Read between the lines of travel startup funding to prepare for the future

“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.

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.