BR Research recently met up with Shazil Mehkri, CEO and a co-founder of Sastaticket.pk, which is an online travel startup that makes bookings easy for Pakistani travelers. We talked about the start of e-commerce travel and tourism in Pakistan.
Here are edited excerpts of the interview
BR Research: Let’s start with the history and background of Sastaticket.pk. How did you start?
Shazil Mehkri: It is an online travel startup that makes travel bookings easy and transparent for Pakistani travelers where we connect travel suppliers with travelers. We have been around now for about 2 years. We actually started operations in September 2016. We offer flight tickets, hotels bookings, trains reservations, so you can pretty much book your plans through us.
We have a background in the travel industry. Quality Aviation is one of the larger travel companies in Pakistan and has offices in Karachi, Lahore, Islamabad, Faisalabad etc. I was the Executive Director there. It is a family business that was started by my father and is being run by my brother who has a stake in Sasta Ticket as well. Quality Aviation specialises in business travel and has been in the business for over two decades and I have been in the business close to ten years now.
BRR: So your business is in competition with the family business and other travel agencies?
SM: Many people assume that but we don’t look at it that way. We had been talking about online travel for many years. Since we have lived abroad and experienced it, we knew it would come to Pakistan some day and impact our business.
We grew confident when Daraz and others came around. Pakistan has international venture capital money coming in and they have been spending ad money to educate the market. We thought that now there was no reason why online travel can’t take up a big share of the e-commerce market.
Coming to your question, it is a matter of the big picture. Quality Aviation’s target market is different; it is more business/corporate based. So even if we cannibalise some of its business, on the whole Sasta Ticket allows us to reach a much wider audience.
BRR: And how much growth have you experienced over the last two years?
SM: Year on year growth of our top-line been 88 percent and orders growth has been 128 percent. But again, even if these numbers seem decent by a traditional business standard, we feel these numbers are a bit subdued.
Though we have invested a lot, we have had a tight budget. So keeping in mind the potential e-commerce market and the number of consumers in the digital space looking to purchase now, we believe these numbers were achieved despite us, rather than because of us, since we have been very careful with our digital marketing expense.
BRR: Can you give an idea about the size of your business?
SM: In terms of the number of people coming on the website, it is about 150,000 a month. The conversion ratio is about 1 percent of that. Going forward, we see no reason why we shouldn’t have a million users coming to our website a month.
BRR: What have been your major costs/investments?
SM: Right now our team comprises of 29 people with a large number of them working on our call centre. When we started off, there was myself and one other employee that we inherited from Quality Aviation.
Travel is a very capital intensive and high-touch business. Since we are promoting online the assumption is that we wouldn’t need so much personal touch or support but that is not the case in Pakistan. Whoever is coming into the online space right now has to spend a lot of time, money and resources supporting the customer, as well as marketing.
We have commercial contracts with all our suppliers and that is how we make money. Sasta ticket is a separate company from Quality Aviation, but we are part of the same group so we have contracts and contacts in place. We are a startup, but we are a very privileged startup in the sense that we have a fairly significant support and structure that other startups may not have.
BRR: What is your marketing strategy?
SM: For the last two years, about 98 percent of our marketing has been purely online. Over the next 18 to 24 months, we now have plans to scale our business so we will be using offline ads. We hope to grow our top-line numbers by about 400 percent. Right now our base number is not so large so we can achieve this rate.
BRR: How big is your target market, and how do you differ from a conventional travel agency?
SM: We don’t do business travel or corporate customers. We don’t give credit so that is a big difference between us and a traditional travel agency. Our target market today is exclusively the direct consumer, people from the ages of 21 to 55.
There is a very large market that is not business travel. About 50 percent of Pakistani travel market is umrah and hajj. The second largest category of Pakistani travelers is basically labour, people working in the Middle East. Then comes business travel and then retail travel. These people are our focus.
BRR: In your opinion, how big is the online travel market?
SM: The challenge in Pakistan is that there is no real or authentic source of such data. As per Civil Aviation, in 2016 there were 6.9 million domestic travelers and 12.7 million international travelers. We think that Pakistani airline market is close to $2 billion and its growing at 9 percent. The entire travel market size, trains, buses, and hotels included, is probably touching $3 billion.
BRR: These figures are for mostly traditional, offline travels. What is the potential for e-commerce in this?
SM: The end traveler in the airline industry is already quiet used to buying tickets online. There is no reason why, let us say 10 years from now, 50 percent of the travel market shouldn’t be online. The market would easily be over $1 billion.
BRR: Do you expect an increase in competition going forward?
SM: The travel business is generally not a very high barrier-to-entry industry; there are thousands of traditional travel agents. However, online travel agency is a capital intensive business as it requires a lot of specialisation. And it is not a really profitable business in the short or medium term.
E-commerce is not an easy business to enter. People assume that they can set up an online shop with one or two people but when one gets deeper into it, there is a whole world of complexity there. We hear there are other online travel agencies coming up, but we are not too worried about competition. We are in a good spot right now because we invested at a time when others hadn’t.
BRR: What are your demand drivers?
SM: Price point is one. As competition in the airline business increases, prices come down and more people can afford to travel. Obviously, right now since the price of oil has gone up, air fares will increase as well. But competition helps - Serene Air is a positive addition to the industry and we are expecting other airlines to launch.
Travel has become a necessity now, but still the government taxes air travel as a luxury item. I assumed this classification took place somewhere in the 1970s. That just shows that regulations have not taken into account changes that have taken place in the industry.
BRR: What other regulatory issues do you face?
SM: One challenge is the mindset of regulatory bodies and the government. They expect the travel agency to actually be a screening point. If a travel agent has issued the ticket, he is responsible for screening that traveler, which makes absolutely no sense.
We are not required by law to do so, but we are expected to. A criminal with a valid passport can walk into an agency and buy a ticket. And then the authorities might come to you and ask questions when technically it has nothing to do with you.
BRR: How has the tourism industry fared over the last couple of years?
SM: I think tourism has definitely grown as security has improved over the last couple of years. A million people went up north over the summer last year, as per some number from the government. This will continue to grow, but one hopes that there is planning going on at the government level in terms of logistics and infrastructure. For sustainable tourism, those areas need to be built to accommodate more people without damaging the environment and its beauty.
BRR: Do you see the government working towards promoting tourism?
SM: The good thing is that the PTI government in KPK seems to understand the potential of tourism. They are the only party that talks about tourism; it is part of their core tenets. And they have worked a lot in that area in KPK over the last couple of years. If they win national elections, it is part of their 100-day plan as well.
Research has shown that countries with a healthy tourism industry get a very high return from it. You have Thailand and Spain that are very tourism based, and it is good to see that PTI at least wants to try to capitalize on the assets we have.
BRR: What are the biggest hurdles towards growth of tourism?
SM: The biggest is definitely security. And after security I think it comes down to our governance and how well we manage our assets.
BRR: Has there been any CPEC impact on your business?
SM: We have been pleasantly surprised that we have a lot of Chinese travelers using our platform.
They are used to booking online. My impression is that they generally have a lot of trust issues due to multiple reasons such as communication barriers etc. Or they might not trust traditional agents. So they use our platform not only for domestic flights but also for flying back to Beijing or Shanghai. The impact of the Chinese consumer has been positive and will surely increase down the road.