MakeMyTrip Ltd (MMYT) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the MakeMyTrip Limited Q2 Fiscal 2018 Earnings Call.

(Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr. Jonathan Huang, Vice President of Investor Relations.

Please go ahead.

Thank you.

Greetings and welcome everyone to MakeMyTrip's fiscal 2018 second quarter earnings call.

We wish to remind everyone that certain statements made on the today's call are considered forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future performance and by their nature, are subject to inherent uncertainties.

Actual results may differ materially.

Any forward-looking information related on this call speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances.

Additional information concerning these statements are contained in the risk factors and forward-looking statements section of the company's annual report on Form 20-F filed with the SEC on July 18, 2017, and copies of these filings are available from the SEC or from the company's Investor Relations Department.

On the call today, are Deep Kalra, our Founder, Chairman and Group CEO; Rajesh Magow, Co-Founder and CEO, India; and Mohit Kabra, our Group CFO.

And now I would like to turn the call over to Deep to start off the discussion for today.

Thanks, Jonathan.

And welcome everyone to our second earnings call for fiscal year 2018.

I'm sure everyone on the call is keenly aware that India remains one of the fastest growing large economies in the world with a commensurately rapidly expanding travel market.

As we complete the first half of fiscal year 2018, we continue to see strong demand for domestic air and hotel bookings across the country.

A recent HVS research report showed creative hotel occupancy rates across all major parts in India.

At the same time, we are seeing strong interests for international outbound travel from new and existing users.

With this strong travel demand backdrop, we are further improved by the latest estimates of Internet users in India.

The latest projections estimate that India has over 430 million mobile Internet users, a base that's second in size only to China.

More encouragingly, the current base of Internet savvy users who book and pay online is estimated to be in the range of 50 million to 70 million users, thereby providing us with a long runway for growth.

During fiscal Q2, the MMYT group continued to drive tremendous online scale and reach within India's travel market.

For example, our total unique visitors have now surpassed 154 million and we have a base of over 27 million transacted customers.

Additionally, our cumulative app downloads have crossed over 101 million and we have over 87 million monthly shopper visits and over 15 million monthly active users accessing our brand.

We believe the strong brand recall is largely driven due to the high volume of transactions executed through our platforms and our focus on providing the best pre- and post-sales experience to our customers.

Furthermore, we are also constantly driving the offline to online behavior shift to targeted campaigns and addressing any hesitations customers may have with booking online.

We believe as market leaders, we need to invest behind driving the changes, which will help grow the overall online travel industry's addressable market.

For example, we continue to use mass media campaigns to drive increased online booking behavior, particularly focused on Tier 2 and Tier 3 cities within India, where smartphone adoption and Internet usage is relatively low, but being aggressively promoted by the large telcos.

Among other things we have been focused on, is driving higher customer loyalty.

Last quarter, we introduced our newly revamped loyalty program called MMT Black, where enrolled members can earn wallet credits based on how much they spend with us.

I'm excited to share that more than 73,000 have enrolled already in the program and we are seeing higher repeat rates that improve NPS scores from this call.

Last quarter, we've also launched a new paid membership program called MMT Double Black, aimed at acquiring new high frequency travelers.

Enrollees of Double Black will receive benefits including free cancellation of flights and hotels and also auto enrollment into our MMT Black program.

Currently this annual pay subscription program is still in its invite-only phase, but we have already had more than 16,000 enrolled and have been seeing improved NPS scores from this growth.

Going forward, we plan on making both loyalty programs smarter, more personalized, and even more rewarding for our members.

Last quarter, we announced our entry into the small corporates of SME travel market with the launch of MakeMyTrip MyBusiness app.

I'm pleased to say that traction from this initiative has been strong as today we have a growing base of 2,000 plus small companies who have transacted with us for travel to over 335 cities and towns across India.

Similarly, brand Goibibo has also rolled out its own SME focused program called [GoBib].

Our innovative corporate solutions offer our registered customers unique travel deals, while helping the finance teams easily track and manage travel spend via tech-enabled solution.

We are very excited to see this level of success so early on, which was achieved with zero marketing dollar spent on physical sales force utilized.

As a result of the traction theme, we remain highly optimistic of the long-term growth opportunities from this SME segment.

Now I'd like to share some of our latest developments across our all important mobile platforms, where nearly 79% for our India standalone hotel reservations were made, 59% from domestic flight bookings and over 74% for intercity bus ticketing (inaudible).

Our aim is to make our mobile experiences more personalized , highly relevant and the primary way for customers to search, shop and receive travel support from us.

During Q2, I'm excited to share that we have introduced GIA or G-I-A, our new AI powered port on brand Goibibo.

GIA's conversational base engine is live on our native IOS app, WhatsApp and Facebook Messenger, and is helping us increase the use of automation to offer consistent and around-the-clock availability for our customers of this need.

Furthermore, customers of our 3 brands are now able to the receive and officially use their e-tickets at the airport that were delivered via WhatsApp, which is India's most popular chat app with over 200 million users.

This feature was made possible as our development team harnessed the capabilities of the Whatsapp business API, which has resulted in immediate improvements in customer satisfaction.

We believe we are the first travel company ever to deliver e-tickets to customers via this messaging application.

In closing, I would just like to reiterate our optimism for the large and fast growing online travel market opportunity ahead of our company.

With our portfolio of well-recognized online travel brand, coupled with our culture of rapid innovation as dedicated solely to helping travelers discover, plan, book their journeys as effortlessly as possible, we believe MMYT is well poised to achieve sustained high growth and widen our leadership in the Indian travel market that's expected to exceed $23 billion in online bookings by 2021.

Rajesh will now share more details of our business accomplishments in the quarter, followed by a financial overview by Mohit.

Over to you, Rajesh.

Thank, Deep and hello everyone.

I would like to begin by highlighting our accomplishment achieved in the first 6 months of the fiscal year.

I'm pleased to share that we have reported gross bookings of nearly 2 billion and over $280 million revenue, in revenue less service cost or net revenue.

Additionally, the contribution of hotels and packages to total net revenue reached over 57%, well on track to represent more than 3 quarters of the contribution mix, a key benchmark of our long-term strategic plan.

We also achieved more than 11.4 million actual room nights stayed across our entire hotels and packages business, which we believe is unrivaled by peers in our market.

In Q2, our India's standalone online hotel room nights stayed also increased by nearly 29% year-on-year on pro forma basis.

As for our air ticketing business, we have logged more than 15.5 million flight segments alone by our customers since the beginning of the fiscal year.

In Q2, our air segment's growth of nearly 15% year-on-year on a pro forma basis continues to underscore our leading domestic air market share position, even as we rapidly drive higher online outbound flight booking.

Lastly, our bus ticketing business continues to expand rapidly with more than 19.3 million tickets traveled, and increased by over 45% year-on-year in the fiscal second quarter on a pro forma basis.

During the seasonally slow second quarter, our team drove rapid innovations and process improvements in order to deliver a customer experience with our brand that is better than before.

We also took great efforts to deepen our relationships with our supplier community, which is instrumental to our success given the fragmented nature of the hotel landscape.

In Q2, we sharpened our focus on providing customers with a richer and more personalized experience when they shop across our brands and channels.

For example, the landing pages for domestic hotels are now customized based on user search preferences and past and existing bookings making user experience better and more fluid.

We also upgraded and personalized the booking funnel experience by earning contextual triggers to help increase conversions and effectively showcase key amenities to drive bookings of higher-end hotels, helping us improve unit economics within the hotel segment.

Similarly, the Goibibo hotel booking experience has been enhanced to require less inputs from users upfront.

We have also enabled the ability to book multiple room types, including varying hotel rate plans, all within a single transaction, which has helped improve the average room night for transaction dramatically.

To further delight our customers, we rolled out a new service guarantee called MMT Promise, where if a customer had made a flight or hotel cancellation, we pledge to refund the money by a certain time.

If we don't, we will pay a higher refund amount for each hour cost, the promise to refund time.

We believe this will help reduce further hesitation of first time online bookers, while helping to solve a salient pinpoint which most Indian e-commerce shoppers can relate to.

As for Goibibo, we have introduced a new flight cancellation for [texting product] which has also improved convergence.

While lots of emphasis was placed on customer experience enhancement, we also kept improving the experience for our hotel supplier partner and making their life easier.

Last quarter, we announced that we had completed the roll-out of a single common extranet platform.

Good news is, our suppliers are beginning to realize the benefit gained by more effectively leveraging the powerful tool to maximize returns on their properties, manage complexities of GST compliance, tailor-supply to customer promotions based on real-time, competitive intelligence, and react to real-time customer feedback.

Furthermore, our assets like Assured Hotels and GoStays, operating models are also helping budget hotelier, scale up their customer experiences without the need to relinquish control of their properties or experience brand valuation.

In the quarter, we continue to deepen our business relationship with our group of 45,000 plus domestic hotels and 13,500 alternative accommodation across India.

As a result, an overwhelming majority of our domestic hotel partners are seeing incremental room night bookings, while listing and distributing through our platform.

With more 1/3 of these properties, seeing an average more than 100 room nights a quarter.

We believe our reach and depth within the domestic online hotels business continues to provide us with a strong competitive advantage relative to peers.

Now I would like to make a few remarks on our India's sourced air ticketing business, which continues to witness strong growth relative to overall market trend, as we kept investing to drive market share gains primarily in the outbound air ticketing segment.

We believe there is still tremendous headroom for growth in the coming years within the outbound air ticketing segment and are excited to keep driving high convergence going forward.

During the quarter, in line with our strategy, we have also maintained our leading domestic air market share and made numerous enhancements to our customers' experience to improve convergence.

For example, we have ramped up the roll-out of our price prediction tool across all our online channels, both desktop and mobile.

We've also added the ability for customers to select fee and pay for checked bag, via our Android app.

Our team has also revamped the shopping review page to include 3-year flight wallet credit or pre-filled with the best possible coupon for a particular customer, thereby reducing friction within the funnels.

Lastly, let me share some highlights of the redBus business where we are positioned to drive rapid growth in this largely offline market.

In Q2, our team has continued to see high growth coming from all geographical regions within India.

We have proprietary life tracking of over 10,000 buses across various bus operators, which is extremely useful for Indian conditions.

On the back end, we also launched a new platform that helps bring new products and features more rapidly than before to our customers.

Further, we have improved the redBus post-sales support with more contextual sales modules, increase nearby search options to capture more customers, and added new payment options available from UPI, Google and Amazon Pay.

We've also been ramping up the best suited budget hotels for our customers traveling by bus.

Going forward, we will continue to leverage this segment of the travel market to expand our market base, which should provide another leg of long-term growth as areas outside of top metros move online and increase their travel frequently.

Now, let me hand it over to Mohit, who will share more details of the quarter's financial performance.

Thanks, Rajesh and hello everyone.

I would like to begin with a quick recap of our 3 strategies and financial priorities for this fiscal year, along with a brief update on the progress made on them during the quarter.

Our top priorities included driving strong year-on-year growth, as well as reducing operating losses via improved operational efficiencies, particularly on customer acquisition spends.

Let me now share the progress during the quarter on these key priorities.

While growth has been an overarching priority, we have been targeting not just transaction growth, but equally strong growth in gross booking values and net revenue.

As listeners would recollect, fiscal Q1 of this year was the first reported full quarter post merger of the Ibibo Group with MakeMyTrip.

In the second full quarter post the merger, I'm pleased to inform that we have seen growth accelerating despite this being a seasonally weak travel quarter.

While in the first quarter of this fiscal year, we reported net revenues of $141.2 million with a 135% year-on-year growth and in this seasonally low travel second quarter, we report net revenues of $139.2 million with a year-on-year growth of 156.5% on constant currency basis.

This acceleration in growth was a result of implementing a comprehensive multi-brand strategy wherein each brand would continue to leverage its relative strength in each unique customer segment.

In terms of adjusted operating losses, while we reported losses of $25 million in Q2 of fiscal year 2017 versus $24.3 million in Q1 of fiscal 2017, in the fiscal year that is pre the Ibibo Group merger, this year we report reduced losses of $45 million in the second quarter of fiscal year 2018 compared to $52.3 million in adjusted operating losses reported in the previous quarter.

We believe the performance in the reported quarter has helped validate our ability to drive growth with improved efficiency as a multi-brand platform post the merger and it encourages us to accelerate these efficiency gains in the quarters to come.

As highlighted by Deep and Rajesh, our multi-brand strategy has helped us stretch our offerings to a wider cross-section of customers across varying price points and service offerings.

This has allowed the group to generate over 20 million transaction in terms of about 7.7 million A segment, over 5.6 million stayed room night, and nearly 9.7 million travel bus ticket, and also helped us report gross bookings of $1.07 billion during the reported quarter.

MakeMyTrip group during this current fiscal year has emerged (inaudible) a few Indian e-commerce companies, it's quarterly gross bookings excluding $1 billion, indicating the significant scaling up of the business over the last few years.

In the strategically important hotels and packages business, [created] by the Ibibo Group of consolidation, hotels and packages room nights have increased to 5.6 million room nights, which is a year-on-year of 140.2% in the reported quarter.

Within this, the standalone hotels booked online room nights have grown to 5.4 million room nights at a growth of 185.9% on a year-on-year basis.

It would be relevant to call out that room nights in the premium segment of hotels, registered the highest growth as a result of which our average selling price has improved to about $61 per room night compared to $56 per room night in the same quarter last year.

Aided with improvement in net margins to 23.1% for the H&P segment, our net revenues stand at $79.2 million for the H&P segment, which is again 80.4% year-on-year growth in constant currency basis, and at a pace faster than the growth in room nights.

Moving to our air ticketing business, despite a seasonally weak travel quarter, our air segment stood at 7.7 million in quarter 2 compared to 7.8 million in the previous high season quarter, and reflected a 64.6% year-on-year growth over the reported quarter 2 of last year.

With small improvements in the air margins, the net revenue for the reported quarter at $47.1 million was slightly higher than the $45.6 million reported in the previous quarter, reflecting close to 95% year-on-year growth in constant currency terms.

In line with our expectation, the international segment grew faster than domestic segment and we registered 91.6% growth in international segment on a year-on-year basis.

In Q2, our other business segment reported net revenues of $13 million, majority of which was driven by the net revenue contribution coming in from the redBus business and travel insurance sales.

As I just mentioned, our adjusted operating losses for the quarter stood at $45 million or 4.2% of those bookings, which is approximately an improvement of over $7 million compared to the previous quarter at 4.5% of gross bookings.

This was largely driven by about $6.5 million reduction in marketing and sales promotion expenses in comparison with the previous reported quarter.

This is in line with our strategy of continuously building efficiency in our customer acquisition expense, while driving scale and growth, particularly in the hotels business.

With this, I would like to thank you for joining this call and open up the call for Q&A.

Operator, please.

Thank you.

(Operator Instructions) And our first question comes from Gaurav M from Citi.

Just a couple of questions.

Can you hear me?

Yes, about.

Just about.

I'll try to be loud.

See your standalone room nights growth on a pro forma basis was around 36% last quarter.

It has come down to 29% this quarter.

So just want to get a sense as to, given that we are still fairly early in terms of penetration, why has it -- in a steady decline in the growth rate and that's my first question, please.

Largely as I called out, Gaurav, the focus has been on also kind of improving the mix of room nights within the overall room nights that has been clogged, and therefore, the focus has kind of shifted from growth across segments to growth largely being driven from the premium segment.

That's one of the reasons for the small tempering that you see in growth in the current quarter.

Again, this was -- it would more be a practical quarter kind of a thing considering that this also happens to be a low season quarter.

So this is not something which is like a change in strategies that you will now start focusing more on the opinion, but there's less on the budget hotels.

This is just more (inaudible) is very slow in that front, is that correct?

Yes, Gaurav maybe I can just add to what Mohit said.

No, you're right, it's not that we are shifting our strategy to stay -- move away from growth focused on this domestic segment, as you rightly pointed out, it is an anti-penetrated segment, and also our strategy remains to focus on all segment of hotels and potentially alternative accommodation as well.

But I guess, what Mohit was trying to say was that, given that we also want to make sure as we have looked at post merger, both the brands more deeply in terms of looking at the economics of the business, and we are also rationalizing promotions and discounts et cetera, so it might so happen in a particular quarter, especially in a low season quarter where we will try to tactically kind of optimize the spend, not necessarily completely go overboard going after room nights et cetera.

And they kind of try to meet the dual objective, which is continue to keep growing, but also get kind of high-quality growth if you will.

And you will see our focus on growth, this will continue, but at the same time, we would also, like I said, would like to rationalize the promotions in a way that we continue to kind of keep improving the economics as well.

And Gaurav, if I can just add, this has been, what Rajesh mentioned has been amply kind of played out.

If you look at the increase in ASP, that's over 11%.

So then, overall, the revenue growth is actually higher and -- with that focus.

And I think what is not odd, it's pretty clear that the loyalty in the higher end of the sales is also higher, whereas the liquidity or the propensity to move away when there are discounts in the lower-end hotels, we have seen to be higher.

So this is part of that, but it is I don't think anything which should be red-inked towards that trend going forward.

Just a follow-up on the seasonality you see in this slow quarter, last quarter adjusted for -- what adjustment you made in as part of the accounting standard, your marketing and sales promotion was around $142 million in 1Q '18.

I know that this is a slower quarter in 2Q [with same] adjustment, then it's like [$136 million].

So I would have assumed that you know the marketing would have sort come off a little bit more given that it is a seasonally slow quarter.

Yes, Gaurav we also looked at it and timed up with the revenue growth, see the revenue growth kind of -- it continued to be strong as well and to that point, that revenue growth hasn't been in line of the 29% line, but overall the revenue growth is much higher.

And just last question on the overall competitiveness in this sector, if you can just give us some thoughts on how you're seeing the likes of Paytm, OYO, booking.com, these players.

Yes, sure Gaurav.

So Gaurav in the high-end segment we definitely are seeing booking.com more so and I think there has been an increase I think in a gradual, but in a very measurable manner we are seeing more of booking.com.

Paytm we don't see much on the hotel side, actually hardy at all, but very active on the ticketing side, airbuses as well as rail, and OYO as you know, have been active on the budget hotel side and they have some variance out there, but essentially all in the budget still and we are seeing them.

The other brands were also there, but from a hotel point of view, we are largely seeing booking in the higher end and OYO in the lower end hotels as the main competitors.

We see Yatra and Cleartrip a bit as well.

But this would be the main brand.

And in terms of, when you say you're seeing booking getting more and more into the high-end hotels, does it -- is it in terms of either giving higher discount versus last -- previous times or how are you seeing them getting more aggressive in the hotel space?

Yes, not higher discounts.

What we are largely seeing is the bigger spread of more inventory being offered for more hotels added on, some through the aggregators, like OYO and that does increase the inventory that booking is offering.

And is OYO, after its recent funding, has it become more aggressive?

Yes, I think they have been fairly aggressive this quarter.

We have seen them to be fairly aggressive.

Our next question comes from Parag Gupta from Morgan Stanley.

So I've a couple of questions.

Maybe just taking from the earlier point on competition, what I just want to understand from you Deep is that, while booking maybe offering new rooms from the likes of OYO, I am just trying to understand how does one perceive the booking.com brand in India?

I mean, do people think of booking.com for booking any type of hotels, or do you think they primarily stand for 4 star and 5 star, because that's what they really stood for in the past?

And do you see any massive difference in pricing, let's say of an OYO room on booking website, was that on OYO website and does that really mean that people go to booking to book an OYO room, or do you think they will go more to an OYO to book that same OYO room?

So I think that's one point.

I just want to understand how booking is looking at driving traffic by bringing in these new listings.

The second question that I had is related to OYO.

Could you help us understand how is your Value Plus offering being targeted?

I mean, do you see a reason for Value Plus to increase a lot more dramatically to take on the competition from OYO, or do you think budget is a space where -- while transactions could obviously add up, they may not really move the needle from a booking perspective.

And hence, one just needs to be more measured.

So just wanted to understand your views on Value Plus.

And the third is on the sales and marketing spends, while you spend about $135 million -- $136 million and I think you've tried to control your adjusted EBITDA losses, could you give us some sense of how does the sales and marketing spend break up into various segments, especially with respect to -- on the new segments that you're trying to grow, which may not have added to bookings or revenue in a big way, but probably have resulted in higher sales and marketing spends?

So, just some sense on how to break that up into various segments.

Thank you.

Yes, sure Parag.

So let me take the first question.

So booking -- and we've done a fair amount of customer research here, booking is quite aggressive when it comes to SEM.

So they are essentially the playbook as I think most of you are aware.

And they would be buying up keywords.

So we will see them far more active in the 5 Star and 4 Star, but they are also in selective 3 Stars which are popular hotels.

At times, I think people could be booking right through with the booking experience, which is (inaudible), but that would be very hard to estimate what percentage of people would see OYO there and go away to OYO.

But OYO from time to time, as we know, is offering aggressive discounting and cash back.

So there are -- there would be a percentage of people who would go for that.

And that is precisely the divide that we are seeing between customers who are valuing experience versus price alone, and we have seen quite the same in our own customer base.

And therefore, if you see all these efforts, whether it's a loyalty program, these are aimed at the more regular frequent users and all the research that we are doing, we are seeing a very strong affinity towards brand and there are people who are quite happy to continue despite knowing that there could be a coupon, et cetera, which is offered, but not willing to go through the hassle.

And the loyalty -- in-built loyalty is now that more you do, the more you want into your wallet plus the convenience offered through pre-cancellations et cetera.

So bookings profile, I think they are fairly well known among the well-heeled travelers, particularly those who travel internationally.

And then there is an overlap between them, as well as quite often the high-end hotel in the country.

That's what we see out there.

Coming to My Value Plus, I think we -- Rajesh spoke about both make MakeMyTrip As Short and GoStays, so if we look at GoStays, that is really where -- our strategy is to look at the budget segment to cherry-pick and really look at the best properties who would like to maintain their identity.

These are very often run by family-owned businesses and people very proud to maintain the identity of the hotel, don't want to switch to any of the other brands and lose their identity or has switched and have comeback for multiple reasons.

And we have cherry-picked these based just on what we've seen through NPS, through reviews of these hotels and through the insights that our market managers give us.

And these are the properties which virtually in every micro market are being now offered and promoted on brand to Ibibo as GoStays and similarly MakeMyTrip As Short as well as My Value Plus as we were calling it, but we are moving more and more towards MakeMyTrip As Short with the Assurance Promise offers on the amount of quality being promoted aggressively on MakeMyTrip.

Our research has led us to believe that customers in the budget segment are sensitive beyond price, of course, but are sensitive to location and amenities not so much to brand.

And in any case, except for the real branded chain hotels, so take the case of Ginger, or take the case of Red Fox from Lemon Tree, whether the consistent brand is being driven through the budget.

I think that is the only place where people have a preference towards the brand.

Otherwise, each of these properties there is no real standardization except the availability of 3 or 4 amenities, which is exactly what our brand promise, is also giving in GoStays as well as in MakeMyTrip As Short.

And we are seeing more of that.

So, you will, next quarter, also see GoStays has been doing well.

It is again, early days, so the full impact of this will be ramped up, but lots will sign up and hoteliers who are again, proud owners of classic moment of operations, but very bothered about the customer experience.

The other kind of -- that's the profile that we have been listed and enrolled on to GoStays.

Whether experience is short and therefore we will expect high NPS and then customers come back here again to find a similar experience on our platform.

On S&M I think --

For SEM, (inaudible) about 20%, 25% of the overall sales and marketing spend continues to be in the growing segment slightly, international air and also in the overall air booking, and then domestic bus segment.

So these are 2 kind of -- 2 or 3 key distinct growth opportunities that we have been calling out with international air, international hotel and domestic bus, and these typically kind of account for close to about 25% share of the overall S&M spend.

And Mohit, could you just give us a sense of how much would be these be as a percentage of gross bookings or net revenue, just to get a sense of what are the economics on this right now?

I don't have some of these segments ready, but happy to kind of demonstrate that in a follow up.

(Operator Instructions) Our next question comes from Kevin Kopelman from Cowen & Company.

First, could you just give us an update kind of how you're thinking about as you go forward, growth in the air versus packages versus standalone hotel, and then I have a couple more questions.

Thanks.

Sure, let me just take that.

Hi Kevin, this is Rajesh here.

So as for as air segment is concerned, as we had called out earlier also and we believe that's going to continue on the back of overall market growth that is happening, so that our growth is going to be either in line with the market growth or more, as far as both the brands of the domestic air business is concerned, our market share just to remind you and everyone else, the domestic air market is about 23%, which is very healthy and we're kind of holding on to that or incrementally improving.

So that's -- as far as air business is concerned for the domestic travel.

For the international travel, we do think the growth rate is going to be higher and will continue to be higher given the fact that we have more headroom, in terms of right now, international flight segment being underpenetrated from an online penetration standpoint, albeit at a lower base.

But the growth rate is going to be significantly higher than the domestic air segment.

As far as our packages business is concerned, the fact that a lot of the growth now is coming and also the consumer behavior is changing definitely in the domestic hotel market or domestic leisure travel market to book hotel A La Carte and therefore, our growth focused segment is more domestic hotels and not necessarily packages.

So packages, we are not going after growth as far as the bundle product is concerned.

But as far as outbound market is concerned, which is traveling outside of India, there our focus is definitely on packages growth as well.

And given the fact that packages are distributed more offline through offline channels, whether it is call centers or we have the Holiday Expert channel or the retail offices if you will.

So relatively speaking, the growth rate is going to be lower than the Internet kind of growth rate, but there is definitely growth that is going to continue we believe in the outbound segment for packages in line with the market also by the way growing for outbound travel.

As far as hotels is concerned, as I mentioned earlier, the growth focus will continue and we will continue to drive really better quality growth going forward, which will be on the back of the room nights growth, as well as the mix changing for the -- with the mix changing we will have higher ASP.

And like I mentioned earlier, the focus will be there to play into all the segments, including budget segment, which remains a very important segment for us and it is a big segment and big growth driver, if you will.

But all in all, domestic hotels as well as outbound hotels A La Carte will also continue to be the growth focus and we will continue to invest behind that, albeit like I said, just making sure that we keep the quality of growth also in mind.

And then just a separate question on the kind of profit versus growth.

As you guys are thinking about driving growth, but maybe reducing discounting somewhat, can you help us think about free cash flow for this year and also just specifically in Q2, it looks like the cash burn went up a little bit.

Can you help us think about seasonal elements versus what the trajectory looks like?

Sure, I'll take that.

Yes the deployment of cash or uses of cash also has certain deployment into working capital, which typically happens ahead of our peak season quarter considering that the next quarter is a seasonally high travel quarter.

So it is close to about $9 million getting deployed in working capital, which also needs to be factored in.

Other than that, if you really look at it in terms of cash and cash equivalents on the balance sheet, we have close to about $440 million on the balance sheet, a large part of which kind of continues to be in terms of free cash flows or free -- cash [pulling off] or term deposit.

So from a line of sight to kind of being able to keep growing at this burn rate or albeit reducing burn rate as you would have seen in Q2 versus Q1, and that is a kind of gradient that we would like to continue in the coming quarters as well and do not really see a concern on the ability to fund those cash balances.

And then just one last question, can you talk a little bit more about the new Double Black loyalty program, what you're seeing for the initial reaction there, do you have a timeline for rolling that out more fully and are there any -- what are the kind of financial impacts we should be thinking about?

Yes, sure Kevin.

So as mentioned in the script, it's currently in the invite-only phase, we are tweaking the right model and we think we have got about 15,000, 16,000 people already enrolled.

It's a paid model, people upgrade between INR 1,000 to INR 1,500 depending on at what point they join.

They get whole bunch of free cancellation offers which is the main premise of it, but then, like we said, you also get automatically added to MakeMyTrip Black, so that the more you spend with us, the more points you accumulate which go into the MakeMyTrip wallet which can be used for further purchases.

So early signs, we are seeing higher repeat, but like I said, it's only in this quarter.

So it's probably too early to extrapolate a trend out there, but definitely high repeat, more encouragingly also seeing higher NPS here and we are talking to a lot of these consumers on a daily basis, the team is trying to understand further what we could be doing and what's really valued.

And then the pricing, I think also we will be probably just tweaking it right.

So you will expect to -- you can expect to see this during this quarter.

We actually go aggressively in promoting this and right through the year, the next 3 quarters, 4 quarters we can be acquiring customers, we see a lot of potential here.

We see this to get into -- potentially this can become a very large part of the loyalty program for us and I think the closest parallel would be Amazon Prime for this, because that's what it was predicated on.

We listen to a lot of consumers at the high end with the high frequency of travel and what they valued the most was actually the convenience and what was one of that biggest irritants was actually cancellations and the charges they very often weren't aware what charges will be et cetera.

So we're trying to address most of those.

There will also be better service promise out here at different lines, et cetera.

So I think we'll be able to give you a better projection on how big this is going to go only a little down the line, but definitely something we are going to go forward with and grow.

Maybe just one more point to add, I mean to your specific question on additional financial impact.

No, actually, we are not thinking this outside of our overall marketing spend or sales and promotion spend, it is going to be an [inter safe play], it is going to be a fundamental change of approach if you will, rather than thinking that whatever we are spending, we are spending whether it is on customer acquisition or on retention and this is going to be a new program and a new scheme within an overall additional impact.

That's not how we are thinking about this, this is fundamentally from an additional financial impact standpoint, we are saying or any financial impact standpoint we are saying, that it is going to be well within the overall spend that we are already kind of doing.

It's just going to be inter-head kind of play, if you will.

(Operator Instructions) Our next question comes from Manish Adukia from Goldman Sachs.

A couple of very quick questions.

Firstly, I think just on your bus bookings, this quarter there was a sharp decline versus the previous quarter.

Just want to understand if there is an element of seasonality even in the bus segment?

That's the first one.

Second one, and I'm sorry if I missed this earlier, on the air net margins, again this quarter was a rise versus the previous quarter, continues to rise and I know that you've guided to 4% to 5% kind of margins over the medium-to-long term.

Just want to understand if there is any particular one-off that you had this quarter or was it just an element, just like normal course of increase that you saw in margin?

Sure, I'll take the first one and maybe you get Mohit to answer the second one.

Yes, you're right, I mean, as compared to the first quarter, you would have seen bus growing at relatively lower growth rate, but yes, there is seasonality even in the redBus business as well and the bus business as well.

But despite the seasonality, the growth rate is close to 50%, which is fairly good and well within our kind of internal plans as well.

And the reason for that is seasonality and nothing else.

Air margins slightly increased.

Generally we kind of see margins across segments being slightly better in low travel season quarters considering that the gross booking values are little depressed compared to what they are in peak seasonality.

And therefore, optically the margins look a little better.

So, it is more like an optical improvement due to seasonality.

Thank you.

And I'm showing no further questions from our phone lines.

I would now like to turn the conference back over to Jonathan Huang for any closing remarks.

Thank you everyone for joining our call today.

We certainly look forward to speaking to you very soon.

That concludes our call.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may all disconnect.

Everyone have a great day.