Episode Twenty Five
People as Priority:
George Hendrata of Tiket.com
24 November 2020
Welcome back to Indo Tekno. Thank you for joining us again. Selamat datang kembali semuanya! This marks Episode Number 25 of our series. My name is Alan Hellawell. I'm founder of startup consulting firm Gizmo Advisors, and Venture Partner at Alpha JWC Ventures. Today we will explore online travel, a segment of the Indonesian internet economy that seemingly overnight went from the very model of long term secular growth, to one almost completely crippled by this black swan event that we've all been dealing with, being the COVID 19 pandemic. We're extremely pleased to feature today's guest, George Hendrata, CEO of Tiket.com, one of Indonesia's clear leaders in the online travel space. Welcome to the show, George,
GEORGE HENDRATA 0:57
Thank you for having me here today.
It's a pleasure to have you on. Now, George, I note that you've spent a significant part of your career with the Djarum group, which a foreigner like myself knows to be one of the most highly respected business groups in Indonesia. Can you tell us a bit about what it's been like to work within the Djarum group?
GEORGE HENDRATA 1:15
I'm sure that many people who have been involved with the group would say the kind of things that I would say. One is that we are a very humble group. We're very entrepreneurial. We start from scratch. And we believe in running things to operational excellence. We believe in a win-win result in any deals that we do. Trust is also very important, because when you have a bank like BCA in the portfolio, trust is key. And earning that trust is difficult. But destroying trust is also easy. So we are very cognizant of that. We are also very detail oriented. And in many of the industries that we go into, we do well on the basis of knowledge, whether we do it on our own, or through partners. And we are a group which believes in not only operational excellence, but customer intimacy. We try to understand the needs of our customers, driving down deep into knowing what their pain points are, and trying to deliver products and services that can tackle that. We have many people who have been working with the group for a long time. Many we know by name, we know their background, when they went to school, where they went to work before. We take care of our people well, and we value them. We cannot run the business without good people. It's been a talent war, especially in Indonesia. We are also quite flat in our decision making. In our culture, we try to not have any politics. And we are pretty blessed. It's hard not to blessed when you go into so many different industries and you make fewer mistakes than others. I think that being blessed is more important than being smart.
George, the media profiles often describe you personally as having an affinity for stewarding greenfield opportunities and turnaround and restructuring situations. Can you give us some past examples of that work? And maybe you can also tell us how, if at all, that background comes into play in running Tiken.com.
GEORGE HENDRATA 3:00
I came to this discovery by accident. I tend to get myself into difficult issues, difficult company situations, or new things. I try in those circumstances more than when the company is under stable operation. My background is as an electrical engineer. I used to design IC chips for mobile phones. And immediately a year after I went in, my colleagues got fired. I had to manage five different production lines all at the same time. I did well. From that time on, it seems like I am always in the position where I either start things up or I do a turn-around. Some of the other stuff that I did with the group; I was involved with a consumer electronics brand called Polytron Typically, when you think about a consumer electronics brand; like an LG, Samsung or Sony; you always think that this is a very, very difficult business to be in, hard to make money, capital intensive. And yet we have proven that even though we are a local player, we're able to compete against them well. Earning well, good net profit margin and still Year-on-Year growing very profitably. And so the foundation of that is to know basically what you do well, which in this case is black goods. And also we focus on white goods: washing machines, refrigerators, air conditioners, where it's a bit bulky, and it's hard for an outside player to compete. And we utilize our good distribution as well as our after sales service. As another example, I was involved with the paper division and basically turned it from being negative, to become positive and the third largest provider of specialty paper in the world. Knowing how to be nimble and knowing how to move like David against Goliath and be able to pick all the opportunity, to find out where the loopholes are, find out where the gap is and try to combine everything together to win is really important.
That makes good sense. Now Tiket.com was founded in 2011. George, what have been the major pivots or periods of active diversification over this period?
GEORGE HENDRATA 4:53
I was part of the team who led the due diligence into Tiket. And I fell in love with the founders. They are hungry. They know what they're doing. It's just that they need to be given an opportunity. I had a long talk with the suppliers, the airlines and the hotels; and I saw the opportunity to do better. There are two fronts. One is you have to do well with the consumer, but you have to also do well with the suppliers. And we saw that the name was good and the relationships with the various stakeholders was good. It just needed to be given an opportunity. So we quickly looked at the low hanging fruit. We looked at the funnel. We looked at where there are a lot of drop-off's. The awareness level at that point in time was really low. It was between 30 to 40%. And we took care of these things within four months. We were relaunching the brand, relaunching the apps. At one point in time, we were a bit concerned. If we don't do any major changes, then when we do big marketing, people might install and then uninstall our app. So it was done in stages. We worked with the product first, and then the branding, and then again, increased the awareness, and then worked with the suppliers to basically get the best product with good availability and good pricing. And then we started growing at three to four times the market rate. And we also got lucky because of our marketing message of presenting travel as being fun. Some element of travel is about efficiency; you don't want any mess, you want it to be really simple. But another part of travel is the fun, and we try to inject that into our product, trying to communicate in our consumer. And it strikes a chord in their heart. And so it becomes a virtuous cycle. We take advantage of when people do not normally travel and then get good inventory from hotels and flights, and make it into a big campaign. One of the famous ones that we did is called "OTW" which is "Online Tiket Week." It is actually going to happen next week. We have really crazy pricing; it can be 25% off. It's also good because it helps our partners to basically unload all the inventory that might otherwise not be unloaded. So that's basically it. We have gone from a Tiket 1.0 to a 2.0. And now I will call it a 3.0, where we try to put in all the foundation so that we can scale even better. This is critical, because otherwise, it's hard to scale much faster when you have 1,000-plus colleagues.
Understand. Now George, you probably noticed that the new Google- Temasek-Bain e-Conomy SEA 2020 report forecasts that online travel in the region will decline 58% this year. Do we feel that that is the likely magnitude of decline?
GEORGE HENDRATA 7:19
Based on the data that I have seen, it is pretty consistent. If you look at a lot of publicly listed major OTA's out there, they project that this year will be about 40% of 2019. And we are seeing similar trends. But we're very hopeful because on a week-by-week basis since the last lockdown, it looks like it's starting to increase more and more. And consistent with what we have seen overseas, domestic hotel tends to come back faster. Travel which doesn't require air flight, but just one to three hours by car, also tends to recover faster. And then the short haul domestic flights tend to recover a bit later. International is still off-limits. Many countries still do not have a bubble or travel corridor from Indonesia. But yes, the number that you mentioned seems about right.
Gotcha. Now, that same report envisages a 33% recovery in the industry next year. Are there any less apparent scenarios, besides the obvious one - the introduction of a vaccine - that would support that level of growth?
GEORGE HENDRATA 8:20
Yes, again, the number that you mentioned, if I look at the major research out there, they're saying that 2021 should be about 70% of 2019. It's more like a "shoe shaped" recovery rather than a quick V shape. And I think in Indonesia, for one, most of the travel is domestic. So pre-COVID, about 85% of the flights were domestic, and 15% is was inbound-outbound. So I think that since the domestic market is much bigger, and you don't require people to quarantine when they travel within domestic areas, and you're only required to take rapid testing, we tend to look at it as having a faster recovery. And then again, supporting that, the hotels also being in similar proportions, mainly domestic, that helps as well. Then I think we have seen travel behavior, which is a bit different than pre-COVID. Places like Bogor, like Puncak, like Jogja, which have a lot of outdoor areas, where you can do "glamping", you can do social distancing; those tend to recover faster. And then we have seen in many of those villas that have those kind of properties; they can be all booked until the end of the year, which is really, really good and similar in other countries that we have seen. Those travel spots may be there to stay even after COVID. So if you have only one to two days, instead of going to Bali, you might actually drive for one, two or three hours to Puncak, enjoy the 19-degree weather and enjoy the outdoors. It's more complimentary to some of the travel that happened before COVID
Fascinating. So, 85% of travel and tourism in Indonesia is actually domestic. Is that what we can say?
GEORGE HENDRATA 9:55
Wow, I did not know that. Now, I don't know how many thousands of times that you fielded this question, and I know you mentioned some interesting behaviors just now: can you tell us what travel behaviors have surprised you the most throughout 2020 due to the pandemic?
GEORGE HENDRATA 10:11
The element of non-surprise is actually more. With COVID, people want to make sure that travel is safe, that it's clean. They want to find out as much information as possible about travel. They book plane tickets and hotel tickets much more closely to when they need to travel; between one to three days. Whereas in the past, it can be on the order of weeks for hotels, and for flights it may be on the order of a week or so. And so those are the common ones. The uncommon ones are the ones that I mentioned prior, which is again, short distance from major cities, ones that you can reach by car, a lot of outdoors, glamping, places that you can social distance. People actually rent an entire villa, an entire house. Categories like Airbnb, before the pandemic, it make might not have really picked up in Indonesia,. Now you're starting to see these things take off. And so those are the surprises, and the non-surprises, that I see during this pandemic.
Understood, George, are there any other exciting initiatives, whether it's new features, functions, new services, that are afoot for Tiket.com in 2021?
GEORGE HENDRATA 11:13
We want to make sure that we are ahead of the curve. A few things that we have done are that, in all platforms, in apps, in mobile and desktop, we have the most complete information on where you can travel and what you need to bring to travel. We make it in a way which is easily digestible. And we're working with the hotel partners and the airline partners to have a "Tiket Clean" certification program, where we know that they do social distancing, they frequently clean and disinfect the facility, and that you have protective equipment or apparel available on those properties. But at the same time, we also know that a lot of people are hit by this COVID financially. And so we have a pay-later product that we just launched so that people are able to pay bit later after their flight. We work with a lot of our partners on discounting, because we see that ,once people are comfortable with travel, pricing helps. There is one major hotel chain that throughout this pandemic, believe it or not, has seen their occupancy rate only drop by about 10% because they reduced their price by about 30%. So then, when people are comfortable about traveling, you need a bit of "nudge", a bit of impulse to fly or to stay in a hotel. Price is one way that you can do it. And then we are launching our new "look" soon. Travel is always about two things: One is that it has to work well. The booking, the searching and the payment. And then post-purchase and also the fun element to it. And so on both elements, we have a lot of things that we're going to launch, making it more convenient for us to be able to search for hotels. We covered around 3 million properties domestically and worldwide. And then we also have a discovery platform that we're going to launch to make it easier for people to find out what is interesting to do around the area, around the hotel that they're staying, or around the place that they're flying into.
Great. Sounds like an exciting list of innovations. George, where do we overlap most heavily with Traveloka, and in what areas do we dominate, respectively?
GEORGE HENDRATA 13:06
Naturally, there is a lot of overlap Alan, because it's an online travel platform. And if you look at the maturity of the sector, it's actually more mature than for example, ecommerce, arguably. And it's definitely more mature than ride sharing. Online travel penetration as part of total travel is typically about 50%. Whereas in e-commerce in many of the countries like Indonesia, it's still below 10%. That in itself allows for a lot of overlap. But the biggest verticals are basically hotels and flights. And so with that, we are getting the best pricing from hotels, and flights and equally competitive, if not more competitive than our competitor. Because this is also the advantage of being a second player because we always try harder. And the partners would want us to succeed because they don't want to basically depend on one platform to sell. So in a way, it lends itself to better industry configuration. And it's better from the consumer point as well. For outbound hotels, we dominate because we have more relationships with our B2B partners. For flights, we are equally competitive.
Continuing on that line of questioning, if you were to isolate one area in which we feel we have the greatest competitive advantage; whether it is connectivity to a certain partner or functionality or user experience of some sort; what would you regard as Tiket.com'ss greatest competitive advantage?
GEORGE HENDRATA 14:23
People who have been with the competition and with us, they mention that our advantage is our people. So our culture is kind of mixed: we have both the engineering mindset, as well as the creative mindset needed to win in the space. I mentioned several times in this program that travel is about efficiency, about making things effortless. But it's also about fun, about playfulness, and our consumer. They value our culture. A lot of our program goes viral because we understand that they want to visit places where nobody has been before that they can brag about on Instagram. And so that's what we provide for them. We have an acronym: H.A.P.P.Y. "H" stands for hungry: we have to be bold. We need to be able to take risk. Many times I've mentioned to our colleagues: if you want to win, and you just take the safe route out, you will not win. You have to find out what the "X-Factor" is; what you need to do extra. It's okay, take the risk. If you fail, try again. You won't be penalized for it, provided that when you take the risk, you consider it well. And then "A" is agile. "P" is people-oriented. The next "P" is performance-oriented. And then the "Y" is we want "you to be you". When we bring you in into Tiket, we are not just hiring a set of hands and legs, but also with heart and mind. And that's what we want; that the team completes each other. The second thing is that we are very, very consumer-centric. I don't know how many companies actually put NPS (Net Promote Score) as their top "Northstar" metric, but we do. We want to make sure that we have that focus, day-in and day-out. What is causing problems, what can we do to delight the consumer? And when we do this well enough, the business growth will take care of itself, and usage will beget usage. The other thing is also size. Size matters. It's an industry with high barriers to entry. You need big working capital to put up for deposits for airlines and hotels. Our financial strength allows us to focus on doing the right thing for the business, with a longer term mindset.
Makes sense. Now, George, did online travel see similar levels of subsidies and promotions, as did e-commerce and ride hailing in 2019? And would you expect such behaviors to return once demand recovers?
GEORGE HENDRATA 16:24
Especially with e-commerce, you have five or six players. Ride hailing, you have two, but they're very, very competitive. In OTA (Online Travel Agencies), you have two major ones. Out of the three industries, I will say that we are the more sane sector. So even though we do discounting and we do promotion, the level of discounting and promotion comes nowhere near the e-commerce and the ride hailing players. And so initially pre-COVID, we plan for 2020 to be a year where we can break-even. So, that says a lot about how the state of the industry is and the state of competition. It's just that now we have COVID, so it's going to be delayed a little bit, maybe a year or two. But the path to profitability is always clear. And if you have seen many of the OTA players abroad which are publicly listed, they're also profitable. We like the sector, and we think that it has good unit economics and good profitability.
So, more on that business model. George, does the OTA industry run entirely on commissions? Is that also an area of intense competition?
GEORGE HENDRATA 17:23
Typically, you compete on take-rate. You get inventory from your partners, and then you make some commission out of it. There are some regulations that we have to abide by. For example with airlines, there is an upper limit and lower limit to the pricing, The sector is also very fragmented. If you look at hotels, there are thousands of hotels, and the occupancy pre-COVID was just around 50%. So, when you see an industry which has 50% occupancy rate, they're more than willing to give, let's say, a 10% to 15%. commission, when the marginal cost of cleaning the room is only $2, for example, but then you can get $50 in return. So yes, you have competition here and there. But the fragmented nature of the suppliers, and the occupancy rate of many of these stakeholders lends itself to work with an OTA, where you can provide a lot more traffic and a higher level of occupancy.
What do you feel is job number one for the company currently? Is it buttressing further parts of our current business model, such as payments or user experience? Is it expansion into new markets? Or is it something entirely different?
GEORGE HENDRATA 18:25
It's always about taking care of our people, both people inside or outside. I can offer an example from COVID. People are worried whether they're going to get laid off. We are an industry that can hit quite badly. We've managed to avoid layoffs. Of course, some of the outsourcing work get reduced a little bit, but we have no major layoff's. Communicating that and really "walking the talk"; that you pick out people during bad times and good times, is really important. Second is also today, I'm still doing about three to four interviews a week. I'm always looking for good talent. I'm looking this time to hire a bunch of product and tech people to cover any kind of product and tech gap that we have at this point in time. And its has been quite successful. And obviously the consumer. During this time, people are a bit confused about how to refund tickets, how to reschedule, etc. We had a lot of calls into our customer service call center. It's important to be able to communicate during this time. You have to convey how customer-centric you are. Every complaint that people have, you have to treat it very seriously and convey it in your action and your communications to the people around you, so that they can "walk the talk" as well. Another thing which is important is getting the temperature of the organization, especially during this work-from-home period, because you never truly know how they feel. And so I'm very open to basically doing one-on-one with people at any time. So that I always get the temperature of the organization. We're still doing a biweekly meeting for newcomers. It's harder to meet face-to-face, but anybody who has joined us, let's say in the past two weeks, we will have a session with all the board members with all the co-founders, and we want to be able to convey the spirit of Tiket.
Well George, given all the good work that you've outlined today, I have a very good feeling about 2021. Thanks a lot for joining us today, George.
GEORGE HENDRATA 20:05
Thank you so much Alan.
And thank you, dear listener for joining us today. Terima kasih telah mendengarkan. Sampai jumpa lagi!