NB: This is a guest article by Valentin Dombrovsky, CEO of Travelatus.
I was inspired to write this article following an online travel panel at a recent conference in Moscow.
After covering off the startups in this piece, I wanted to include intelligence from speakers on the panel (including representatives of leading Russian online travel companies).
They provided interesting insights on the market which I’ve combined with some further statistics to give a picture of the Russian online travel market (and Russian travel in general).
Russian travelers spend about 16 billion dollars a year on travelling abroad. What’s more interesting is that the online share of this large market is really tiny – about 2 % of transactions are made online, so the potential of the market is really huge and itâ€™s expected to grow fast.
A further peculiarity of the market is that most of travel abroad is done via buying package tours (people have become accustomed to it since the 1990′s when it was easier to come to a travel agent than find a hotel, air tickets and additional services independently).
The leading online air tickets seller is OneTwoTrip which sells about 4000 air tickets daily (with gross value of US$420m a year) while Booking.com holds the leading position in the online hotel market with gross booking value estimated to be about $2bn.
Also noteworthy is that, according to Euromonitor International, only 4 % of Russian travelers abroad are business travelers â€“ others are leisure travelers.
Russian travelers preference is for the Ukraine, the leading country in terms of quantity of leisure travelers. The strong historical connections between Russia and Ukraine mean a visit to the Ukraine isnâ€™t even considered as a trip abroad by most Russians. The Ukraine is followed by Kazakhstan, Finland, Turkey and Egypt.
Investments and Startups in the Russian Online Travel Market
There have been a number of large investments in companies that work in the online travel market in Russia. Oktogo raised $15m, Onetwotrip managed to get $25m recently while Ostrovok got funding of $35m.
Investors include funds from Russia and abroad. For example, for Oktogo, they were VTB, Mangrove Capital Partners, Ventech and ABRT with CEO Marina Kolesnik stressing the importance of experienced investors who can not only provide funds but also help in terms of business advice. A balance of international investors and local investors is also important.
According to Ostrovok’s Serge Faguet, Russia is a very good market to be a startup in – there is a lot of technical talent (Ostrovok managed to gather a large team of 250-300 people in short period of time, about 60 of them work in engineering and product team) and there is a lot of potential for new partnerships – there are 12 to 15 thousand hotels in Russia but only several thousand of them are connected to any distribution system, so it’s easier to bring more value to the rest of them.
Right now itâ€™s hard for new players to enter the online air ticket segment or the online hotel booking market without the large investment that is needed for the marketing, development of new services and bringing new value propositions for clients as well as working with hotel partners, for example.
So, a good way is to look at niches that are relatively untapped in Russia right now â€“ itâ€™s inspiration, the social and planning part of online travel market. There are also gaps for companies looking to offer inventory besides hotels, air tickets or car rental and Excursiopedia is a good example.
In general, the Russian market is a good place to start as the technical talents in Russia is seen as a competitive advantage in terms of international expansion and working on a global scale.
The online panel discussion also includedÂ Djois Franklin Sronipah, board member, Anywayanyday,Â Katrin Buckenmaier, CEO, Travelmenu andÂ Maxim Karaush, executive director at OneTwoTrip.
With all this said there are still some obstacles to overcome in the Russian online travel market. People are still too used to offline payment methods and are not used to independent travel preferring package tours from tour operators. People are also used to a small number of destinations and are not eager to explore new ones. There are language barriers that make independent travel hard for many.
I think that major Russian OTAs need to make some strong marketing efforts in order to change peopleâ€™s habits. With new generation of travelers growing up in Russia we can all hope that the disruption of the travel market is soon to come.
NB:Â This is a guest article by Valentin Dombrovsky, CEO of Travelatus.
NB2: Passport image via Shutterstock