident from the sale of TravelMate, which it had launched to provide foreign exchange services, to Reliance Capital. In 2001, it had also spun off a subsidiary called VFS (Visa Facilitation Services), providing end-to-end visa services to consulates and embassies based in India.
As the saying goes, success spawns many enemies, and in this case, attrition is Kuoni's nemesis. Says Zubin Karkaria, Chief Executive Officer and Managing Director (India and South Asia), Kuoni Travel Group India: "Our industry is not different and the demand-supply issues are very much there. I invest as much as 50% of my working time towards people because the future of an organisation rests with its people."
There had been instances in the past when employees at the senior level from the acquired companies had left Kuoni to either join competition or establish own companies, directly competing in one or more of the segments. In fact, a few years ago, several of SITA's ex-employees led by the company's promoter Arjun Sharma walked out to set up a rival travel company Le Passage. The company faced a similar situation at Tour Club, too. However, Zubin shrugs off such threats: "People at the higher level would move out due to the attraction of starting their own business and you can blame it on the entrepreneurial spirit of the Indians! As a large company, you would be used as a launching pad by others to start their own business, and as a market leader, you have to accept that and live with it."
Though this approach might sound philosophical, the company has a more practical strategy to tackle the situation. In 2003, Kuoni launched the Kuoni Academy of Travel to blood fresh talent aspiring to make it big in the industry. In fact, the approach is so successful, that Karkaria thinks that it is high time that other industries followed this example (of setting up similar training centres), instead of resorting to poaching.
The company has also put in place the Key Managers Management Development
Programme, wherein the focus is on the top 200 people in the company. Says Karkaria: "Our top management happens to be the highest paid in the industry. This is not because we fear that these people may be poached, but for the reason that they are responsible for delivering the results expected of them." Kuoni also picks the tab whenever an employee enrols for any personal or professional development course.
CRUISE CONTROL: Blue water cruises and adventure sports are the next big thing
The company's management structure, though decentralised, is target-oriented and geared towards achieving specific goals—a 30% year-on-year growth, for instance.
The road ahead
Aware of the fact that it cannot rest on its laurels, the company is also reinventing itself through a host of measures such as devising innovative strategies and getting into untapped territories. In fact, in response to a research carried by the Indian Markets Research Bureau (the research findings suggested that the biggest social desire of a middle-class Indian after buying a house for herself is to go for a holiday abroad), Kuoni pioneered the concept of "Travel Now, Pay Later".
While the booming middle-class, rising disposable incomes and the growing popularity of India as a tourist and business destination—all have become the industry's favourite cliches—will continue to be the prime drivers for Kuoni's growth in the next few years. As a consequence, the company's appetite for acquisitions has become voracious and so has its willingness to consider divesting businesses that the management considers non-core to its strategic objectives. This, and its forays into hitherto untapped market segments, will continue to give the company an edge over its rivals.
In fact, the company has already set the ball rolling. Kuoni India's Chief Operating Officer, Himmat Anand, has said that Kuoni is eyeing three companies currently. A Nepal-based player specialising in adventure tours and two Delhi-based leisure tours firms are said to be among the companies on the company's acquisitions radar. What does all of this point to? A lot of action and a scorching pace of growth, of course!