Travel Tech Essentialist #34: Upside

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Q2 2020 is likely the worst quarter the travel industry has seen in modern history — Expedia CEO

Three travel giants announced Q2 results in the last few days: Booking Holdings, Expedia Group and Tripadvisor. Year on year declines across the board came as expected (story #1), but the companies also offered some early signs of travel demand recovery (story #2). Their results reflect the changes to consumer behavior brought by the pandemic, shifting demand towards domestic travel and alternative accommodations (story #3). Other stories in this newsletter show that we are living in a time of reinvention, imagination and innovation.

1. Q2 witnessed historic drops

• Q2 bookings 2020 vs 2019: Expedia -90%; Booking -92%.
• Q2 revenue 2020 vs 2019: Expedia -82%; Booking -84%; Tripadvisor -86%; Trivago-93%.
• Q2 room nights 2020 vs 2019: Expedia -81%; Booking -87%
• Q2 EBITDA: Expedia: -$436 million; Booking -$376 million (first quarterly EBITDA loss since 2001); Tripadvisor -$74 million
• Restructuring. Booking.com announced plans to lay off up to 25% of workforce. In June, the group announced plans to reduce headcount at its KAYAK, OpenTable and Agoda brands by approximately 22%.

2. Q2 results showed some early signs of travel demand recovery but getting back to pre-Covid levels will take “years”

• Booking — Room night trends improved significantly over the course of Q2 from -85% YoY in April to -35% in July. However, with surges of Covid cases in certain key markets like Spain and the US, there is a lot of uncertainty surrounding continued Q3 and Q4 recovery. Domestic room nights increased slightly YoY in the month of July for the first time during the Covid pandemic and domestic alternative accommodation newly booked room nights increased “nicely” YoY in July.

“In order to recover to pre-Covid levels, we will need to have a vaccine or effective treatment, which will take time to produce and distribute globally at the scale needed…it will be years and not quarters before the travel market returns to pre-Covid volumes”. Earnings call

• Tripadvisor — In April, May, and June, monthly unique users were approximately 33%, 45%, and 60% of last year’s comparable period, respectively. In July, monthly unique users improved further to 67% of last year’s comparable period .

“Travel’s recovery path will likely be uneven by geography and by sector as businesses and borders reopen and consumer confidence in their own health and safety is restored.” Earnings call

• Expedia — Core lodging saw a rebound in net bookings during May/June and stabilizing trends in July.

“We expect the recovery will have ups and downs along the way and look different in different geographies depending on the ability to control the virus, travel restrictions and consumers’ general comfort with traveling” Earnings call

Read more details at Investment bank LionTree’s excellent Weekly Update newsletter (by Leslie Mallon)

3. Q2 results showed new traveler behavior shift to local, rural travel and alternative accommodations

• Booking — Domestic room nights represented over 70% of Booking’s newly booked room nights in both Q2 and July, up significantly versus 2019, which was about 45%. The CEO also addressed the increased interest in alternative accommodations: “We also see that our customers are booking more alternative accommodations than in the past, which often have the benefit of reduced potential interaction with other travelers”. Earnings call.
• Tripadvisor — Domestic travel trending positively, with all major markets showing significant growth in searches for near term travel. Also seeing increase in volume for alternative accommodations; vacation rental and restaurant bookings have shown the fastest recovery, followed by hotels and then experiences. Growth in trips away from urban centers and “toward the outdoors”.
• Expedia — The company sees Vrbo on a faster trajectory to recovery: “As we got into summer, people obviously have a real interest in the whole home model and being able to have their families alone and not in shared space. And so Vrbo really led the way for us”. Expedia expects that Vrbo will see an increase in supply as people look to monetize their real estate assets during the economic downturn. Domestic revenue did relatively better, with a 75% year on year decrease in revenue in Q2, which compares favorably to International’s 92% drop. Earnings call and results.

4. H1 2020 VC funding update for Travel and Mobility Tech: fewer but bigger deals.

An article published by TNMT shows that about $13.5 billion were invested in startups across Travel and Mobility Tech in the first half of 2020, — an 8% increase vs. the first six months in 2019. The Covid impact is seen in the number of deals. June 2020 had 39% fewer deals than June 2019 and 27% fewer than in Feb 2020. Nine of the ten biggest VC deals in Q2 2020 were to transportation startups. The top 2: California-based self-driving car Waymo raised $3B from Andreessen Horowitz; Indonesian ride-hailing startup Go-JEK also raised $3B from AIA Group and Alphabet. The largest travel-related deals were Indonesian OTA Traveloka’s $250 million and corporate travel TripActions’ $125 million. Read more.

5. Global Air Trends: still cloudy and grim

The Road to Recovery report, produced by Phocuswright and 3Victors, offers data of airline seat capacity and search traffic trends from January 2019 to June 2020, and forward projections from July 2020 to December 2020 that yield insights into traveler intent. Markets covered include the Americas (U.S., Canada, Mexico and Brazil), Europe (France, Germany, Italy, Spain and the UK), and Asia Pacific/Middle East (Australia, China, India, Japan and the UAE).

6. As national borders consider reopening, McKinsey calls for a partnership between governments and the tourism industry

Tourism made up 10% of global GDP in 2019 and was worth almost $9 trillion, making the sector nearly three times larger than agriculture. However, the tourism value chain of suppliers and intermediaries has always been fragmented and governments have generally played a limited role in the industry, with partial oversight and light-touch management. This McKinsey report calls for governments to take the current opportunity to rethink their role within tourism, thereby potentially both assisting in the sector’s recovery and strengthening it in the long term. The report proposes four ways that governments can reimagine their role in the tourism sector in the context of CV19.

7. Airline pricing and revenue management needs an upgrade

Airline revenue management is based in large part on historical data. Airlines use big data computing to know with surprising precision what the demand will be for every flight. Except now they don’t, since so much of revenue management is based on past buying with no relation to a pandemic. Some think airlines need to move away from their reliance on historical data and become more like online retailers. “Expedia or Amazon don’t think of it as: What did you sell three years ago and what’s the average sale for that over the past three years? They think of it as: What is hot now?” Read more — WSJ.

8. Accor looks to counter the decline in business travel by transforming some of its hotels spaces into office space

In its half-year 2020 results, Accor Hotels said that 60% of all bookings being made in Europe are for stays within five days. The company outlined plans for a further €200 million in cost savings. Accor anticipates business travel will remain down by 10% permanently as people move to digital communication. However, they are confident the 10% can be made up by using local hotels and their facilities as permanent offices. Sebastian Bazin, CEO: “We can do it at large, on a subscription model and have 5% to 10% of the room count transferred into premises at a time of day when you don’t need those facilities.” He adds that Accor is working with co-working specialist Wojo, which it owns a 50% stake in, on the initiative. Read more.

9. The high-end travel industry is seizing the moment

Some travelers are seeking the heightened control that “private travel” provides. Operators and properties are customizing experiences to give the option of “not being with anyone else”. It’s easy to dismiss private travel as a selfish indulgence, but hoteliers argue that it’s a kind of stimulus that lets them get some of a hard-hit workforce back on the job. Read more — WSJ.

10. Deals and Startups

• Airside closes a $13M Series B to accelerate digital travel identity tech. The Virginia-based startup builds a secure and convenient digital ID technology and works with airlines, cruise lines and hotels. Since its launch in 2009, more than 8 million travelers have used the app. More info.
• Boston-based property operations and services platform Breezeway raised $8 million to expand its services for property managers navigating the Covid landscape. The Series A round was led by Schooner Capital.
• Flight Centre Travel Group acquired San Francisco-based business travel management platform WhereTo. Read more.
• Australian startup ShareRing is creating a unified ecosystem for the travel, sharing and on-demand economies, aimed at promoting the adoption of blockchain on a global scale. The startup recently launched an anonymous Covid e-passport app with contact tracing that it will offer to 2.6 million hotel and activity providers that currently use one of the company’s services.
• ByWay Travel wants to make the journey the star of the show. The startup’s mission is to get us to discover the world by traveling through it (by train, boat, bike…), not flying over it. A timely proposition.

PS. Elon to the rescue

Mauricio

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