Russian travel distribution shoots Sputnik-like into a new age

There is a revolution of sorts (if you pardon the expression) taking place around the development of travel distribution in Russia.

Whilst not exactly the so-called “space race” experienced by Soviet Union cosmonauts in the 1950s and 1960s, such is the rapid development of a number of distribution channels that there is a significant reworking of “how it used to be done” taking place in the region.

First of all, Russia-based online accommodation service Oktogo is estimating gross bookings will more than treble next year to $100 million.

The company, which raised $10m in March, is just one of a number of players experiencing massive growth amid a growing middle class as well as increased internet penetration and credit card adoption.

While Oktogo recognises it is in a competitive space, it sees being local as an advantage over international players. The company has formed partnerships with Russian Railroad Service company enabling rail travellers to book its properties and an offline distribution deal  with electronics retail specialist Svyaznoy enabling hotel bookings to be paid for via its 3,200 outlets throughout the country.

The company also has an exclusive offline deal with TCH, an affiliate of Russian GDS Sirena Travel, which acts in a similar way to BSP enabling 7000 agencies to access Oktogo’s product without having to contract with the company.

Founder and chief executive Marina Kolesnik says:

“We know how much business we are losing to traditional agents especially on longer stays as well as for older people because they help travellers with visas so we thought why not.”

A further distinction with online accommodation rivals is in supply with the big international players tending towards good supply in big cities such as Moscow and St Petersburg while Oktogo also targets the tertiary cities because it currently sees its marketing as the Russian traveller.

To that end it would also like to integrate with Russia’s main social networks Vkontakte and Odnoklassniki which are bigger than Facebook.

“Our market is not doubling but growing 80 to90% and as the market leader we have to grow faster than the rest so it’s an exciting opportunity. “

There are issues around visas and credit cards which could hamper further growth but Oktogo feels confident it has a window of opportunity of up to five years to build up the brand and establish itself before rivals such as booking.com can really gain a foothold.

“Booking.com was the first to have their site in Russian but with international OTA’s it’s not just a new market it’s new marketing channels. It takes them a while to grow on Yandex and two-thirds go to Yandex to search rather than Google so to do this efficiently takes a particular skill. The next couple of years are going to be critical in grabbing market share.”

Attracting and retaining the best people is also an issue although Kolesnik believes Oktogo has one of the best teams in the market to help it remain focused and adapt to the changing landscape.

Business travel:

Corporate travel in Russia is also experiencing a huge surge because of the growing economy, developing provinces as well as the knock on from the leisure world in terms of confidence in online.

Galina Barykina, marketing manager for RBT/FCm Travel Solutions Russia says volumes are increasing although at a much faster pace than anticipated. She says business travel within Russia is increasing as well as to and from foreign partners.

“When business travel started in the 90s it was between Moscow and St Petersburg and foreign partners. Now, pharmaceutical and oil and gas industries are growing, there are a lot of resources not saturated and there is a lot of room to grow further and deeper.”

Technology is key to the company’s growth and seen as a competitive advantage in the sector. About 15 to 20 years ago when corporate travel started, agencies competed on better account management but the process is now fairly uniform so technology is critical.

The internet is also key to growth with customers increasingly turning to online. Consumer behaviour is changing and those that used to just search online, are now increasingly happy to book via the web as well. Bank and credit cards are also more popular making online transactions easier.

The development and implementation of online booking tools by corporates is also making the process smoother and creating increasing confidence and trust. Additional travel components are beginning to be booked including hotels and car hire.

Barykina feels the outlook for sector is good notwithstanding any economic crisis and, as long as visa issues are addressed. Other elements such as political tension and fuel prices could also hamper the sector.

 ”The pace of change is good. We are really in a very vibrant environment, we’re not marching forward, we’re running.”

Offline to online:

After 18 years of running a successful offline agency, St. Petersburg-based Sindbad closed its shop doors in October and became fully online.

Boss Rashid Velemeev describes the change in strategy as ‘abandoning what is for what will be’, and the move follows three years of rapid internet growth for the company putting it at one of the five biggest online agencies in the country.

Sindbad, whose target markets include Russia, the former Soviet Union, Europe and Asia, invested in online technology in 2009 and Velemeev says it has grown ten-fold since purely through its own resources.

Turnover in 2012 of $70m is anticipated and monthly visits to its website are 500,000. Sindbad has also developed an iPad application as well similar apps for Android and iPhone with 5% of sales now mobile.

Metasearch sites including Skyscanner, search engine Yandex and Aviasales with Velemeev estimating air sales through comparison sites to be greater than 30% thus creating dependency and pushing down margins.

To help address this Sindbad is preparing to launch a social network-based loyalty scheme which it says will differ to existing schemes in both Russia and Europe.

Research shows the first online purchase for many Russian consumers was a ticket and Velemeev sees room for further growth especially as the rapid increase in the number of credit cards issued continues to drive online shopping.

The tech player:

According to Travelport its Russian business is growing two-and-a-half times faster than other markets. The distribution giant attributes its success to its flexible approach to the market and strategy to develop specifically for its ‘unique travel environment’. The presence of local GDS Sirena Travel and the fact that about three-quarters of air segments are for domestic travel are good examples of this.

Travelport is strong in the online market in the country with 36% of its bookings in Russia coming online. In addition, while the overall travel market has grown 11%, the company puts its own growth at more like 56%.

Marcin Pilarski, Travelport’s managing director for the region says:

“It’s a very exciting region, one of the fastest growing, economies are emerging and we see the middle class growing in power and they have more money to spend on travel.”

The GDS is positive about its future in the region as it continues to focus on its online travel agency business and builds up its presence in the corporate travel market following the launch of its TripGate self-booking tool last month. Furthering its hospitality business is also on the cards as it sees an opportunity to offer b2b hotel content not currently available.

The company also sees potential in further expansion such as the former Soviet Union states.

Jason Clarke, vice president and managing director of global sales, says:

“Travel is still heavily dominated by Moscow but there are strong regions we intend to enter. The natural wealth of these countries is quite significant and relatively untapped. What they don’t have is infrastructure to get those resources out of the ground. Business infrastructure will open up which in turn will open up for travel in and out.”

NB: Russia space stamp image via Shutterstock.

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