As 2010 was drawing to a close, Kadamba Transport Corporation, Goa’s state owned and perennially loss-making bus operator, saw itself in the doldrums.
Thanks to factors that infect most state-run transport corporations—decrepit buses, many unprofitable routes, low occupancy and a snowballing salary bill—it was losing anywhere from Rs 2-3 crore every month. This was on top of a cumulative financial liability of over Rs 100 crore.
Faced with very few options, Venancio Furtado, Kadamba’s managing director, decided to try his luck with online ticketing for his interstate buses. In March 2011, Kadamba went live with its own Internet ticketing portal, powered by ‘BOSS’, a software reservation system made by Redbus, a Bangalore-based company.
What happened over the next few months was a miracle, at least for Kadamba. Travellers increased, drawn by the easy and quick online experience. Occupancy rates increased across most interstate routes from Goa; like Sholapur, Bangalore, Hampi, Shirdi and Mumbai. On those routes it started seeing a concept that was almost alien—profits.
In 2006, when the cherub-faced Phanindra Sama and laconic introvert Charan Padmaraju started Redbus, they were just two 25-year-olds with an “idea” to offer bus tickets online.
Instead, what they were wading into was a cesspool of unpredictable occupancy, rickety buses and stagnant routes, all leading to dissatisfied customers and resigned bus operators.
After five years of slogging away at those problems, the picture today is quite different.
“Most of Redbus’ competitors don’t realise the power of the bus travel market,” says Parag Dhol, a director with Inventus Capital Partners and one of the investors in the company. “There’s $3 billion of inventory among just private bus operators, growing at 25 percent annually.”
Thanks to good and ever improving roads, an expanding range of modern luxury coaches, and the hassle-free booking enabled by Redbus and many of its peers like Via, TicketGoose and MakeMyTrip, demand for bus travel is growing rapidly. And as customers vote for greater comfort and speed with their wallets, operators too are upgrading—buying expensive multi-axle buses, hiring ‘customer service managers’ and investing in technology.
Inspired by the turnaround story of Goa’s Kadamba, various state-run corporations too are now approaching Redbus to sell tickets online.
Maharashtra, one of the states that is currently implementing Redbus’ reservation system, has over 19,000 daily ‘schedules’ or trips.
That’s a single state running as many schedules as all 700 private operators currently on Redbus! Another large state, Rajasthan, is also set to adopt Redbus.
The bullishness is evident on the supply side too. “Including the 800 that it sold last year, Volvo has sold a total of 5,000 coaches in India from its inception 10 years ago. But they are ramping up manufacturing capacity to produce 5,000 coaches every year from 2015!” says Phanindra Sama, 30, CEO and co-founder of Redbus.
Buoyed by Volvo’s success, a rash of international coach makers are set to launch in India this year, including Toyota, Scania, MAN and Hyundai.
Spurred by this, Redbus’ business is booming. With a self-estimated market share of over 65 percent, it did over Rs 100 crore in sales during the last quarter of 2011. Despite the fact that most of the tickets it sold were worth just a few hundred rupees, it generated a cash profit of Rs 50 lakh, its first ever.
“Redbus has done a pretty phenomenal job and I have nothing but admiration for them. They focussed on a market that was extremely underserved and fragmented,” says Hrush Bhatt, co-founder and head of products and strategy at Cleartrip.com, one of the leading travel portals in India.
The secret to that is an unrelenting focus on keeping costs low. It claims to have never run an advertising campaign, preferring to rely on word-of-mouth through its largely loyal customer base. Its offices are housed in non-descript buildings, often close to bus terminals. Most senior management, including the founders, are frequent bus travellers themselves.
Therefore most of its growth has been self-funded, unlike the typical e-commerce startup that burns venture funding to buy growth. “Almost all the funding they’ve raised (Rs 42 crore) is still in the bank,” says Sanjay Anandaram, an early investor in the company and a board member.
Using its significant transaction volume and loyalty among bus travellers, Redbus has gradually expanded its role with bus operators and travel agents. Through BOSS and Seat Seller, two cloud-based software services it developed and now sells to bus operators (for managing their operations), and travel agents (to aggregate and sell tickets across multiple operators), Redbus is slowly trying to establish itself as the industry’s reservation platform, like Amadeus or Sabre in airline travel.
There are other competing platforms, like Mantis (TravelYaari), AbhiBus and SimplyBus, but none with the comprehensiveness of Redbus’ offerings that combine consumers, operators and travel agents.
In the case of BOSS, Redbus charges 1 percent of every ticket sold by an operator, while for Seat Seller it charges anywhere from 1-5 percent from travel agents. Seat Seller has even been adopted by many of the travel websites who compete with Redbus on bus ticketing, like Yatra.com and Expedia.co.in.
(This article is excerpted from the latest Forbes India 16 March, 2012 issue which is now available at news stands and book stores. You can buy our tablet version from Magzter.com)