In few sectors has the transition to a digital economy been as conspicuous or as widely felt as travel. What was previously a quintessential bricks-and-mortar industry with a ubiquitous high-street presence has, in almost all developed markets, moved online. In the UK, 62% of all travel bookings were made via the Internet in 2016, according to Phocuswright data.
The rise of a new generation of tech companies, such as Airbnb and Hong Kong-based Klook, has shaken up the last sleepy backwaters of the travel sector. And, reliable as clockwork, where a sector undergoes technological disruption, we can expect to see a flurry of investment, dealmaking and M&A activity.
Naturally, part of the response from the biggest global operators has been consolidation, particularly in the metasearch space. From the late 1990s through to 2010, the likes of Booking Holdings, Expedia and C-Trip established themselves as the dominant online travel agents (or “OTAs”) for flights and accommodation. Over the past six years these three companies alone have variously acquired household names Kayak, Trivago, Qunar, Skyscanner and Momondo in a series of large-cap deals collectively valued at c.$8 billion. The rationale for these investments is clear: greater scale means more listings on your platforms, more consumer eyeballs, more bookings and more revenues.
But it’s the investments being made in the next generation of travel tech companies, in order to obtain and utilize their technology, that provide greater insight into changing consumer behaviour and what the process of booking and going on vacation will look like in the future.
There’s no shortage of well-funded start-ups doing interesting things with the backing of venture capital investors, particularly across continental Europe. To name just a few, in 2018 alone we’ve seen Austria-headquartered TourRadar, an OTA targeting the multi-day touring market, raise $50 million; Dreamlines, a Germany-based OTA specializing in cruise lines, raise $55 million; and Berlin-based transport booking platform GoEuro raise $150m.
One recurring element within this ecosystem of venture-capital-backed travel tech start-ups is a focus on curation and customization. An area that was previously protected from online players by the complexity of booking multi-day, long-haul holidays is now seeing greater digital penetration. This will continue to drive a rolling wave of venture capital and private equity investment in the coming years.
For example, Evaneos, a Paris-based online travel market for complex multi-day tours, recently raised $80m in growth financing to further develop its platform. Evaneos’s business model not only cuts out travel agents but also tour operators, connecting travellers directly with destination management companies (“DMCs”). Travellers get access to these local experts used to delivering the holidays marketed by the tour operators, typically at discounts of 10-15%. DMCs get closer to the traveller, make better commissions and build their own reputation, rather than that of a tour operator.
This speaks volumes about changing consumer expectations and the direction in which industry observers think the travel sector is moving. The ‘fly-and-flop’ model of vacations looks to be on the decline. Increasingly, consumers prefer not to travel to a country to merely stay in one place or even go through the usual tourist motions; they want to experience life as the locals do and enjoy a fully personalized experience.
These types of holidays have been the last bastion of traditional offline travel and, historically, the preserve of the premium end of the market, dominated by high-touch, high-engagement businesses. The appeal of luxury providers such as Kensington Tours and Abercrombie & Kent resided in no small part in their human interface and how this allowed customers to tailor-make escorted multi-day tours, compared with a package assembled online.
This no longer remains the case. Led by companies like GetYourGuide, Evaneos, TourRadar and Klook, highly curated travel has begun to digitize in a way that just five years ago may have looked a distant prospect, even as listings and marketplaces moved online.
Consequently, these are the type of start-ups that many of the largest global operators have also targeted recently, as they use M&A not only to gain market share, but also to futureproof their businesses against millennials’ evolving holiday habits.
Booking Holdings’ acquisition of Evature, an Israeli company focused on chatbots and artificial intelligence, provided one example of this trend last year, giving Booking access to the technology to analyze vast amounts of customer data and tailor a bespoke service accordingly. Similarly, TUI Group’s acquisition of Italian start-up Musement, an online platform for activities, tours and museums, was intended to bolster the digital capabilities of TUI’s ‘Destination Experiences’ division.
Indeed, even Airbnb, which achieved phenomenal organic growth in its listings base without acquisitions, has turned to M&A to support the rollout of its ‘Collections’ and ‘Experiences’ products. Its acquisition of Trip4Real in 2016 acted as a platform for these initiatives and has since been followed by the purchases of Tilt and Luxury Retreats.
With the global travel industry forecast to grow at an annual rate of 10% to $183 billion by 2020, up from $135 billion in 2016, it’s no surprise that companies are investing in growth. It’s the nature of the bets they’re making, on tech-enabled platforms that disintermediate the old incumbents and draw on big-data analysis to tailor bespoke itineraries, that provide the single clearest insight not into whether we’ll be vacationing in 10 years’ time, but how.
