Business India Excerpt

When Ashwini Kakkar, executive vice-chairman, bought a majority stake in Mercury Travels in 2006, it was an almost forgotten and a loss-making brand in the travel industry. Today, it’s a different story. Backed by a well-oiled management team, Kakkar’s passion and drive has turned the company into a profitable venture with differentiated positioning in the travel segment. The company has also transformed in terms of reach, technology and newer business models. Right from injecting fresh young blood into the company, growing to about 30 offices across the country and six offices internationally, to the brand being repositioned, Mercury Travels has been transformed today as ‘a one-stop travel shop’ for high-end clients. Its sales have grown from `127 crore about five years back, to `1,020 crore for the year ended March 2012. Mercury Travels has also clocked an ebidta of `10 crore.

Roll back in time, Mercury Travels, a 64-year-old company, has a legacy of its own and a rather illustrious history. It was started in 1948 by the legendary Rai Bahadur Mohan Singh Oberoi, father of P.R.S. Oberoi and founder of Oberoi Hotels. Later, Gautam Khanna (son-in law of Rai Bahadur) managed the company. The business was strategic to the hotel business as it fulfilled the travel and service needs of inbound travellers who checked into the hotel.  Also, tourists who came to Mercury Travels helped fill rooms. It was a rather symbiotic relationship between a hotel and travel company. Mercury did fairly well for a few decades. But, over time, not surprisingly, the focus shifted to the hotel business of the Oberois’.

“PRS, who continues to be chairman on our board, is a passionate hotelier and has developed some of the top class properties around the world,” says Kakkar. “Somewhere down the line, Mercury Travels got left behind. At the time I was on the Worldwide Board of Thomas Cook and it was being taken over by a Dubai-based company. Many of us decided to part ways as the new management was not in sync with our style of working. We were looking to partner with a company and prs was also looking to bring in new people to manage the brand, as it was making losses. We found that Mercury was one of the best companies in the travel domain that had the best service culture of welcoming guests with a namaskar.”

A win-win situation for both the parties as a jv was created, with Kakkar holding 74.9 per cent and East India Hotels owning about 25.1 per cent. Taking complete control over the company, Kakkar and his team spent a few months studying the market and formulating a strategy to move forward. Mercury, then, bore a jaded and worn-out look. Along with some fresh infusion of funds, the new management also decided to bring in fresh people, to inject some youthful energy. It also meant breaking off from being an Oberoi subsidiary to become an independent entity by itself. 

With about 70 people joining Kakkar from Thomas Cook, his core management team consisted of Aashutosh Akshikar, president & ceo; Ajay Bhatia, vice-president & coo; and Nancy Castelino, vice-president, marketing & hr. “Interestingly, we have all worked together for more than 15 years at Thomas Cook and each of us knew the others’ strengths and weaknesses. So, as a team, we work well,” adds a beaming Castelino, who plays a crucial role in training new recruits for the company. Ambitious plans Once the core team was in, there was no looking back and plans were mapped out. As the company grew to 400 employees, the team embarked on a technology revamp. “We realised that there has been a sea change in the way the travel business is now being conducted. So, we got ourselves Reuters terminals for foreign exchange business, developed the rainbow software which is a custom-built, point-of-sale travel software designed to speed up the time taken to complete transactions and increase efficiency, as well as online checks/database that guarantees accuracy and integrity. This software integrates into the Oracle backend financial. We got about 350 computers for our employees. Earlier, Mercury Travels only had two business centres – inbound travels and corporate. We decided to also go ahead with ‘outbound’, ‘foreign exchange’ and mice (meetings, incentives, conferences & exhibitions). Along with this, we added travel insurance and emergency services,” says Kakkar.

Mercury Travels consciously decided to stay away from group tours and focussed only on the higher-end clients. And, with all the business centres brought together, the team chalked out an ambitious path to be a one-stop travel company. “We have created a full line service company wherein we do multiple transactions with the same customer and earn commissions at various levels from hotels, airlines, insurance and foreign exchange,” says Kakkar, elaborating further on the business model. “It’s a composite model. Hotels pass on commissions on sales. Foreign exchange, is a high volume quick-turn business, and we see a lot of growth in the long term. Also, in the business-to-enterprise section, if a company does business of, say, `400 crore with us, we charge a flat fee of about 2 per cent.”

Akshikar, who brought in a rather holistic experience of the travel business from Thomas Cook to Mercury Travels, confesses that it was a rather tough decision on his part to move to a new set-up. “After getting the right kind of people to man our various sections, the next step was to go in for optimum network to garner a good reach,” he recalls. “We went in for total repositioning of the old Mercury brand logo. After the rebranding exercise, we embarked on a major marketing and advertising campaign to be on the clients’ memory. Each year, we spent `10-15 crore on advertising across the major metros.”

Though things were falling in place, the company went through a tough time in 2008, with the major terrorist attacks at the Taj and the Oberoi Hotels. Business came to a standstill and Mercury travels bore substantial losses. “The offices were shut down and we had to operate from an external environment,” reminisces Kakkar. “It was a terrible time and we did incur losses. Clients who were supposed to come never came and we never got the dollars to pay back the bank. Lot of issues cropped up and we had to pump in a lot of money into the company. In fact, it set us back by two years. But we slowly managed to bounce back.” Mercury Travels is based on the concept: ‘Knowledge, Protection and Delivery’. These are the three pillars of the company. “People continue to be our asset,” explains  Castelino. “We spent considerable time and money helping them gain countryspecific knowledge. The detailing too is important, as our experts should know even the finer nuances of destinations. Also, since we deal with high-end clients, protection and security are important. In the first year, we just sent our customers to 20-30 places where we have our contacts. Those are called familiarisation trips, which help in building knowledge. And delivery too plays a crucial role, as a single mistake can be a big disappointment. There can be many issues cropping up, sometimes here might be unavoidable circumstances too, but despite them, you have to ensure that things get done.” Broadening horizons After getting the infrastructure and the right people in place, the challenge for the team was to get the new businesses rolling. As an outbound business strategy, Mercury Travels decided to stay away from the git (group-inclusive traveller) segment. Instead, it decided to focus on the fit (free individual traveller) segment for high-end customers. Also, it soon became one of the few players who have the authorised dealer’s licence for foreign exchange, which is coveted in the industry. “The leisure outbound travel industry has been around for more than 25 years,” says Kakkar. “In 2007, it would have been a tough and challenging task for us to get into group travel, considering that there were already players like Cox & Kings, Thomas Cook, SOTC and Kesari. Also, it required huge investments. Group travel business is a ‘numbers’ business and we would have required more branches and huge advertising budgets. Also, with the economic boom in India, the emerging global trends made us realise that the leadership slot in the individual traveller segment wasn’t occupied by anybody. So, we went ahead with the  positioning that was available for us,” he adds. “In my experience, I have seen that, after a few group tours, clients feel more confident to experiment and travel on their own,” Kakkar further elaborates, throwing light on the global scenario.

“Even at Thomas Cook, we used to get queries from people who had done seven countries in, say, 12 days, but then wished to do only France in two weeks. Globally, we have ‘charter travel’. Today, many charters are coming to Goa for, say, £480, all inclusive. But since India does not have a flexible aviation policy, we don’t have outbound charters.” Over time, the company managed to get into the loop, catering to major companies, as well as high-end clients like cricketers, participants in beauty pageants, industrialists and politicians, who travel exclusively through Mercury. Among its major corporate clients are Hindujas and their group companies, Indian Oil, Ashok Leyland, Indus bank, ,Gulf Oil, Samsung Canon and Ambit Corporation and hospitals. Along with outbound travel, mice has also made considerable progress. “Corporates spend a large amount of money on incentive programmes for their employees. Companies in sectors like telecom, pharma and consumer goods, request customised itineraries. Here, our sales team plays a crucial role in getting the business,” says Castelino. Unlike many smaller companies, Mercury has offices in Hamburg, Frankfurt, London, Buenos Aires, New Jersey and New York. These offices generate business from the region and also support clients going there. The ‘foreign exchange’ department complements the travel business, but is a business centre in itself. “In the early days, it was a challenge for us to set up a full-fledged foreign exchange department,” says Ajay Bhatia, who handled foreign exchange at Thomas Cook. “But, within a year and a half, we were able to upgrade our licence from ‘money changer’ to ‘authorised dealer’. Our team managed to get the documentation together and get a manual ready. As a money changer, we are restricted to few transactions only – such as business travel or leisure travel. But foreign exchange has two components – retail and wholesale,” adds Bhatia. The ratio of wholesale to retail in the foreign exchange business is generally two-third to one-third. Mercury, like Thomas Cook, is one of the few non-bank authorised dealers. Outbound and inbound businesses have their own pattern and seasonality. For ‘outbound travel’, the preferred period is April-June, while for ‘inbound’ travel, it is October-March. It’s a rather cyclical business, but this is where corporate travel and foreign exchange pitch in for the company to make it smoothly functional through the year. “During the recession of 2008 and after the terror  ttacks, we only survived because of our foreign exchange business,” says Akshikar. “Though corporate travel and inbound were down, our outbound travellers were taking foreign exchange from us. In the foreign exchange business, the turnover in 2007 was about `20 crore, which has grown to nearly `700 crore in the current year. It is exponential growth.” Expansion drive Now, in its second phase, Mercury has chalked out an ambitious plan to move forward. The company has embarked on a distribution drive of distinct travel products and modules to travel agents across the country. With these modules, the Class A category of travel agents are also authorised to sell Mercury Holidays.

“In the leisure outbound business, we have country-specific modules and detailed brochures are distributed to our individual customers,” says Kakkar. “These have been created with a lot of care and with the help of our country specialists. If you have a 12 day trip to Spain and Italy, then a three-day trip for you in Venice as well as three days each in Rome and Milan have all been planned out. It has also been worked out whether you want to spend $100 or $300 per day in sightseeing and shopping. The next product we’re looking at is linked to convergence technology. Everything will soon converge onto that one device – be it Internet, social media, mobile commerce. We want travel to be a part of it.”

The Mercury team is also pondering over acquisitions and mergers as a way to move forward. Recently, they acquired a small company named Teztair travel, who brought their people and specialists with them. “We are in discussion with a UK company too, with the idea of acquiring it,” reveals Kakkar. “Also, we have purchased a stake in Explore Travel Channel and have a joint venture with Mercury Himalayan Exploration (MHE), which is headed by Narendra Kumar, a retired colonel and one of India’s best mountaineers, who has many Everest exploits to his credit. We own about 40 acres near Haridwar, where we offer adventure sports, white water rafting, skiing and trekking right up to Everest base camp. In fact, we have our own cottages and tent camps next to river Ganga. Some of our programmes are popular. MHE also conducts ice hockey tournaments and Himalayan rallies.”

So, where does the company see itself three years from now? “We plan to take our annual profits to about `40 crore by then,” says Akshikar. “The scenario in the air travel arena being what it is and considering what’s happening in the airline industry, one wouldn’t want to hazard a guess. But, the stated objective is that we would like our turnover to touch `3,000 crore in the next five years. Our ambition is to be among the top three players in India – currently, we are one of the top Five – along with Cox & Kings, Thomas Cook, Kuoni India and Carlson Wagonlit.” “Actually, we’re the second player after Thomas Cook, if we take in all the four segments together,” contends Akshikar, considering another point of view. “Carlson, which is one of the biggest players in the corporate travel side, doesn’t focus on the other services; Cox & Kings is into leisure in a big way, but is small in corporate travel and foreign exchange; Kuoni exists only in outbound, has a separate division for corporate travel and are almost non-existent in foreign exchange. To add to that, for the fifth year in a row, we have been clocking a 23 per cent growth rate.”

So, does the company plan to go public in the near future? “It’s too early for us to go public now,” replies Kakkar. “Perhaps, later... maybe about five years from now, when we have grown considerably in size.” The economically volatile atmosphere and inflation does affect the inflow of tourists and their ability to buy. “With the rupee weak and the dollar and euro so strong, the propensity of people to buy goes down. A tourist may have bought $1,000, when it was priced `45, but today, he would buy just $650. Also, international airfares have gone up considerably, pushing up the package price by, say, 20 per cent. But, fortunately, since we are dealing with highend customers, we’re still clocking profits,” elaborates Kakkar. With airlines cutting commissions and people shifting to online booking, the nature of the travel business has changed dramatically. “But, at Mercury Travels, we have changed our business model by charging transaction fees and management fees to customers, and implementing better buying,” says Castelino. “As far as online booking is concerned, only simple, pointto-point travel is ticketed on the Web. Nevertheless, we have also invested in technology, which will enable us to undertake b2e (business to enterprise transactions) online. Thus, any which way the situation changes, we are geared to handle it.” In the outbound segment, Mercury plans to open up more offices in different countries. “It’s all about relationship management – which needs to be co-ordinated at various levels,” says Castelino. “The customised itinerary has to pack the best experience and, for this, we work closely with all the National Tourism Boards. We have recently done  jointpromotions  with Australia, Switzerland, Japan, Ireland, Korean, Canada, Sydney and Singapore.”

Product training continues to be an important element for the company. Employees are encouraged to attend the courses designed by each national tourism board to get certified. “People are our real assets and it’s the passion for the business that drives it. The challenge is always finding the right people, who are ready to upgrade themselves, learn, acquire knowledge and build  contacts,” contends Kakkar.