Could The COVID-19 Vaccine Mean A Rebound For Travel Startups in 2021?

For travel app Hopper, the first quarter of 2020 was remarkable. The company, known for using predictive analytics to recommend when to book flights and hotels to get the best price, was growing 400 percent year over year.

Then COVID-19 hit.

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The company started to see the impact of the pandemic in mid-March, and then it was “like the carpet (got) pulled out from under us,” according to Hopper Chief Strategy Officer Dakota Smith. Bookings in April were down around 80 percent year over year, he said.

The travel and hospitality sectors have been among the hardest hit amid the COVID-19 pandemic, but news of Pfizer, Moderna, and AstraZeneca’s COVID-19 vaccines showing high efficacy rates in their clinical trials has lifted hopes for a travel industry recovery next year.

But while positive vaccine news is definitely good, it’s still too early to definitively tell how that could affect travel in 2021, according to Alexander Field, the Michel and Mary Orradre professor of economics at Santa Clara University.

“I think it’s just extremely difficult to know how quickly this can be produced at scale and distributed at scale that would fundamentally change the situation we have at current,” Field said.

There are logistical challenges involved with mass production and distribution of a new vaccine, as well as challenges around the number of people who will take it, given the skepticism around vaccines in recent years.

“I think definitely things are going to get better for the travel industry than they are now, but the question is how much and how quickly,” Field said.

Still, some travel startups have already seen recovery since the initial COVID-19 shock in March and are hopeful that trajectory will continue next year. 

Since April, travel booking on Hopper has increased by 10 times and now bookings are even with last year, Smith said. Hopper’s travelers tend to be leisure travelers and skew toward the younger side. 

Currently, the vast majority of bookings on the app are domestic trips to visit friends and relatives. There’s virtually no international travel being booked through the app due to international travel restrictions. 

“That’s really what the vaccine holds the key to,” Smith said. “Countries will not feel comfortable opening their borders to vacationers until that (vaccine) is rolled out.”

When COVID-19 hit, Montreal-based Hopper didn’t want to change its strategy so drastically that it was only building products applicable in a pandemic. Still, it needed to shift its approach for the reality of the situation, Smith said.

So the company doubled down on features like its price freeze option, which allows travelers to pay a small deposit to freeze the price on a flight for a window of time to book later—something that proves useful when a traveler is dealing with an uncertain situation, but wants to lock in a good price. Hopper also invested more in its hotel and car rental products, which have been recovering faster than air travel, and stalled its expansion into international markets.

While Hopper was preparing to see travel recovery in 2021, Smith said it’s been witnessing a rebound since April, especially going into the summer and holiday seasons. The company is now preparing for booking increases in 2021 by scaling teams like customer experience. 

“I think it’s going to be a slow build-up in 2021, and 2022 could be an actual boom year for travel,” Smith said, adding that the pandemic has reinforced to people how much they value experiences like travel and eating at restaurants.

Hope ahead

When COVID-19 was declared a pandemic in March, the travel and hospitality industries were among the sectors most immediately and severely hit. Closed borders, shelter-in-place orders, companies cancelling business travel, and a general fear of catching the highly contagious virus brought travel to a halt. Several travel-related companies went through layoffs in the weeks and months to follow, including Hopper, TripActions (nearly 300 people laid off), and Airbnb (1,900 people laid off), which filed paperwork to go public last week.

Investment in the travel and tourism sector overall has also been down this year. According to Crunchbase data, around $5.2 billion has been invested globally in venture-backed travel and tourism companies so far this year, less than half of the $10.8 billion that was invested last year.

The drop in funding for travel and tourism companies isn’t quite as dramatic when looking only at U.S.-based venture backed companies—total funding comes out to $2.4 billion so far this year, compared to $3.6 billion in 2019.

But positive news this month of Pfizer, Moderna and AstraZeneca COVID-19 vaccines in development have been encouraging, with many stocks rising in response. (The exception: remote work-friendly companies like Zoom, which saw its share price fall on the vaccine news.) Pfizer submitted an Emergency Use Authorization request to the U.S. Food and Drug Administration on Friday.

According to James Hardiman, managing director of equity research at Wedbush Securities, who covers the leisure sector, travel likely won’t return to normal until the vaccine is widely available and the majority of people have received it. Most of the online travel companies Hardiman covers are pointing to 2022 as the first “normal” year, he said.

Part of the reason: People tend to book travel ahead of time, so it’s difficult to get back to a “normal” year when a vaccine won’t be widely available in the beginning of the year.

Hardiman thinks air travel will pick up significantly in the second half of 2021, but until most people have the vaccine, big trips to Europe and the like will probably be down compared to 2019 levels. A summer 2021 trip to Europe, for example, would likely have to be booked by March 2021, and Hardiman is doubtful that enough people will be vaccinated by then. People will likely dip their toes into smaller, local trips before jumping back into big far-flung vacations, he said.

“What we’ve seen is international travel–cross-border travel–has slowed down to a trickle, but clearly local, regional travel, drivable travel is alive and well, and within that, obviously, people are preferring to go stay at a vacation home, something where they can control their environment rather than a traditional hotel,” Hardiman said. “People are opting for rural and beach settings for obvious reasons … I think you’re going to see all of those and more in 2021.”

The cruise industry is a separate story. Cruise ships were somewhat viewed as “ground zero” for the COVID-19 pandemic in the United States early on, with images of quarantined ships floating offshore all over the news in early March, according to Hardiman. The cruise industry will have to wrestle with the “reputational damage” it’s taken, Hardiman said, so the bar is probably higher for the cruise industry to pick back up, and it will likely take longer than the rest of the travel industry.

The outlook from the U.S. Travel Association, an organization representing the travel industry, is grimmer than the prognoses offered by other industry analysts Crunchbase News spoke with. The industry organization expects U.S. travel to finish 2020 down 45 percent from 2019 levels, and doesn’t think it will return to pre-pandemic levels until 2024, according to a statement from the USTA. The organization is pushing Congress to pass a bill that would provide relief to the travel industry and save jobs.

Travel industry looks to the future

Some startups like Hopper and TripActions, which were both hit hard at the beginning of the pandemic and went through layoffs, are positive about the forecast for travel in 2021. 

Palo Alto-based TripActions, a travel and expense management company for corporate travel, is optimistic about next year, with the recent news of vaccine development, according to Meagen Eisenberg, the company’s chief marketing officer. 

“Obviously it’s hard to predict what’s going to happen, but based on trends, based on vaccines, I believe we’ll see at least a 50 percent recovery by Q2 (of 2021),” Eisenberg said of travel in general.

While travel hit the brakes in March, TripActions has seen an average of 4 percent to 5 percent growth each week on its platform since April. With the climb in bookings, the distribution of who is traveling is different, with industries like health care, manufacturing and retail making up a greater proportion of travel.

Eisenberg also pointed to a large number of inquiries from travel managers about best practices, policy management and hygiene, along with an increase in inbound traffic to TripActions’ website and demos of the product as indications that the travel market is getting ready to recover.

“When COVID hit, all of a sudden we saw an explosion in car bookings—that was the largest. The middle was hotels, and flights being the lowest. … We’re starting to see that invert back,” Eisenberg said, noting that the trend likely shows people are getting more comfortable with flying.

Ultimately, Eisenberg believes, business travel will recover with personal travel. As soon as a company loses a deal to a competitor because it didn’t have someone conducting a meeting in person or attending a dinner, companies will want to bring back business travel, she said.

“I think as people get more comfortable with personal travel, that will only lead into traveling for business as well,” Eisenberg said.

Illustration: Dom Guzman