“Funding records smashed in 2018.” “Rising online travel
penetration boosts startups.” You don’t have to get very far into
Phocuswright’s September report, The
State of Travel Startups 2019, to see it’s an optimistic picture for the
newcomers in our sector.
With almost $20 billion invested in travel startups in
the 10 years to 2019, the success of this engine of innovation in our industry
has been closely tied to the healthy growth of online travel booking, expected
to hit over 50% of the total market by 2021.
I find this report interesting for two key reasons. The
first, it’s an excellent proxy from which to extrapolate the broader trends
which are shaping and reshaping our industry. Second, where investors are
putting their money tells its own, important story.
The travel industry has long held an exciting draw for
startups. Innovators are motivated to improve the human side of travel based on
their own experiences – good and bad. Investors are enticed by an industry
which has been growing steadily for the last 10 years.
A few things stood out to me as I read this year’s report: a
strong swing towards investment in Asia Pacific; further growth in B2B startups;
and packaging and tours remain a popular target for innovators.
Eastern promise
Looking at investments across the last five years, since
2014 APAC has seen the highest levels of funding, peaking at 53% of total
travel startup investment in 2018. With Asia one of the fastest growing travel
regions in the world, it’s no surprise that’s where the innovation is happening
and where investment is heading.
Unlike the United States, which has years of entrenched
desktop legacy it is working to overcome, the Asian travel industry has grown
in the digital age.
Centered on mobile connectivity, Asia has been the ideal
starting point for booking‐focused startups, which drew 60% of total funding in
the 10 years to Q1 2019.
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Another key to the success of APAC‐based growth in travel
startup investment is the high number of STEM graduates the Asian powerhouse
countries, China and India, produce.
We often see the most successful
innovations in travel coming from innovators outside the industry and as AI,
machine learning and data and analytics continue to unlock value for the travel
industry, it’s likely this strong trend towards investment in Asia will
continue.
I hope this shift in funding towards Asia will not go
unnoticed by my peers here in the U.S. Having been the dominant travel region
globally for so long, we need to ensure we’re not complacent about losing our
lead.
All my fellow industry leaders here in the Americas should be looking to
Asia and the companies and technologies that are thriving there to ensure we’re
all investing to future proof our own businesses here.
I don’t think it’s too
long before we’ll see some big acquisitions by Asian companies that could
rewrite our industry landscape: Chinese giant Trip.com Group (formerly Ctrip)
has been quietly foraying in to the US ‐ acquiring Trip.Com in 2017 and last
year investing in Denver‐based jet airplane startup Boom.
Japanese tour
company HIS has recently made two tour operator acquisitions in Canada and
Indian hotel titan OYO Rooms has this year announced a $300 million investment
into its footprint in major U.S. cities.
The industry's plumbing
According to Phocuswright’s report, 40% of the total
invested has been committed to B2B startups. In some ways, that’s perhaps not a
huge surprise – there is a lot more potential to succeed if your startup can
help solve some of the inherent complexity of the industry rather than trying
to become the next big OTA.
Digital automation and biometrics are set to
revolutionize the travel experience, and major investment is going into
start‐ups who can bring efficiencies to travel sellers and consumers alike.
Corporate travel has increasingly been the focus of
startups. TripActions is an interesting case study here, now valued at some $4
billion.
While it’s focus has been on heavily investing in AI capability and
machine learning to offer proactive customer support and delivering a holistic
TMC content proposition, around 30%, of the TripActions product investment has
also been into its post‐booking support functions.
This combination of
innovative technology and human service is in the sweet spot of what
Travelport’s 2019 global digital traveler research told us today’s travelers
want.
So while it’s a B2B investment, we shouldn’t lose sight of
the fact most B2B businesses, including my own, are ultimately all innovating
for the benefit of C – the consumer.
Packaging and tours was the fastest growing vertical for
investment in 2018, Phocuswright’s research says. One of the most significant
shifts in travel bookings moving online was the ability of airlines and hotels
to "unbundle" their offers, delivering an a la carte menu for travelers to
customize their own trips.
Packaging is inherently good for the travel
industry, often delivering high margins whilst also being good for travelers,
enabling them to seamlessly manage their whole trip in a single place.
Other areas
As travel continues to dominate "bucket lists" and provide
the opportunity for self‐ improvement and renewal, much favored by today’s
younger travelers, I believe this growth in investment in packaging and tour
innovations is here to stay.
It also supports the growth of outbound travel
from Asia, one of the regions most strongly favoring group adventures.
One of the key themes we’ve seen in our own innovation this
year is the willingness of the industry to get behind good ideas early, this is
mirrored in the Phocuswright report with the continued success of incubators.
My top tip for startups as they navigate through early
funding rounds is to not hold back in getting their ideas in front of people
who can help bring them to reality, even if they’re still working on a proof of
concept or viable product.
Not all investment is money – we might have data or
expertise that could prove crucial to your success. In an industry which still
has high barriers to entry, some of the established players are likely to be
willing to invest and engage early.
About the author...
Simon Ferguson is president and managing director of
Travelport for the Americas.