Agoda + TripAdvisor

Ok here’s a startup idea. Basically a combination of Agoda and Tripadvisor (basically a front-end combining those two backends). I’m looking to book a hotel for a forthcoming holiday. So what I’ve been doing is to search through agoda for hotels available for those days and within my price range, and one by one searching for them on tripadvisor to see their ratings and comments and all that.

Now, the deal is this: Agoda is an excellent and reliable booking engine. However, it’s tripadvisor that has the reviews that I’d trust but it neither does bookings nor has details of availability or lowest price available. Hence I’ve to keep the two windows open which is quite frustrating and time-consuming.

For someone who’s experienced in developing web apps this is quite simple I think (since I have no experience or interest in this I’m just giving the idea away). A front end that queries agoda for available hotels and tripadvisor for ratings of these hotels and then presents both together in a nice frontend. The actual booking can be done through agoda itself (to where there can be a link).

As for revenue, I’m sure hotels will advertise on this site. Problem, though is to get the tripadvisor reviews in a way that can be extracted to this third-party website without actually going to tripadvisor. But why would tripadvisor allow this since the reviews are their intellectual property and the basis on which they make their money? But well worth a try, I think!

Common kids versus coaching factories

Given that I can consider it as my “specialist subject” I continue to comment on entrance exams. Glanced through an article about changes in medical entrance exams today in the newspaper, which talked about “eliminating negative marking”, and also talked about having a common entrance exams for all colleges (didn’t read in enough detail to figure out the details).

Now, when you have a broad-based entrance exam which is supposed to cater to people of varying backgrounds, there is a need to keep it simple. There is a need to announce a “syllabus”, and stick to it. And to pre-announce a format which will allow students to prepare adequately for the exam. The problem with this, however, is that it plays right into the hands of coaching factories, whose influence the examiners want to try and reduce. Given a syllabus and a format, it becomes easier to cram for an exam without understanding fundamentals, and this is what coaching schools want.

When the format of the examination is unknown, it becomes harder to “prepare for the exam”, and all one can do is to “prepare the concepts”. In theory, a random examination format allows the examiner to examine concepts better, and doesn’t give unfair advantage to people who go to coaching factories.

That makes me wonder if the attempt to make heavily-coached entrance exams “easier” (this applies to IIT admissions also) can be explained with a baptists-and-bootleggers argument. The baptists in this case are the inclusionists, who want to keep entrance exam papers simple and reasonably deterministic so that “common kids” are not disadvantaged. The bootleggers are the coaching factories, since a deterministic exam will make it easier to coach and thus increase their demand.

For the same reasons, the move to using board exam scores for IIT admissions is daft. Board exams are inherently designed to make people pass, which means they have a defined syllabus and a deterministic format. Use of that for something as competitive as IIT admissions is only going to play into the hands of coaching factories.

FDI in retail

I’m trying to figure why that is turning out to be a big deal. Given that we have over 5 years of history of “organized retail” in India, and that it hasn’t performed particularly well on a lot of factors, I don’t know how permitting FDI in multi-brand retail is going to make a difference.

In my personal experience, the performance of “modern retail” over the last 5 years has been underwhelming at best. I can’t recall a single time when I’ve gone to one of these chain stores (Big Bazaar/ Reliance Fresh / More) and come back without getting annoyed with the checkout staff. While the variety available at these stores is massive, which is why I go there at times, the stores are all staffed with a bunch of imbeciles. Yes, all of them. They have made an attempt to overcome the unskilled staff by means of “software systems” and that has only added to the problem, rather than helping solve it.

On countless occasions, staff at modern retail outlets have refused to sell me something that I wanted to buy because “the item code wasn’t found in the system”. The other day the customer in front of me wanted to cancel an item midway through checkout, and the checkout staff had to call the store manager to reverse the transaction. I don’t know why the systems have been designed so badly. The fundamental problem with most of these “modern retail” outlets is that the staff there have no real incentive to actually sell you stuff, and the impression one gets is that the only thing staff strive to do is to avoid mistakes. Perhaps their incentives are structured thus. I know of a case from some 4-5 years back, when a family-owned opened across the road from a More outlet and in the course of a year, the latter had shut down.

Given this lacklustre performance of modern retail, I don’t know how much of a difference permitting FDI in the sector will achieve. Yes, it is argued that if Walmart invests directly the “know-how” it has accumulated over the years will be introduced to India. However, there is no reason to believe that this “know-how” has not already been implemented. Major players in organized retail such as Reliance and the Aditya Birla Group (More) have demonstrated in other sectors of their willingness to acquire know-how from across the globe, and implement it better than their global counterparts. Then, most major management consultants in India have established retail practices, which is another route for “knowledge import”. It is also not an issue of capital – Indian investors in various sectors have time and again shown that they are willing to invest in companies with strong business practices.

The problem with modern retail lies not with either know-how or investment. The problem is one of implementation, and I don’t see how bringing in Walmart (who have little idea of Indian markets) can make a difference there. FDI in retail is not going to solve this problem.

The real problem lies in bottlenecks higher up the food supply chain. Various states are yet to repeal the archaic APMC Act which gives certain people monopoly over food trade in certain areas. There are various restrictions on movement of goods across states (though this should be lesser of a problem once the GST (Goods and Service Tax) Regime comes into play). Time and again, the government acts arbitrarily in changing the rules concerning movement, import, export and “support price” of commodities, and this creates uncertainty in the market and scares away investors.

It is reforms higher up the supply chain that are crucial in order to make the food supply chain more efficient and reduce wastage. The government would do well to put the topic of retail FDI on the backburner (especially since it’s controversial) and instead focus on enabling the rest of the supply chain to become more efficient.

The deal with plays

I live near Basavanagudi in South Bangalore, hardly 6 km from the city’s best theatre Ranga Shankara. In the other direction, a (relatively) new auditorium which plays host to several promising plays (KH Kala Soudha) is even closer. There are times when we consider going for a play at one of these locations. To date, however, I’ve been to a performance (can’t call it a play) at KH Kala Soudha once. The only time I’ve been to Ranga Shankara was five years ago, back when i was in college.

I think one of the reasons for this is that I can never muster the necessary incentive to go watch a play. A large number of plays, as I understand, hold nothing much of promise in the stories that they tell. I’m not much of an actor, and don’t have an eye for fine acting which I want to discover. Yes, sometimes the way some stories are told is fantastic, and this is even more so when the play in question is telling a known story (the one play I’ve watched in Ranga Shankara was a Harivansh Rai Bachchan interpretation of Hamlet; where they use Yakshagana dancers for the play-within-a-play, and that was a fantastic way of telling the story).

Still, the thought of having to sit there in one place, without doing anything that might distract the performers, focusing all my energies on the performance, for the “option value” that there might be something really insightful in what the performers are trying to convey is daunting. With widespread sponsorship from governments and corporates, most plays are very reasonably priced, but the attention they demand can put me off.

And then I wonder if the reason I don’t like plays so much is because they’re rehearsed, that everything goes according to a particular script, that every move of the actor has been choreographed! The way plays are structured essentially requires discipline on part of all the actors, and the play could sometimes be seen as just an exhibition of discipline! I must mention here that I have even less patience for other more obvious exhibitions of discipline such as parades.

I read that the Rangashankara  festival is coming up soon, and I do hope I can get myself to at least check out a few plays (especially since I’m now fairly rich in terms of time). However, I must say it will take a lot of convincing on your part to make me come watch your play. If you say “we’re performing Shakespeare’s Romeo and juliet” I’ll say “why should I come watch you when I can read the play?”. But if you tell me that there’s a story that you want to say, which you’re going to say in a particularly unique way, then I might be interested.

Retired politicians

I must admit a particular fondness for former External Affairs Minister Natwar Singh’s biweekly column in the Business Standard. I was not a great fan of him as a politician, and was happy to see him go when he was accused in the Iraq cash-for-food scandal, but there’s a certain freshness and honesty in the column that I’ve learnt to appreciate. Having had a colourful political career, he has a lot of stories to tell, and though some of these are already well-known, there is value in reading the way he narrates them.

This makes me crave for more such pieces, but the unfortunate fact about Indian politics is that there are few retired politicians. Unlike in developed countries where most politicians go out of office before they are seventy, and then hang around making money by giving speeches and critiquing their successors, the people here continue in active politics even after they’re well into the proverbial seventh age. Look no further than LK Advani who, well into his eighties, still harbours the hope of becoming India’s prime minister one day.

While one result of this is that senior citizens occupy all the posts that matter in a country like ours that is so young (in terms of median age), this also means that there are no retired politicians. This means that there are few people who have seen it all, from the inside or the outside, who are now free from any contractual or political obligations, and so can afford to educate us about all that they’ve seen.

Now that makes me think that our political parties are afraid of people who are still around but out of the system, since their personal and party incentives are not aligned any more. Hence, it might be a possibility that political parties give out posts to senior party members as a sort of dole, so that they don’t retire and tell the wider public all that they know.

An Illiberal Society

Every few months or so a bunch of (mostly) Bangalore-based liberals go up in massive outrage all over the interwebs. On each occasion, the trigger for this would have been a bunch of cops raiding some bar, and imposing a new set of rules. The last time this happened, it was about cops randomly checking black-skinned people for drug possession and pushing, leading to pubs banning blacks from entering, altogether. This time, cops have instructed that pubs not play “loud, western music” and banned live music from pubs.

Already, pubs and even restaurants in Bangalore have to close by 11 pm and there is no dancing allowed (again because “dance bars” are banned). A bunch of pub-goers hanging outside a few minutes after 11 is an open invitation for the cops to enter the pub and try collect some hafta. The problems are plenty, but the biggest problem is that there is no political solution in sight.

The problem here is that however vocal and loud the liberals may be, they still don’t make up enough numbers in terms of the city’s population to make a difference. The fact of the matter is that the large majority of the city’s population (even if one were to consider only the middle classes into account) is either not bothered about these pub rules, or actually supports the new rules that the police make from time to time.

Firstly, it is not possible in order to have different rules for different kinds of pubs. So whatever rules govern say Fuga need to also govern South End Bar at the end of my road. Secondly, a large number of pubs are in residential areas, and for good reason – you do not want to go too far when you need a drink. There is some difference in terms of licenses between wine shops and bars (the former can’t “serve” liquor) but most wine shops double up as “standing bars” anyway. Hence, it is likely that you’ll have a bunch of drunks patrolling the residential streets late every night.

Thirdly, and most importantly (though I’d like the “police reforms” specialists at Takshashila to weigh in), the police force in the city is massively understaffed and underpaid. It’s not possible for our cops to make sure that despite the presence of walking drunkards, the streets are going to be safe. It will take a massive political effort in order to change this. Hence, given that it is not really possible for the cops to police the streets effectively, they resort to signaling.

By forcing all bars to shut down at a certain time, they signal to the population that they get things under control every evening, and there wouldn’t be much nuisance. The rules regarding dancing are an attempt by the police to somehow extract money out of pubs, since dance bars are officially banned (I don’t know why), and they can use the same set of rules to harass the discotheques. Loud music is again to gain credence among neighbours (remember that most pubs are in residential areas) that they’re doing something about the “menace”. The ban on “loud western music” is inexplicable.

This police harassment of bars is not a standalone problem, it’s part of a bigger problem in terms of police reforms. As a stand alone problem, though, given the small proportion of people it affects, I don’t foresee a good solution. What needs to be done is to aggregate all stakeholders who are affected by this – regular pub/discgoers, pub owners (very important), liquor companies, people selling cigarettes and bondas late in the night, and collectively lobby for change in regulation. It’s not going to be an easy battle, considering that a large proportion of the city’s population is conservative, and will be up in arms against any change in rules. It won’t be an easy task either, since liberal but lazy parties like me (who prefer to get wasted at home) will also not lend support.

The fundamental problem with the world economy

… is that wages are sticky.

With increased globalization, it has become significantly cheaper to produce certain goods and services in countries that were hitherto “low income” or “less developed’ or whatever you call it. In the past, in part due to protectionism at various levels and in part due to high transaction costs (transport, communication, etc.) “developed economies” such as the US or Europe had got adjusted to a reasonably high wage structure. In fact, it is possible that in the absence of trade with the rest of the world these countries might still be able to support that structure.

However, with the walls of protectionism and transaction costs falling, these traditionally high wage economies haven’t been able to compete with the up and coming economies where production costs are significantly lower. And because wages are sticky, i.e. it is impossibly hard to cut wages across the board, this has resulted in unemployment. Worse, a lot of other benefits (such as Social Security or Medicare in the US) have been set based on the high wage structure these countries used to enjoy.

And then you have unions, which makes it even tougher for you to cut wages which might make you competitive. It’s a combination of sticky wages and unionism that the various austerity measures in Greece haven’t managed to go through (of course, Greece has another set of problems in terms of law enforcement and tax collection).

And so, in short

1. Wages are sticky. Even though your current wages are not competitive enough, you can’t cut wages

2. That leads to high unemployment

3. That leads to lower economic activity and thus depression

4. The government needs to spend more to “stimulate” the economy, but hasn’t collected enough in good times. And the “level” of the economic cycle itself has gone down now. And the government itself has other obligations linked to the high wage levels

And so it goes. One thing I can think of is “devaluation” (in these times of floating currency rates, that term has lost all meaning), but then now these countries import so much that will again not be a good idea.

Fun!

PS: please note that this post has been filed under “Arbit”

The curse of geography on Air India

International flights are regulated by a strange agreement, in which at least one end of the flight should be in the country that is the “home” of the airline. For example, Jet Airways runs flights along the Mumbai-Brussels-New York route, but is forbidden from carrying passengers solely from Brussels to New York (that market is a monopoly for airlines based in EU or USA). However, if Jet has flights from Mumbai to say Brussels and Singapore, it can carry passengers from Brussels to Singapore, since they’ll be touching the ground at Jet’s home country.

Secondly, airline ticketing is usually done on a “source-destination” basis, and not based on each leg. For example, the price of  a Brussels-Singapore ticket on Jet Airways has nothing to do with the price of Brussels-Mumbai and Mumbai-Singapore tickets. As far as the airline is concerned, all these are independent “markets”, and the price for Brussels-Singapore is set partly based on what other airlines charge for Brussels-Singapore (taking into account flying time, layover time and all that).

These two together give an undue advantage to airlines that are situated in countries that are “in the middle”. The best example for this is Emirates, which flies, on the one hand, to several destinations in Asia, and on the other to several destinations in Africa, Europe and the Americas. This allows Emirates to effectively aggregate demand from all these destinations and connect them up in the form of a hub.

For example, there may not be too many people who want to fly Bangalore-Venice. However, if you aggregate all destinations Emirates serves to the West of Dubai (in Europe, Africa, US, Middle East, etc.) there will be a lot of people who will want to fly from Bangalore to all these places put together. Similarly, if you aggregate all destinations in Asia, there will be enough people from Venice to fly to all these places put together and thus Emirates, by providing a hub, creates an effective market. This is what I mentioned earlier as the advantage of geography, of being situated “in the middle”.

Now, if Air India were to be profitable in the international sector, one way of doing so would be to create a “hub” in India, where Air India connects up passengers to the east to those in the West. While that sounds simple enough, what we need to see is if any place in India is situated conveniently enough to function as a hub. Now, look at the map of India, and see what is around.

To the north-east lies China. There is a lot of nothingness between India and the parts of China that generates high airline traffic (the coast). To the northwest, you have Pakistan, Afghanistan and barren republics of Central Asia. The “business parts” of Russia, again, are quite far away. To the South of India you have vast oceans, the south-east and west already have thriving hubs (Singapore, KL, Bangkok, Dubai, Doha, etc.) and India is again not well placed to compete effectively with any of them. I know this isn’t a rigorous analysis, but look in any direction, and you’ll find it hard to believe that there is reason enough for people living there to fly internationally using India as a hub.

This is the curse of geography that India suffers from, and there is nothing we can do about it, and this is something we need to accept. Given this scenario, the best airlines from India can do is to connect various places in India to places abroad where there exists a “direct market” (for example, Kochi-Dubai by itself is liquid enough so you can have Indian carriers operating that route). Thus, airlines from India can never aspire to achieve the scale and connectivity of an Emirates or a Malaysian. The sooner the airlines accept it, the better.

The moral of the story for Air India is that it should recognize this curse of geography and give up on its dreams of connecting the world. It should stick to connecting destinations within India, and “direct markets” from India  to destinations abroad.

Government finances versus public interest

In an op-ed in Business Standard (I think) yesterday, Praveen Chakravarti (he’s with Anand Rathi now, used to be with UIDAI when I met him at the Takshashila Conclave last year) argues that fixed price allocation of telecom spectrum wasn’t such a bad thing since it kept prices for customers low and reasonable. As part of his argument, he mentions that due to the auction of 3G spectrum and licenses, prices of 3G services have been really high, way over the reach of the common man. Similarly, after the auction of the 4th telecom license in 2001, mobile telephony prices remained high, and came down only after the backdoor entry of Reliance and Tata Teleservices a couple of years later.

One of the points that the CAG mentioned in his report on Air India a few days back was about the granting of “sixth freedom” rights to international carriers flying from India. For example, twice this year I flew west (once to the US, once to Europe) from Bangalore, stopping over at Dubai. For both trips, Emirates sold me a single ticket (i.e. I purchased a Bangalore-New York ticket, not separate tickets for Bangalore-Dubai and Dubai-New York). The granting of this sixth freedom to carriers such as Emirates, points out the CAG, has resulted in substantial loss to Air India since no one flies Air India for international flights anymore. I didn’t believe it when I read it but one of the recommendations for the CAG was to cancel sixth freedom licenses to carriers such as Emirates. Another report around the same time recommended that “interior markets” (Bangalore, Hyderabad, Ahmedabad, etc.) be made Air India monopolies in order to protect its finances.

Now, there is a fine balance that needs to be achieved between government revenues through grant of licenses, and the economic impact on the general public because of the grant of such licenses. For example, the government (through Air India) may have lost significant amounts of money thanks to the grant of sixth freedom licenses to carriers such as Emirates. That has been counterbalanced with lower fares and easier flying options for travelers from hitherto less connected sources like Bangalore or Hyderabad. The government may have lost significant revenue by granting backdoor entry to Reliance and Tata Teleservices, but that was compensated by sudden drop in charges for mobile telephony, and the subsequent growth of the sector.

Given Air India’s history and performance, the government could have never invested enough to make Bangalore and Hyderabad as well connected with the rest of the world as, say, Bombay or Delhi. In that sense, granting of sixth freedom rights to Emirates was a cheap way for the government to provide international connectivity to these cities. Similarly, it would have been hard for the government to invest in MTNL or BSNL in order to take mobile telephony to the masses. Backdoor entry to two operators was a “cheaper option” to achieve this objective.

So what was the problem with what Raja did, you ask. The problem there was the creation of a playing field that was not level. He blatantly favoured certain players against others, and made hefty kickbacks from the process. That is the real tragedy of a non-auction process – in that there is “consumer surplus” left over with some of the companies after they’ve paid the fixed price for the resource, and some of this consumer surplus can be channeled in the form of kickbacks to government officials. I don’t know the parallel for this in the aviation space so I’m not able to comment on that.