Launched in 2009 as a hotel booking engine for travel agents in Russia and Ukraine, Travelmenu.ru has grown into a major online retailer of package tours, a segment that represents more than 85% of the total outbound travel market in Russia. The site has served more than 250,000 travelers to date. Travelmenu has just announced it raised an additional $1 million from its existing investors Almaz Capital and Runa Capital, bringing the company’s total financing to $4.6 million.
The Russian online travel service market is young, but developing very rapidly. Could you remind us of the main trends and specificities?
In our estimate, based on data compiled from reputable sources, the Russian online outbound travel market is expected to grow ten-fold by 2015, to amount at least $7 billion, representing more than 15% of the total outbound travel market. This represents a vast market opportunity.
One specificity of the Russian travel market which is often misunderstood by foreigners, is its dependence on package tours. While in the US and many Western European countries, with the notable exception of Germany, outbound travel is arranged mainly through direct bookings with hotels and separately with airlines, in Russia there are major price advantages for consumers who book their travel through package tours. This holds particularly true for key holiday destinations.
These price and product advantages are here to stay, but currently over 85% of outbound travel is locked-up and carried out by a few tour operators, such as Tez Tour, Coral, and TUI.
We believe that the online travel market, which has so far been dominated by airline ticket sales, is now ready for the sale of more sophisticated and higher value package tours. We expect them to represent at least 20% of online outbound travel trips by 2015.
What are the key drivers, and obstacles, of further growth?
Online travel adoption is a function of Internet penetration. We strongly believe that the Russian market will follow the same trajectory as other advanced internet economies – or perhaps an even steeper one.
Consumer demand for online products and services is now closer than ever to reaching a tipping point in the metropolitan areas of Moscow and St. Petersburg and it is only a question of time before the rest of the country will follow suit.
In Russia as elsewhere, the Internet simply offers the consumer too many advantages – price transparency, easy product comparison, and 24/7 shopping without the need to leave the home, to name a few.
Payments are another point of convergence. While cash as a payment method remains prevalent, we are already seeing 40% of our orders paid for by credit and debit cards. This percentage has risen significantly in the last 6-9 months. All e-commerce companies are working together to develop consumers’ trust in the Internet as a transaction platform.
Another interesting statistic we have seen is that Russia’s emerging middle class is estimated to make up approximately 68% of the total population, versus 31% in Brazil, 13% in China and only 3% in India. Inflation-adjusted per capita GDP is rising rapidly and hence so is the ability for consumers to increase their discretionary spending on travel and entertainment related products and services.
What are Travelmenu’s distinctive advantages? Can Travelmenu effectively compete with more specialized players such as Ostrovok or Oktogo, for example, which specialize in hotel booking?
For most travelers, booking their summer or winter holidays is both a stressful and time-consuming process. There is simply so much choice and it is extremely difficult to compare destinations and prices. Travelmenu wants to give the Russian traveler the power of choice by simplifying the labyrinth of travel products through smart search options and the best possible online content for travel destinations.
Today Travelmenu has a larger database of hotels available online than any other online travel agency – and at better prices. We offer access to over 40 tour operators online and we’re increasing this number monthly. But our real differentiator is that we are the first Russian online travel agency to offer real-time booking of package tours, and we are extremely proud of this achievement.
Having said this, Travelmenu will of course continue to also provide stand-alone hotels and flight tickets.
Our focus on outbound rather than domestic travel is another clear differentiator from some other Russian travel start-ups. Moreover, we want to make it affordable for the Russian traveler to explore the world beyond the beaten track of Egypt, Turkey, and Thailand.
Oktogo.ru allegedly just raised $10 million from VTB whereas Ostrovok.ru completed no less than three rounds over the last year. Anywayanyday and Jizo are supported by powerful investors. In this race, Travelmenu’s financing looks modest. You have raised $4.6 million until now, is that sufficient?
Travelmenu’s existing investors – Almaz Capital Partners and Runa Capital – have just provided another $1 million to the company to improve the IT back-end and website usability. We are in ongoing conversations with a number of investors for substantial financing to be completed later on this year. The use of these funds will be primarily geared towards marketing and will be substantial enough for us to compete effectively in the emerging online travel market.
Particularly due to our different focus – i.e. on outbound travel and package tours instead of domestic travel and hotels – we consider Ostrovok and Oktogo to be potential future partners rather than competitors by supplying additional Russian-based hotels to us. Travelmenu’s competitors are primarily the offline travel agencies currently selling package tours.
Is it easy for a foreigner to manage a startup in Russia?
Having lived in many different countries and experienced many different cultures, I have found that there are many more things which unite us than that drive us apart – and I am not just saying this to be politically correct.
Of course there are some cultural differences, but Russian culture is not as different from European culture as let’s say Japanese or Chinese culture, and it has been easy for me to feel at home in Moscow.
While as of now I continue to be the only foreigner at Travelmenu, the team and I communicate in English. My Russian is continuously improving, despite it taking longer than I would like and me still being quite shy about speaking.
In terms of how Travelmenu is run, I do not see how it is any different from how it would be run in Europe or the US. It is a workplace filled with exactly those highly-skilled, entrepreneurial, and ambitious people, which makes Russia such an exciting market to be working in today.
Have you experienced significant cross cultural issues while working here?
The Russian online and technology landscape is filled with talented and highly skilled young people and hence intercultural differences are not as pronounced as they might be in other industries, such as oil & gas or banking. I for one have not encountered many situations of intercultural misunderstanding that could not have been avoided if not for the language barrier.
As for foreign specialists, they can be helpful if they have the relevant work experience and an open mind about adapting their skills to the Russian environment. Given the nascent nature of the Russian online market, of course there are many lessons to be learned from success stories (as well as failures) of online startups in other countries. However, I believe that often ‘what got you here, doesn’t get you there’ and hence what is more important than strict adherence to what has been learned from previous experiences is the mental flexibility to adapt to a constantly changing market environment while selectively applying the lessons learned in the past.
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