Starting a low-margin business in the recession

Albert Dias co-founded Musafir.com with Sheikh Mohammed bin Abdullah Al Thani and Sachin Gadoya in 2008. Musafir.com is a travel website that offers flights to over 3,000 destinations and stays in over 75,000 properties around the world.

How did it begin?

It began over a discussion in Starbucks, three classmates from American University of Sharjah meeting after a period, searching for ways to make a difference. Post University Sheikh Mohammed bin Abdullah Al Thani and Sachin Gadoya had started a travel company and I had gone into advertising. The opportunity was simple – bring the ease of an Expedia and Travelocity to the region. Musafir is an online travel company, different from an ‘agency.’ We offer travel services both the ‘traditional’ way, through offices, and online.

If I need a ticket, how are you different?

A customer with simple travel needs, from point A to B, doesn’t require a significant amount of handholding. He wants to be able to choose amongst the options. An online travel site ‘reveals’ the options. We believe that options and prices are key purchase criteria.

Musafir is a local outfit with brick and mortar presence. A customer can connect with us on phone or visit us.

Help me understand the value that Musafir adds.

Musafir online is still predominantly a business travel company. About 80% of our business today comes from corporate customers where our service is a differentiator. We take care of all the peripheral needs of the clients relating to the travel that makes the journey comfortable and hassle-free – seats, meals, ground transportation, and lodging.

With our large customers we are able to negotiate better deals with the airlines and hotels to pass on discounts to customers. Our pre-purchase price is a differentiator.

Once a customer has chosen an Online Travel Agency (OTA) the purchase process and experience is similar amongst the OTAs.

A company makes a choice to work with Musafir. How does it work?

We build our business by building relationships with companies. We have a team that goes and introduces our value proposition - online services complemented with a human touch, an accessible person who can visit the office if needed, and a brick and mortar presence. Companies always work on competitive terms. Once they choose us we empower them to use the website using a login. We offer a self-service and a serviced proposition.

If an employee is hands-on, he can do his travel bookings personally. Or he can call, speak to a designated travel coordinator, and do bookings. With a CRM underlying Musafir all the client needs – seat requests, frequent flier numbers, timing preferences, meal needs - are visible to the travel coordinator, making the engagement efficient.

Musafir offers customers an opportunity to reserve their initial travel choice without buying a ticket, what I call a post-decision pre-purchase option. This is advantageous because a consumer may not be sure about the travel date but doesn’t want to lose out on a good flight option.

Does Musafir integrate with Client Company IT systems, HR processes, and accounts giving them an in-house travel portal?

We believe that the integration model is applicable to large companies. Smaller companies need cost-effective solutions. We are an independent web based service. We do not integrate into the back-end HR processes and accounting systems. The client can establish these processes on Musafir.com.

How does Musafir actually work?

We primarily work with Amadeus, a Global Distribution System (GDS), behind Musafir to facilitate flight purchases. Once a customer provides details, the system ‘talks’ to consolidators and airlines to find the best options, agglomerates and displays them. To this extent we are similar to every other travel site.

We have added options on top of the standard options that GDS churns out. If a customer chooses to find flights ex-Dubai, we also show flights ex-Sharjah, presenting a value proposition. The system is engineered for intuitive intelligence, stepping in and understanding customer needs.

Does Musafir offer home-to-home service – identify all the services needed on the journey?

If a customer sitting in his room says, “I want to fly to XYZ in the next 5 hours or 5 days.” We can take care of transfer to airport, arrange visas where possible, upon arrival at the destination take care of transfer from the airport to hotel, and make arrangements for the stay. And on the return trip bring you home.

The present Musafir site offers flight and hotel booking services. Corporate customers can choose an option to contact us for additional services. We do the same offline.

How did you become an entrepreneur?

I will say frustration and it is the truth. I had an opportunity to become an entrepreneur the day I graduated. I spent 4 years in advertising, learning how the world works. It brought with it a certain degree of frustration. I was working 60-70 hours a week and wondered why I couldn’t do it for something I was passionate about.

Capital?

Sheikh Mohammed and Sachin are lead investors. I am the minority. They are providing patient capital, focusing on innovation and new offerings.

You had an advantage. They had an existing travel agency. You didn’t have to go searching for and negotiating with suppliers. You just had to build a platform.

True. But this accelerated execution milestones. We had to get ourselves off the ground with a beta product in six months. This took nine. We issued our first ticket on Dec 17th 2008.

We had set a goal of becoming profitable within 18 months. We quickly learnt the costs of running the business was twice what we planned and the profit almost half of what we expected. Entrepreneurs underestimate costs and overestimate profits. We became profitable in 2011 after three years.

Did Sheikh Mohammed and Sachin take a bet on you? You had the brainpower without capital. They had a running business.

Sheikh Mohammed and Sachin had a vested interest in the success of Musafir. They had wanted to do the OTA business. They took a leap of faith investing in Musafir. I was making a financial commitment and taking a personal risk even though the model had worked elsewhere.

It was never really a question of whether your risk greater than mine. We genuinely believed that the service was worthwhile offering. It never occurred to us whether we will it succeed or fail. More of how we will succeed.

I labor this point because expanding product offering in an existing company is not blue blood entrepreneurship. I see you as an entrepreneur and your partners as investors.

I led Musafir in giving the product life with my partners. While I may be more hands on, they took a very active role in giving me an understanding of the travel industry, which I did not have. Sheikh Mohammed was very involved, given his role with Air Arabia. They know how the industry works from the inside.

Where did you develop the IT platform?

This is a differentiator of Musafir. We fixed an early question – do we put in ‘X’ amount of money and buy a platform off-the-shelf or we invest ‘10X’ and craft it in house? This was not an easy decision because of the risks. One needed to look at it objectively, from the investors and company perspective. And we chose early on to go with 10X option, craft a product right here in the UAE because it would give us IP in terms of a platform to build a company and an opportunity to have a product that we could retail.

You used the word craft. Why?

We crafted the user experience. When we started we asked ourselves questions at each step of the customer journey, ‘Is this the way a customer chooses or does that?’ Take the example of showing prices with the schedules of alternative ticketing options. Our competitors used to show prices after the flight choice was made. This was not the way companies were working. They balanced costs with comfortable schedules. Subtle differences were engineered at numerous points.

Any challenges?

When we started in Dec 2008 we had targeted the online consumer segment. The travel industry for years had operated on a commission driven model, but then the zero commission model happened in UAE in 2008. Customers were hesitant in paying for services they had earlier taken for granted or what they could do themselves online. Our income stream just dried up. Plus in Sept 2008 global recession hit the travel business hard. Suddenly the returns in the online consumer travel market were negative on transactions. We pulled back from online consumer travel in 2009 and shifted our attention to the corporate business, but resumed the former again in 2013.

You changed the business model?

2009 was not an easy year; very unsettling when the basis of the business changes. In Aug 2009 we questioned ourselves. We doubted ourselves. We wondered what happened to the confidence that the business would work. This was when the association with Universal and expertise that Sheikh Mohammed and Sachin came in in handy. They guided the switch towards a corporate business model. They had intuited the model for three years. The recession accelerated the implementation.

Did you run out of money?

There were times when we were cash strapped. It was a tough learning experience. I had to demonstrate the profitability and valuation of the business. I read an article from India where entrepreneurs were raising money of businesses, with negative income, but based on the multiples of the number of customers. We need to demonstrate real income on the ground.

What was your customer acquisition strategy for the business?

We expected our retail presence was going to be the driver. We believed that the customers would come to us; a lot through the corporate customer base. With Musafir there was a lot of learning. I had been in the product side of business, never in acquisition side. Acquiring customers was a learning, and quite an expensive one. We learnt very quickly that the cost of customer acquisition was high. We had taken it for granted but that is why the real cost of the business was a surprise.

And the expansion into India?

Our expansion into India wasn’t originally intended. Our dream was to become the MENA region’s leading travel portal. In 2010 my co-founder Sachin had an opportunity to be a ticketing sponsor for the Rajasthan Royals cricket team. It didn’t quite add up. We are a travel company and we got into ticketing of cricket in India. We just decided to do it. It required a little technological effort. We said that if anything we will learn how to do business in India. The sponsorship created a buzz. The experience taught us the sheer scale of the mid-income mass consumer. From that point on through 2010, we slept over the idea. We were uncertain about going in. From the outside the Indian travel market looked very competitive and saturated. We set a return rate that was slightly less optimistic and established in 2010.

What is the source of revenue?

In our corporate model we earn 60% from service fees, 30% from airline incentives and the remainder from partners / distributors. Hotels currently make up only a small fraction of total gross sales. The revenue is driven by customers and this defines where our loyalties should lie; servicing customer needs and not airlines demands.

What worries you about your business today?

Price pressure. This is number one worry for anyone in OTA industry. Customers walk away if we are unable to match market prices. Service is still not valued.

Do you see India defusing your attention on the business?

Yes. It is not easy setting up a new market. In UAE we, the cofounders, have always been there here on the ground. None of us are in India. My attention was torn between both markets earlier this year, but we’ve become more focused with the growth of our teams.

How have you changed as a person?

I would like to believe that I am who I was when I started. From a business point of view I have grown more cynical. I have learnt that optimism is good to have but is difficult to achieve and sustain. The entrepreneurial journey is tough. It requires a lot of hard work to get to the goal. Sometimes when you discuss goals other people’s eyes seem to be asking, ‘Are you dreaming?’