Travel Tech Essentialist #54: True Love
According to a survey of more than 28,000 travelers across 28 markets, most would rather go on a vacation in 2021 than find true love, and 68% would rather have a vacation than a promotion. Not a bad sector to be in. More than $400 million in funding flowing to travel startups in the last couple of weeks (#10), but careful with getting too much of it (#2). Reed Hoffman gives some practical advice on how to make better decisions faster (#1) and Credit Suisse describes the ramifications of a slower air travel recovery in Europe (#5). Three hospitality businesses are preparing for IPOs. Two of the three are betting on subscription memberships (#8)
Last week I asked which travel startup could become the next multi-billion dollar company. Thanks for the 220 responses received. Here you can read my write up with the results.
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The Mastercard Wholesale Program leverages virtual card tech to provide a predictable pricing solution for travel organizations. Already working with 360k+ travel providers, across 200+ counties, multiple currencies & product types, Mastercard is ensuring that payment innovation not only helps organizations navigate challenges ahead but supports industry resiliency & growth - mastercard.com/B2B travel.
1. How to make better decisions, faster
Making decisions is one of the core competencies of entrepreneurship. Mastering the skills of making correct decisions more quickly and more often can become one of the most impactful competitive advantages for entrepreneurs. Even if each decision is not necessarily transcendental, the impact compounds rapidly. If improving your decision making allows you to increase the utility function of each decision by 0.5%, after 1000 such good decisions, that same function will have increased 147X. Despite the large impact, the techniques of decision-making are often overlooked. In this conversation between Reed Hoffman and Chris Yeh, they discuss how decision-making can be learned and improved. Read + Greylock.
2. Too much of a good thing
With so much money in the market, funding rounds are accelerating and valuations are rising. Founders should be aware of and careful of the long term consequences of raising more money at higher prices before they’ve reached the milestones that would otherwise support those valuations. Read + Sifted.
3. Airbnb, Booking.com and Expedia are revving up their marketing engines
Insightful article by Mario Gavira that contrasts Airbnb’s brand-reliant marketing strategy versus Booking.com’s performance-reliant one, analyzing which strategy might end up being more effective in a post-Covid environment.
Booking.com’s CMO explains the Booking’s marketing strategy shift from the go-to destinations for global travelers, to the platform for local holidays and experiences. Read + Advertising US.
Expedia announced a new set of features and customer experience, positioning itself as the ultimate travel companion, helping travelers every step of the way. And it will soon be adding 25 million travelers (!!) to its loyalty program.
4. LCC moves
JetBlue, one of the US’ leading low cost carriers, has received UK regulatory to fly to London, a first step toward larger global ambitions. With orders for 26 long-range Airbus A321neos, the airline could be able to serve cities as far east as Berlin and Rome from its Boston and NY gateways. Read + Airline Weekly.
Ryanair steps up its direct strategy with the launch of new tools on its website and mobile app that highlight how users are being “over-charged by OTAs” (according to the airline, of course, and under specific preset parameters). Read + Phocuswire.
5. Potential consequences of the uneven air travel recovery rates
With many larger domestic markets around the world (US, China, Australia) reaching 2019 traffic levels and with international routes lagging in their recovery, this detailed Credit Suisse research report considers the ramifications of differential rates of traffic recovery and profitability around the world. Market consensus expectations suggest a slowest recovery in Europe (smaller domestic markets than other continents) and Credit Suisse looks in detail at three key resultant themes relevant for competitors and investors:
Early US sector recovery can drive a return of the theme of intercontinental
investment in carriers that need equity (AF-KLM most in need). US carriers investing in their European partners could prove a post-pandemic feature.
The higher leverage escalates for full service carriers in Europe and APAC, the
greater the market share opportunities for low cost carriers. LCC share gains can potentially be strongest in the markets where traffic recovery lags most. Credit Suisse’s LCC penetration model suggests LCCs could control nearly half of capacity in Europe and APAC by 2025. This has significant ramifications for full service carriers and airline industry suppliers globally.
Suppliers most heavily exposed to European traffic may suffer a lagged recovery relative to global peers. It includes airports (ADP, Fraport), travel distribution (Amadeus) and commercial aerospace (Rolls Royce) companies potentially weighed down by European exposure as other regions recover quicker.
6. What a difference a year makes for airline investors
In a previous newsletter I showed a graph with the full year 2020 stock price change for a selection of airlines (graph on the left). Take a look at the updated graph for January through April 2021 (graph on the right). In 2020, only 3 of the 18 airlines had stock price appreciation. So far in 2021, 15 airlines of the 18 have had increases, most of them very substantial. All US airlines in the selection have a stock price increase year to date, ranging from +20% (Delta) to 55% (Spirit) and low cost carrier prices are performing better. In line with some of the themes outlined in Credit Suisse report. The world’s most iconic investor, Warren Buffet, sold Berkshire Hathaway’s positions in Delta, Southwest, American, and United in the spring of 2020, which he owned between 8% and 11% of them. To err is human.
7. Optimizing hotels to maximize revenue
According to Richard Valtr, founder of Mews, hotels need to think about their spaces from a different perspective in order to understand their true potential revenue. Total Revenue Per Available Space, or per Available Guest, would be more meaningful than traditional metrics like RevPAR and average daily rate. How hotel rooms are used needs to change as well. If a room is used overnight, hoteliers record this as 100% occupancy, but the true potential occupancy is much lower. Taking the hotel as a whole where every square meter and minute is counted would allow for a more accurate metric. Richard also makes the case that this approach would enable more effective subscription programs: “I know that people still hate the idea of subscription services for hotels as they are, but if a hotel company could cover all of your living, lifestyle and office needs, how much would you pay for that subscription?” Read more.
8. Hospitality subscriptions for growth
Three hospitality businesses are preparing for IPOs. In recent weeks, Sonder and Inspirato have confirmed they are examining the SPAC route to market, while Soho House has firmed up details of an IPO that could value the business at up to $4 billion USD. Two of the three businesses (Inspirato and Soho House) are betting on subscription memberships as a fundamental plank in their growth strategy (in the same vein of what Richard suggests in the previous section). For luxury brands as Inspirato, the case for subscriptions is compelling. But for many hospitality brands, there is a real potential to take loyalty schemes to a new dimension by using the subscription approach. Read more.
9. We already knew that
Alexia Bonatsos is the founder of VC Dream Machine and former co-editor-in-chief of Techcrunch. I would say that travel startups have been having more than a moment for some time, but we’ll take it.
10. Funding and Acquisitions
Toronto-based Sherpa raised $8.5 million led by Narrative Fund and True Ventures. Sherpa’s technology allows travel companies to build travel requirements, such as visa applications, into their products.
Snap acquired crowd-sourced mapping company Pixel8.earth for $7.6 million.
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