The Travel Space Is Getting Crushed. How Bad Is That For Startups?

Shares of hotel chains, airlines and cruise lines have been getting crushed in recent weeks, as the spread of coronavirus has put a halt on travel plans. So what does that mean for startups?

Although startups don’t have to weather the minute-by-minute valuation fluctuations of the public markets, the downturn in travel spending will obviously be disruptive to players in the space. And not in a good way.

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Travel cutbacks come at a particularly poor time for startup investors, who poured record sums into the space last year. Per Crunchbase data, just over 500 companies globally in travel and travel-related sectors raised seed through growth-stage rounds in the past year, pulling in more than $7.7 billion.

Overall, travel-focused startups posted the highest annual funding total in 2019, raising over $7.9 billion. That’s up from $7.1 billion in 2018 and well above the totals for several prior years, as the chart below illustrates:

The total for the past year contains a number of supergiant funding rounds. The largest include India-based budget hotel chain OYO ($1.5 billion Series F), Germany-based bus service FlixBus ($564 million Series F), and GetYourGuide ($484 million Series D), a platform for booking tours.

Overall, funding data shows booking platforms and upstart lodging brands as two categories within the travel space that generated the largest share of big rounds. Both of those are areas hit hard by coronavirus-related cutbacks.

OYO in particular is seeing deepening troubles in China, where until recently it had been working to scale up business. Now, the hotel chain is reportedly planning to lay off about 30 percent of its China workforce, or some 3,000 employees; part of a global layoff of about 5,000 people.

Reservations have slowed drastically at Airbnb and other online booking sites, and cancellations are up. Beyond Airbnb, there’s a whole ecosystem of startups providing services tied to the short-term rental market.  Meanwhile, whether volatility will also delay plans for the year’s most talked about potential liquidity event – an Airbnb IPO–remains to be seen.

One smaller area that investors have bet on that might outperform in the current environment is remote lodging. That could bode well for Tentrr and Hipcamp, venture-backed platforms for booking camping sites in remote spots. In a world where keeping away from crowds is the preferred public health practice, there’s something compelling about a getaway that comes with a buffer of many acres from the nearest neighbor.

Illustration: Li-Anne Dias.