A new report by PhoCusWright, "The Emerging Online Travel Marketplace in India," estimates that online leisure/unmanaged business travel gross bookings in India totaled $295 million in 2005 and will grow nearly sevenfold in just three years to go beyond $2.0 billion by 2008.

Both supply and demand forces are responsible for the booming growth. Sustained economic liberalization, heavy infrastructure investment, the growing spending power of the middle class and greater public interest in travel are driving demand. Meanwhile, supply side forces include an improved online payment system, the online success of Indian Railways, an emerging technology sector and the rise of low-cost airline carriers (LCCs).

PhoCusWright noted that, as in many other travel markets, LCCs have been instrumental in driving Indian consumers to use Web sites to arrange their bookings. This idea was echoed by TravelMole, the online travel industry publication, which reported earlier this year that India’s domestic air travel market is likely to grow 20% annually over the next five years, boosted by new airlines and low fares.

Last year 2.2% of total travel was booked online in India, but PhoCusWright forecasts that strong growth in the Internet channel will cause the percentage of online bookings to approach double digits by 2008. Despite the optimistic outlook, several hurdles lie along the growth path, including a fragmented travel market dominated by family-run businesses, low Internet penetration and credit card usage and a shortage of quality budget hotels.

When Indian consumers go online to book travel, or, for that matter, purchase products from a Web retailer, they often rely on search engines to help them find relevant Web sites. Research published in August by the Internet & Mobile Association of India (IAMAI), a trade association representing the interests of online retailers, advertisers and publishers, implied that 56% of online buyers have used search engines to find a retail e-commerce site. Some 38% go directly to a site by keying in its URL and 31% have relied on word-of-mouth to find a site.

The IAMAI survey also looked at what matters most to online buyers in India when choosing to do business with a Web merchant. Good reputation was the top reason, with 62% of respondents listing it as the top reason, followed by a perception of safety (51%) and brand recognition (46%).

These responses are about the same as those seen in surveys of consumers in the US, Western Europe and other established e-commerce markets. However, the next two most popular selections in the IAMAI survey, better payment and better delivery options, hint at a still-evolving market.