Finding Insights in the Travel Industry
There’s a magical element to travel — the anticipation of planning, the bliss of time spent on the road (or in the air) with nothing to do but await arrival, and the exhilaration of discovering new places, coupled with the possibility that those places eventually turn into tried and true favourites. Travel is a chance to break your routine, experiment with new habits and fulfill your sense of adventure. But inevitably, that sense of wonder turns to frustration with the process. Planning becomes a time-sucking headache, time in transit is spent bemoaning the comfort you’ve sacrificed, and discovering a city necessarily involves uncertainty pushing you outside of your comfort zone.
Given the personal nature of travel, this balance of excitement and friction creates opportunities for companies to dramatically improve our experience as adventurers. Travel is a huge part of our lives — so much so that its direct global GDP contribution reached US $2.3T in 2016, or 10.2% of global GDP. This massive market size initially drew Inovia to the sector. As investors, we search for those few entrepreneurs that have the potential of becoming Category Kings — the dominant leader that typically ends up owning more than 50% of the market and 70% of the aggregate market capitalization. The travel sector turns this paradigm on its head — in a market so large, there’s space for multiple leaders to hit scale, even as Expedia and Priceline consolidate the industry.
We’ve made multiple travel investments — in companies that help travellers crowdsource local wisdom, search based on loyalty miles and points, book buses, reserve hotels over SMS, rent luxury vacation properties, and evaluate flights on novel scores. These ideas may seem worlds apart, but in each case, the founding team has identified a valuable lever to disrupt incumbents and provide a better experience.
An Enduring Travel Investment Thesis
So what has Inovia learned, and what excites us going forward? We dipped our toes into the travel sector in July 2011, with an investment in Localmind. 17 months later, Localmind announced they would be joining Airbnb to help customers find the best neighbourhoods when they travel, via local expertise. And so our investment thesis — travelers want authentic, local experiences embedded in their standard travel tools — was realized. This is the same principle underlying the sharing economy’s creation of collaborative consumption, a principle that’s no longer limited to cash-strapped travellers. When we invested in Luxury Retreats in 2012, Founder Joe Poulin had identified that high-end consumers want more than curated and inspected properties, an expertly selected villa, or 24/7 emergency guest service — they want a dedicated local concierge service that allowed them immerse themselves in authentic, local cultural experiences. Following a November 2016 launch of Airbnb Trips, Airbnb acquired Luxury Retreats in February 2017, creating a synergy that bridges high-end travelers with unusual, memorable excursions, while dramatically expanding Luxury Retreats’ customer base in a short period of time.
In the same month that Localmind joined Airbnb in 2012, we invested in MileWise. This was our first bet on what has become an enduring investment thesis — we all have a little bit of a hacker mentality when it comes to travel. MileWise provided users with an online portal surfacing attractive airfare options, based on their personal rewards programs and point/mile balances. Cross-referencing reward travel eligibility is a laborious manual process that users were nonetheless undertaking, proving consumers were desperate for a solution to the complexity of pricing fares across different reward currencies.
Next came our investment in Routehappy in late 2014, where we pushed our thesis further — the democratization of information is increasing traveller expectations. Wifi availability, reliability seat size, food service, in-seat power outlets, video service — these data points previously lived in opaque, fragmented data sources. Routehappy aggregated these attributes from technical aircraft, cabin, schedule, and route information into Flightpad, one central API. This created new dimensions upon which travellers now evaluate their decisions. For a business traveller, wifi and power are worth a $100 price difference, while a father travelling with his toddler might pay an extra $50 for in-seat flight entertainment.
We anticipate this trend will go further, and that travellers will demand proactive and personalized results to cut through the noise of searching a directory of results. This thesis informed our investment in SnapTravel in July 2017. The bot learns a consumer’s booking patterns and behaviours, enabling it to provide personalized results and present the traveller with the perfect hotel options for their stay (factoring in stars, price, and amenities) simply by collecting the basics (city, dates).
Busbud’s Growth Financing
Those learnings are once again being put to use as we lead Busbud’s recent CA$14M Series B. This capital which will fuel technology development, further grow the team, and accelerate geographic expansion. As Busbud becomes the world’s largest bus marketplace, they are inspiring travellers to share their stories and adventures. The decision to reinvest in one of our outperforming portfolio companies was an easy one; Busbud checks all the boxes of our travel investment theses and while learning alongside the team and board, we can push our travel thesis even further.
Five Years of Learnings
Travellers are increasingly demanding a quick and easy way to search and book — while still expecting the service that travel agencies traditionally provided. Quality is an enduring factor, not a trade-off. As the booking source, a company becomes responsible for quality throughout the process. Every cramped seat, wifi malfunction or broken AC vent reflects back on the original booking engine. In return for this (somewhat unfair) quality burden, companies retain a disproportionate amount of brand equity in the traveller’s mindshare. This requires relationship management with a host of external parties, no less the traveller. Happiness scores, NPS, traceable referrals — these are tools that provide an insight into customer satisfaction, which is ultimately the only path to repeat bookings and positive CAC/LTV metrics.
Just as winning companies are exceptional at building fanatical customer bases, they also excel at building mutually beneficial partnerships with OTAs (“Online Travel Agents”), metasearch engines, direct suppliers, trip-planning apps, social tools, and other points of contact within the travel ecosystem. These partnerships improve execution, but they’re also a path to exit. MileWise’s partnership with ITA Software (a Google company) added optionality early on, while it ended up exiting to Yahoo (an Oath company). Somewhat similar to Luxury Retreats who partnered early on with HomeAway, VRBO and Airbnb for reach and distribution. As the acquirer landscape continues to consolidate, companies that diversify their partnerships across the “billion-dollar-plus market cap” players, including Expedia, Priceline, TripAdvisor, Ctrip, Sabre, and Webjet are best positioned to capitalize on their value.
However, it takes a special kind of founder who can continue to nail execution while building optionality. Normal laws of marketplaces apply: growing GMV, while maintaining take rates and ROAS, all while balancing supply, demand and occupancy rates is a true juggling act. LP Maurice, CEO of Busbud, managed to strike this balance, no doubt in part due to his collaboration with COO Sean Shannon, previously Managing Director at Expedia for Canada, Latin America and Australia for 14 years.
Sean also knows first-hand that internationalization and localization are key. Travel by definition involves different geographies, and reaching full company potential requires being where your travellers are (and where they go). Nailing a business model in one geography and then scaling it out quickly is a key indicator that a company understands key principles of retention, and viral growth. Localization often gets lost in internationalization — local brands are key in attracting local supply through credibility, and in some instances, best attained via acquisition. Demonstrated growth in international markets will continue to dominate our investment decisions — travel and tourism GDP growth is higher in seven geographies than in North America — South Asia (7.1%), South East Asia (5.8%), North East Asia (5.6%), Sub Saharan Africa (5.2%), Middle East (4.9%), North Africa (4.2%), and Latin America (3.7%). China is the top tourism spender in the world — US$165B (up 28% YoY from 2013). Busbud gained momentum in emerging bus centric markets such as Latin America (LATAM) and Mexico (the second largest bus market worldwide), a signal we view as highly positive and a testament to its ability to expand internationally.
As a travel company scales, it will face the inevitable question — to go multi-modal or stick to one vertical? We see opportunities on both sides. Dominating one vertical can open up room to leverage distribution partners via a non-threatening and non-competitive plugin to fill their missing areas. Multi-modal companies are best positioned to own the entire traveller relationship and have some optionality in balancing different take rates, as they can use lower margin verticals as a loss leader for higher-margin bookings. Beyond a clear understanding of the key growth metrics that drive the travel industry, all our entrepreneurs have focused on the user’s experience to differentiate themselves. And ultimately, the continued growth of the overall travel industry provides for many different strategies to achieve mass scale. We look forward to partnering with entrepreneurs who are finding white spaces for their unique view of the travel landscape and nailing the execution.
