How travel startups can survive when investors withdraw

Undeniably, COVID-19 send the world travel industry back to 10 years ago when travel startups are standing on the verge of collapse. Additionally, the frozen demand for travel and tourism has caused investors to scrupulously pour capital. Due to financial exhaustion, the majority of travel businesses have reconstructed to survive.

The period from 2013 to 2019 referred as the golden edge of the travel and hospitality sector when investors saw the dramatically potential boom of the industry.

While the risk investment in 2013 accounted for US$1.4 billion, that number rapidly claimed to a peak of US$30.3 billion, which is equivalent to the average growth rate of 48 per cent annually.

Additionally, the portion of travel and tourism in the investor’s portfolio had increased from two to 18 per cent in five years. Unfortunately, the trend had ended due to the outbreak of coronavirus.

An adverse adjustment in investment preferences

In the first half of 2020, the value of investment deals in travel startups significantly drop over 42 per cent that the number of deals also fall by 25 per cent. It was due to the expeditious decline of global demands. The new transaction has rarely occurred, while the current cancellation rate is on the rise.

Accordingly, several startups are running out of money, leading them to implement a prudent financial plan instead of burning money to expand the market share as six months ago.

Also Read: How travel tech startup Travelhorse survives the pandemic by branching into new territory

Undoubtedly, the airline sector and its investors are suffering the greatest loss recently. In June 2020, investors of Delta Airline had lost over 26 per cent of what they invested in this brand due to the sharp drop in the global stock market. Besides, there was a surge of business withdrawing from the market, while the number of new entrances constantly decrease in the Asian market. 

On the other hand, the adverse change in investors’ preferences also induces pressure in a fundraising round of several Asia startups. An online booking startup, Traveloka claimed that it was struggling with a new round of fundraising, which was over 17 per cent lower than the nearest one.

Definitely, Traveloka has never been the only victim. Even Airbnb encountered financial trouble recently. In which, around 90 per cent drop in its online travel booking platform cause this vacation rental business falling into US$2 billion debt, while some big investors refuse to add new money for it.

Prompt response

Many travel companies have decided to temporarily change the core business models, investing in other industries instead of pure travel business. Along with the advantage of broad customers’ groups and strong online distribution, those enterprises have a high incentive to enter the FMCG market. Besides, some startups expect the grow via the online food industry, which refers to be the least influential industry. 

KKday in 2019 was the emerging online tour booking platform with rapid growth in three consecutive years. Unfortunately, its revenues were estimated to drop off a lift by over 90 per cent due to the pandemic, as the cancelled orders continuously erode its financial condition.

As a result, KKday has started using this platform for selling souvenirs and food. The revenue of non-travel products saved KKday from bankruptcy, contributing approximately 50 per cent of total revenue.

Klook in Hong Kong has paused its tour booking services recently to provide on-demand food delivery. In which, Klook has added the new feature, allowing customers to make a reservation at restaurants, select meal kits, and delivery option in its platform. Instead of booking tours, Klook’s customers currently order meals and raw materials to be delivered to their home.   

Redistribute resources

According to an industry expert, the withdrawal of many investors is a non-permanent trend that will see the industry recovering at the end of 2020. Bloomberg predicts the Asia online travel market will increase by 129 per cent until 2025, reaching US$78 billion.

That’s why changing business models is still a temporary response to the current market condition. Startups should be ready for coming back to the travel industry at any time. 

In the midst of the investment drop, travel startups need to implement new strategies to spend their limited money more efficiently. While the demand freezes, it is time for investing in improving the business ecosystem. The common strategy tends to be personnel reductions. 

In particular, Airbnb reportedly cut over 25 per cent of its workers this May as an impact of the decrease in revenue in 2020, predictably accounted for around 50 per cent of 2019’s result. The majority of part-time positions have been laid off, while the whole business forced to reduce expenditure for avoidable activity. 

Instead of focusing on international visitors, the majority of startups in Southeast Asia recently drive its resource into the domestic market.

Also Read: Report: Indonesian startups took 70 per cent of travel tech funding in 2019

In Vietnam, the country with zero deaths from COVID-19, domestic travel has restarted as normal. Luxstay, the Vietnamese answer to Airbnb, has restored its booking services since the middle of May. In which, it is focusing a promotion plan to Vietnamese rather than foreign tourists. 

In Hong Kong, a travel business selling culture tour has successfully launched a brand-new virtual tour of some featured building to over 700 students. This campaign finally got sponsors from the authority and bring huge profits to the company, helping it came over the crisis.

Since the future of extending the movement restrictions is probable happened, the term of virtual travel expectedly become popular, and inspire several startups capturing this model to survive. 

Final words, notwithstanding implementing austerity strategy or changing the direction, travel startups have done a good job to defeat the severe impact of the pandemic. With the investment expected to return next year, the travel tech industry will come in a new chapter with prospects of glory.

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