Travel freeze but it won't last forever
History tells us that travel innovation accelerates in a recession but this time round, the likely winners will be in the B2B space. Pamela Whitby reports
We all know the bad news figures that show that the travel business is being decimated, but in bleak times tough-minded entrepreneurs can show what they are made of and find hope. One such is travel industry veteran is Adam Goldstein, who has developed an algorithm for anxiety, and told us: “The market has frozen so much that in a weird counterintuitive way, it actually gives a bit of negotiating power to the travel company.”
His very attractive take on the scene is: “If you own a hotel, and you say to the bank, ‘well look, if you guys foreclose you are going to have to own a hotel’, they are going to have to ask the question: ‘well what are we going to do with it’?”
No bank is going to want to own an asset that is going to deliver no revenue for the foreseeable future, says the MIT engineer and co-founder of travel start-up Hipmunk, which launched after the financial crash of 2008 and raised $55-million before selling to travel expense management firm CWT.
The market has frozen so much that in a weird counterintuitive way, it actually gives a bit of negotiating power to the travel company
Expanding on this view, Goldstein says: “Most predators, and most shareholders are going to be more interested in seeing their companies survive than they are going to be in enforcing the companies to honour every single provision in their contract. So, there is going to be a little bit of relief as far as the actual travel companies themselves are concerned.”
That may be a positive for hotels but this is probably not the case for online travel agents (OTA) or metasearch companies. “No one is going to come to you and say ‘oh yeah, even though you are not selling airline tickets or hotel rooms, we are going to keep paying you’. Absolutely not,’” Goldstein adds.
This is why we are seeing the giants like Expedia, Booking.com and Airbnb raising new debt or issuing new shares with onerous terms. With access to the capital markets, these smart travel tech heavyweights know that they are big enough to survive and they will, whatever it takes. Already Expedia has said that it will lay off 3,000 employees, and even after securing $4-billion from bonds, Booking.com's Glenn Fogel has told employees to expect layoffs in the coming months.
For small, even mid-sized companies, Goldstein acknowledges that no one is going to provide a bail out. The best-case scenario is that many companies will go into hibernation, he says, and try to weather the storm in the hope that demand recovers.
Pause for thought
When we reach the other side of this pandemic, Expedia, Booking.com and of course Google, will be in weaker shape than they are today but stronger relative to most start-ups. This may not be such good news for hotels or property owners who have been less than impressed by the decision of these travel tech heavyweights to unilaterally refund hotel bookings and renege on their agreements with hotel partners in the wake of the coronavirus.
But it also presents an opportunity for hotels. Inderpreet Banga, who was until recently VP of channel and distribution strategy at Wyndham Hotel & Resorts, puts it like this: “Never before in our industry have we been able to press the pause button, and this is an opportunity to do just that.”
Hotels that survive will be more cost-conscious than ever before and Banga, who recently joined Epic Revenue Consultants as chief operating officer, believes that now is the time for hotels to put third-party relationships under microscope, to emerge leaner and more agile.
Never before in our industry have we been able to press the pause button, and this is an opportunity to do just that
As the crisis unfolds, many will go belly up, but there will also be, as always, a new wave of start-ups after the devastation to take advantage of a weakened travel industry. This happened when Goldstein’s own company Hipmunk, which developed a cult following, and Airbnb rose from the ashes of the 2008 and 2009 recession. Says Goldstein: “Back then, the bigger companies were focused on going public and whatever their ambitions were, they left their rear flank undefended”.
In the US today, however, Goldstein sees little hope for business-to-consumer facing travel companies. The harsh reality is that the rise of Google in travel and the deep pockets of Booking and Expedia have hiked the cost of customer acquisition and made it extremely difficult for new start-ups to reach meaningful scale.
He is more bullish about the B2B space, where he sees possibilities for consolidation and innovation. In the highly fragmented hotel space, he lists the need for everything from tools that build better guest relationships to tools for better employee performance and for yield and revenue management.
Perhaps, even more important in today’s environment will be tools that help with social distancing that allows guests to bypass the front desk!
A slow road
As the global economy stumbles its way to a recovery, only the adventurous will be venturing further for a while. Leisure travel, specifically on the domestic front, is expected to recover first, as can be seen in China. In early April, industry research agency STR reported that hotel occupancy had reached 31.8% up from a low of 7.4% during the first week of February.
Business travel will recover too but probably not to the same degree as pre-Covid-19, at least for some time, if ever. Big and small companies have found they can economise by conducting virtual meetings. In Goldstein’s view, most CFOs will not permit business travel for anything other than extreme circumstances. Not good for airlines or hotels that are heavily dependent this on corner of the industry for revenue.
There will likely be a slow period of adjustment, potentially over years
However, already there are glimmers of recovery. Globally governments are working to reopen their economies and airports, albeit with medical security delays, fewer flights and higher prices. Today’s news is of Wizzair venturing out on short trips. Lufthansa is also flying as carriers emerge from the crisis. As Goldstein observes: “There will likely be a slow period of adjustment, potentially over years.”
Meanwhile, governments everywhere are committed to reviving an industry that has been such a huge employer and chunk of the global economy.