Russia's online travel primed as investment arrives

Across the globe there are pockets of travel recovery and glimmers of hope as government restrictions lift and travelers venture out.

The economies of most countries have been severely impacted by the pandemic while their travel industries have suffered huge declines.

Russia is a case in point.

The country's travel industry had been experiencing strong growth in the years running up to 2020 and online travel sales were steadily growing.

While all that was wiped away there is now some cautious cause for optimism with figures revealing growth again, particularly in domestic tourism and, it seems, investors are paying attention again.

Aviasales, the metasearch specialist, could be one company lighting the way with its announcement of a $43 million investment.

The funding for the Russia-based company has come from Elbrus Capital Funds and iTech Capital.

The plan is to use the funding for new products as well as to fuel growth in both domestic and international markets.

The investment will also be used to support Aviasales’ corporate travel arm, launched in April 2020, and Travelpayouts, its affiliate marketing platform.

Max Kraynov, CEO of Aviasales, says: “Despite all of the difficulties caused by the pandemic, and despite its significant negative impact on the economy in general and on the travel sector in particular, Aviasales is performing well above its pre-pandemic levels. Thanks to its strong business model the company finished 2020 in the black and is aggressively and profitably gaining market share in 2021.”

He adds that the company has continued to invest in its team and product throughout.

Going forward the company wants to continue to focus on its core flight engine as well as expand non-flight revenue streams.

Recovery mode

The significant funding round will come as a positive sign to many in the Russian travel industry, which has suffered a huge dip in bookings during the pandemic and is now looking to recovery.

While funding deals for startups in other parts of Europe have been plentiful in recent months, travel investment news from Russia seems to have dried up with one or two exceptions.

Aviasales says its latest investment is one of the largest venture capital deals across travel technology startups in Eastern Europe in the past couple of years.

By comparison, companies in other parts of Europe, such as Blablacar, Bolt and TravelPerk, have continued to attract sizeable rounds in recent months.

But there is belief that the Russian online travel market will fight its way back.

Dmitri Krukov, senior partner for Elbrus Capital Funds, says: "The Russian flights and travel market is one of the largest in Europe and is strongly rebounding after the COVID-19 crisis."

Gleb Davidyuk, managing partner at iTech Travel, adds that it’s says “the perfect time to invest.”

“The recovery of the industry and a number of new products from Aviasales establishes a strong foundation for our ambitious growth plans and business development.”

Online growth

According to Phocuswright research, the Russian travel market had hit a five-year high in 2019 with revenue of $37.5 billion. 

The pandemic knocked the destination back significantly with gross bookings declining to just over $17 billion last year.

In its latest report on the online travel market in Russia, Phocuswright reveals that while recovery to pre-pandemic levels will not come until after 2024, online travel sales will grow steadily. The report says that by 2024, 47% of all travel revenue is likely to come via online channels.

Mobile transactions are likely to drive online growth with overall smartphone penetration reaching 73% in 2020.

Aviasales also points to research from Mediascope which reveals that only about a third of Russians book travel-related service through offline agents. 

In addition, many consumers who would have paid cash to travel suppliers in the past are likely to be driven online as the industry recovers.

Questions remain whether online intermediaries will dominate or supplier-direct business will win out.

Phocuswright research shows supplier-direct online gross bookings accounted for almost 66% of online travel revenue in 2019 and that this trend is likely to continue.

And, as with recovery prospects for the wider travel industry, time will tell but, Russia had many of the elements in place prior to the pandemic and now looks ripe for travel industry growth again.

Domestically the industry has already shown it can recover quickly with domestic travel hitting near pre-pandemic levels in August 2020, according to SimpleFlying.

And a number of domestic startups, as well as new initiatives such Aviasales as the Travelpayouts, have also demonstrated growth during the pandemic.

Altourism, one of the winners of last year’s Exploring Russia accelerator, launched by entrepreneur and cybersecurity expert Eugene Kaspersky, was another to report growth.

Government schemes rewarding consumers for holidaying at home are likely to have helped both existing businesses and startups survive the crisis.

The country’s tourism organization said at the end of July that domestic tourism had recovered to 95% of pre-COVID levels in the first half of 2021.

International tourism recovery is lagging by comparison but Russia is not alone in that with most tourism destinations across the globe waiting to see what happens when international markets fully reopen for travel.