For investors travel is a mega trend that cannot be ignored…
I was sort of surprised to learn how much investment, smart money is piling into the travel tech, leisure tech and the travel logistics sector.
Why is travel and leisure industry that has been pounded by the pandemic, experiencing a 90% fall in tourism and business traffic, the closure of restaurants, entertainment attracting so much capital?
Let’s think about it for a second…we can assume the bounce back when the world starts moving again will be very strong…people want to travel — need holidays, to visit families…cities need tourism to return quickly. It all makes perfect sense and why the Travel and Leisure Sector is the hot sector for investors.
I live in the West Country of the UK, a coastal fishing village popular with tourists, a microcosm of the bigger world. Not only are there no houses for sale (as families move out of cities), all rental properties are already fully booked into 2022, hotels and restaurants fully booked as the UK government announce dates to end ‘lock down’ as more than 50% of the population receive the vaccine. Lets us not forget this is without overseas tourism into the UK… People are ready to spend, go out, have fun…
But here is the thing. The Covid effect hit most industries hard, the accelerator effect that quickly exposed tired business models that were failing anyway. The traveller, you and I want to go to that place in the sun, go to the beach, visit our favourite destinations, see friends and family. Even though we know this time it will be different. Or will it…
OK, the $47billion Airbnb IPO helped get attention on this sector, as did $2.6bn invested in OYO and several other large rounds and successes. In so many ways the ‘pandemic’ has been good for the sector, forcing change on it, but most of all has inspired a new generation of entrepreneurs, managers to do things different, to find the new business model, to create the next UBER, yes I was surprised they label themselves as a Transport company (yet own no vehicles) they create and are the aggregator of network capacity! I get it.
Market Influences & Trends
Humans need social interaction — as the world starts moving again, given there is only so much business you can conclude on Zoom, we as humans have a need to ‘press the flesh’ and look people in the eye once more. It is hiow we form relationships, make judgements and what makes us human. We also know this time around it will be different, the legacy of the pandemic. It is likely we shall carry Vaccine Cards and have to demonstrate our state of health as we enter and leave countries, terminals, places. It is likely fewer people will accept being packed into small spaces, airport jetties, small hotels, tiny rooms. We accept but may not like the need for further testing, booster vaccines each year, as a new travel and transport infrastructure emerges that can cope with further pandemics.
Airlines — already new airline propositions are launching — offering roomy Business Class flights, to tap into this shift. Although during this pandemic apart from the reduced service and rubbish food, it was nice to have space and not sit on top of one another. I quite liked half empty planes and didnt care for business lounges anyway. At best a poor concept, and what is offered nolonger fits with our needs. To not queue for the lavatory, to have luggage space for once was a luxury I enjoyed.
Airlines hindered with legacy tech, have failed to invest adequately in front end systems that engage their target market — the traveller, and a back end systems that deliver Insight by flight, plane type, route and class, operate blind, haven’t collected the data and have to buy it back from third parties, as booking platforms have secured the relationship with the traveller. Consequently airlines have not delivered value for frequent travellers (warm champagne and ugly food in lounges, boarding first) is not enough, where many airlines have outsourced loyalty programmes to third parties, now realised they have to get closer to the paying traveller, all travellers (not just business and first class), to take part in revenue opportunities across the entire passenger/traveller supply chain. The kudos and benefits of Gold Card aren’t enough.
Hotels — most hotel groups are trying to reinvent accommodation — upgrade facilities and a new focus on health, wellbeing, spotting opportunities in new forms of tourism. But they are also tied to legacy technology, that further disintermediates them from dealing directly with travellers, their target audience, before or during booking. They merely sell space in boxes and derive their capacity from others who take a chunk of their margins.
But then it is likely families will prefer local holidays anyway, and when they travel will want to be away from the madenning crowd further fuelling the growth of alternate accommodation platforms such as OYO, Tuija, Vacas, Sonder who have consumed $4.5bn in investment. The emergence of Co-living communities, Sustainable cities and Mindfulness holidays have received a boost and this trends is likely to continue.
Expanding Markets — in China, India, Indonesia, Malaysia — the expanding middle class will spend billions on travel supported by specialist platforms that cater to their tastes — such as Traveloka and Avenda. Other travel mega-trends indicate there is more demand for local short haul and regional travel and why new specialist platforms have emerged quickly, and why smart airlines have invested in new fuel efficient planes.
The demise of tour/holiday operators — showed how weak their business model was already as passengers can attest, while millions lost their money as these businesses continued to take bookings, then weeks later declared bankruptcy. The final nail in the trust coffin.
Wellness Tourism — there have been record visits in all countries to national parks, heritage sites and historic places as people exploit what is on offer locally. Already Wellness retreats are over booked as capacity struggles to meet new demand. People are reaching for healthier lifestyle, try to mentally recover from the events of the past 12 months, and deal with a new future where consumer/families priorities has changed.
With Q1 largely in lock down, on the back of 2020, Q2 will see the opening up of commerce, of boundaries and borders. An accelerated rollout of Vaccines in some countries ahead of others will place countries in a good position to capture the first wave of new freedoms, travellers and tourism. National economies have to open up, city mayors and civic leaders desperate to get commerce flowing and communities rebuilt — present great opportunities for new business models e.g. LifeSimple springs to mind.
There is huge pent-up demand as a new wave of entrepreneurs spot opportunities to do things differently at one end, and the incumbents are forced to transform themselves, and do this quickly. Airlines, Hotels and destinations have to fight back for control of their customers.
More capital is flowing into travel tech, leisure and experiences than ever before. A series of SPACs that have raised $7.9billion in the past few months demonstrate these early adopters see opportunities and strong demand. M&A will increase as valuations of infrastructure heavy businesses fall further, successful platforms spend free cash flows on roll-up strategies. It is a rich environment for VCs, Investors, Hedge Fund and yes Family Offices many of whom are heavily vested in hotel groups, malls and airlines.
Family Offices are particularly exposed and need to invest in travel tech layers to breath new life into their investments and ring fenced their business models that remain vulnerable and exposed, replying on third party to drive capacity, a high risk strategy!
2021 is the rebound year, there is no doubt. People around the world have been reinvented as new consumers with new priorities, needs and requirements. Yes, a lot of money has piled into Space Travel businesses, into EV and Drones that offer transport possibilities, but the bulk of capital will invest in ‘travel tech’ propositions that can demonstrate cultural, geographic, historic sensitivities and can deploy capital quickly to capture demand that has no home or loyalty today.
Unicorns will emerge
The business models that can scale at pace globally will have ‘unicorn’ potential. Propositions that deliver solutions to a changing travel landscape — an easy to use front end that join new dots and deliver new value to the traveller, supported by back end systems able to deliver deep insight into travellers needs and actions and make adjustments to the experience on the fly, as the traveller touches them.
After all moving people around is a supply chain play, and why Uber classify themselves as a logistics business. Offering direct immediate services that are trusted and convenient in minutes. A brilliant business model, where the technicalities have been simplified — a traveller (user) view and a transport (driver) view, a multi-sided economy where all sides win and Uber take their 20% of everything.
My particular favourite is East2 a travel tech business rolling out across European airlines, that enables the traveller, the passenger to benefit from, monetise and earn rewards from every part and aspect of their journey, their spend and their experiences. A solution that will soon support 600million frequent travellers extends to current loyalty proposition to all travellers.
Why could East2 be a Unicorn? During 2021 the company will roll out its solution to 15 new airlines that have 600m frequent travellers that flies 1.5billion travellers, a decent market share. A business model similar to Uber that can accelerate the investor opportunities and returns given the strength of the travel and tourism recovery. Timing is everything, market positioning is key, travel tech that helps and gets closer to the traveller will win the day.
Author: Nick Ayton