For investors in travel and transportation, the past 18 months have been at once uncertain, volatile and yet uniquely promising.
While the short-term social and economic impacts of COVID wreaked havoc in the space – it was hard to find a travel-related company a year ago that was not reeling financially and doubtful of its future, from the biggest providers to seed-round startups – an almost whiplash-like effect has now left companies scrambling to hire people, restore or remake their business models and provide adequate service to meet rising demand.
While the Delta variant, the impact of rising costs and the acute shortage of human capital continue to inject uncertainty, the trend toward rising demand is now clear and players are at once investing for the future and assessing the long-term impact of a new set of operating constraints.
Where are we now, and what do the next 18 months hold?
Global lessons of the pandemic
One key learning is that travel is far more resilient and dynamic than even the most optimistic experts in the space predicted pre-pandemic.
We’ve always believed that spending on travel is a powerful global secular trend that will continue far into the 21st century and beyond. People love to travel, it is ingrained in their visions of themselves and the world, and it’s an experience they will not sacrifice unless they absolutely have to.
As a recent McKinsey report notes: Next to dining out, travel is single the most desirable activity among consumers with disposable income, a fact confirmed by the robust return to leisure travel this summer in countries where consumers were permitted to move freely.
But “travel” is a massive category, including leisure and corporate, group and transient, hotel, air, car rental and cruise.
As might be expected, the recovery so far has been uneven across verticals, and that is likely to continue.
The path to understanding the future is to follow and anticipate the direction of consumer spending, and at the same time, focus on those areas of investment which COVID has exposed as rapid growth areas within the sector.
In other words: Follow the emerging path of industry disruption.
Alternative accommodations, outdoors tourism and the remaking of the hotel tech stack
We’ve had our eye on the alternative accommodations space for close to a decade now, and the pandemic period only redoubled our confidence in its potential for future growth.
It’s well known that even a 1% shift in U.S. accommodation market share from hotels into alternative lodging translates into more than $2.5 billion in bookings.
The transportation infrastructure space is ripe for massive disruption, with current investments in public infrastructure and self-driving vehicles only the tip of the iceberg.
Chris Hemmeter
Looking at the business ecosystem that continues to grow up around alternative accommodations, the value chain looks more robust than ever.
Sonder, Vacasa and Casai landed huge funding rounds in 2020, even amidst the dark days of the pandemic. Airbnb eclipsed all expectations with its IPO. And the anticipated public debut of Sonder this fall portends a new injection of public investment interest.
Our venture investment thesis has been directed at the space broadly through early investments in companies like Sonder – alongside more niche providers such as BookingPal and Noiseaware. We think there is considerable room to run, as the ecosystem expands from above and within, driven by continued robust consumer spending.
As studies have noted, the pandemic drove a consumer desire to return to outdoor experiences, including record visits to U.S. national parks, cabin rental platforms and RV travel.
“Glamping”-type accommodations, new booking platforms for outdoor travel and peer-to-peer RV marketplaces provide interesting opportunities for investment, not just in the U.S., but worldwide.
It too is a space well worth keeping an eye on.
Finally, there is the intractable hotel technology ecosystem, where macro disruptions such as COVID have served as a catalyst toward an accelerated pace of innovation across the value chain.
Shifting consumer behavior patterns, in evidence long before COVID, have pushed hotel companies toward more flexible models of service delivery, with companies like Optii Solutions providing platforms for achieving increased efficiency and cost savings without the overhead of increased staff.
The rising cost of labor and materials has accentuated the urgency and made disruptive technologies that achieve better service and cost savings “must haves.”
Lifehouse, among other innovative startups, offers platforms for running hotel businesses better, combining a cutting edge B2C branding proposition with a new model for managing properties effectively.
The legacy hotel PMS remains an obstacle for accelerated innovation across the industry, but new alternatives such as the Mews platform promise increased flexibility, collaboration and extensibility across technology functions. Unlocking the puzzle of the PMS provides a gateway to new eras of innovation and investment, including contactless check-in and payments systems.
In this space, companies like Canary Technologies continue to help hoteliers streamline their operations, increase revenue and improve the guest experience.
Greater numbers of hotel decision-makers, including hotel owners, operators and brand executives, have come to realize that the pandemic era has provided a great impetus toward change and disruption, which is unlikely to reverse course.
The rise of expanded investment platforms
Alongside all the disruption on the product side, travel technology as an investment category has been expanded, and elevated and has attracted a wider set of actors and decision-makers.
What appeared to us as “virgin territory” when we launched Thayer Ventures more than 10 years ago has now come into focus as a magnet for SPAC, private equity and even greater venture investment.
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A good example is Inspirato, a luxury travel company that allows subscription customers to book luxury trips at a portfolio of vacation homes and hotels.
The company launched its subscription model in 2011 and has generated more than $1.2 billion in revenue to date. Inspirato projected that annually recurring revenue will exceed $200 million by the fourth quarter of 2022.
Thayer Ventures Acquisition Corp. announced a merger with Inspirato this summer, finding in the company an outstanding example of the resilience of the luxury travel market. Luxury travel has outperformed whether the industry is experiencing peaks or valleys, and the Inspirato model combines in a unique way consumers’ tremendous desire for dependable, time-saving luxury, delivered via subscriptions that allow for flexibility, confidence and distinctive experiences.
At a different edge of the travel/transportation space, we are also finding tremendous value and potential in companies that combine consumers’ robust desire for movement with new technologies that deliver transportation autonomy, electrification and sustainability.
The transportation infrastructure space is ripe for massive disruption, with current investments in public infrastructure and self-driving vehicles only the tip of the iceberg.
Companies like May Mobility and Swiftmile are innovating here, and building safer, greener, more accessible travel options through autonomous and micro-mobility.
These are topics for future investigation and elaboration alongside the explosion in travel technology innovation that is now capturing the attention of the most savvy investors around the world.
What started as an early investment thesis grounded in a vision of what travel could become has been validated and expanded by the sector’s resiliency, outperformance and ability to weather the storms of pandemic and economic downturn to provide unmatched investment opportunities for the future.