It was back in late May that investors in the United States cautioned startups to start cutting costs and preserving cash with the looming threat of a recession.
Investors from Sequoia to Y Combinator pointed to geopolitical instability and rising inflation, as well as to job cuts and hiring freezes at some of the large public companies as signs that newer private companies needed to tighten their belts.
While it’s hard for travel companies, particularly after more than two years of near zero bookings followed by a huge summer, to call the coming quarters, there is an air of overall positivity in the market.
Online giant Booking Holdings and Expedia Group both sounded notes of cautious optimism in their second quarter earnings calls with analysts.
Booking said that “although conditions could change rapidly,” it is optimistic on the data it is seeing currently.
“We see solid gross bookings for the fourth quarter, which are about 15% higher than at this same point in 2019 on a Euro basis.”
Expedia echoed a similar sentiment, saying it has “more nights on the books in Q4 of this year than relative to the same kind of period a year ago. It’s very strong. We’re seeing really strong demand in the back half of the year.”
Both companies seem optimistic that consumer demand and their strength in the market will see them through any tough times that are coming.
However, none of this removes the gloomy outlook moving into the autumn, with inflation climbing, food and energy prices rising and global conflict ongoing.
The reality is that many consumers will have invested savings they made during the pandemic in travel over the spring and summer and now face mounting bills, which could put them off from making forward bookings.
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That said, other factors such as low unemployment could actually help travel companies through a downturn.
Jonathan Sullivan, managing director of the travel practice at Accenture, says: “Employment numbers recently in North America and Europe, and it seems like most economies, are pretty much back to full employment or close. While there may be these headwinds coming against them from inflation and other things, that generally is pretty good for travel because people who are working like to take time off to go places so that’s a sign that’s really positive.”
And, even beyond the online travel agency market, other companies have a positive outlook looking forward.
Steffen Schneider, chief financial officer of HomeToGo, says the gloomy outlook is not reflected in the business and that he expects the vacation rental segment to be resilient.
The company recently reported July as its best booking revenue month in its history, and that through COVID, as well as previous financial downturns, vacation rentals were one of the areas of travel that benefitted.
“One of the reasons is that even people who can afford [travel], said ‘Let’s go to a vacation rental,' because it enabled them to keep a low profile.”
Schneider adds that looking ahead, bookings are still strong - “more than 50% of what we had last year, which shows people are using the off-peak seasons as well.”
"All in all, we are getting a broader season, which gives us quite a lot of comfort. Going into 2023 I would say we have the normal level of bookings for next year as of this time, but the real booking season usually comes at the end of September and the beginning of October.”
Given HomeToGo’s relatively positive position, analysts on its recent earnings call questioned why it didn’t raise its guidance given its solid first half and visibility looking ahead.
Here again, a note of caution is evident.
Schneider says: “Nevertheless we have all this negative news out there, and that’s why we decided to play it cautious and monitor how it looks in Q3.”
The need for balance
Trivago has also been open about the outlook, noting all the different factors currently in play.
Axel Hefer, the company’s CEO, says it’s a really interesting time, with pent-up demand, savings in the bank and high prices as well as major supply issues and subpar levels of service.
He believes a travel industry correction is on the way, whatever happens with the macro environment.
“What it means is that there is actually a lot of profit and these things are not sustainable, the balance has to come back. Thats without Ukraine and without recession.
“To rebalance you need to increase salaries to attract more people from other sectors, which means higher costs you have pass on to your customers.”
All this, says Hefer, comes on top of “skyrocketing inflation in Europe and the U.S.,” meaning consumers will feel an even greater pinch as their disposable income comes down.
“Our outlook is that overall travel will come down because fundamentally something is out of balance, it doesn’t feel right. People will still want to travel, we have seen that in the pandemic, the basic need is still there, but they will be looking for where they can save.”
Hefer adds that this isn’t necessarily bad news for Trivago if price-conscious consumers free up budgets by staying closer to home and choose less well-known destinations.
“People will spend a lot more time searching for the right accommodation in the right location, so from our perspective the outlook is positive because the value we can generate by providing a service to navigate through the different offers goes up.”
Facing the headwinds
Alongside the cautious optimism, there is also a feeling of better preparedness for what might come.
Accenture’s Sullivan says that during the pandemic, travel companies planned for a range of different outcomes because forecasting was so challenging.
“Travel companies are trying to build the best business they can within that range and they’ve got different techniques they can use to make the business work across those different scenarios.”
He adds that Accenture travel customers employed that way of thinking in the pandemic and still are, highlighting the summer volatility as a good example of how the industry coped.
“They’ve had to reset their operations a number of times and still take care of the business, which proved to be more volatile than what they had hoped for, expected or wanted to see.”
The big question on everyone’s lips, and one that is impossible to answer, is how resilient consumers will be.
Sullivan’s hope is “fairly resilient.”
“Travel companies talked about pent-up demand in the middle of the pandemic and doomsayers were saying people are not going to travel the same again any more, but they’ve proved that they are. Leisure travel really is part of the human condition; we like to travel, and business travel is coming back.”
He adds that airlines and hotels have also been trying to build better businesses and introduce products that cater for all segments, whether it’s basic economy or higher-end in airfares or hotels demonstrating the range of rooms and related services they offer.
There are concerns about autumn and winter, about rising inflation and a recession, but there continues to be a sense that the travel industry is resilient and has been preparing and building for the next worst-case scenario, whatever it might be.