Andrea Traversone, managing partner, Amadeus Capital Partners got In The Big Chair with Kevin May, editor in chief of PhocusWire during the WiT Virtual Summit on June 24. Watch the full interview here.
Here are the key takeaways:
What should be the key priorities for travel brands?
“The first one is market timing, forming a view about how do they see the recovery happening from a timing point of view, when to start investing ahead of demand, to be top of mind for their clients …
“… each country is opening up at a different pace in a different way, and this has an impact on travel … one has to be laser focused on the key segments they want to go after, and how these markets are reacting to the easing of the lockdown and how consumers are starting to spend again, and basically phase their investments and activity to this pick-up.
“The other key important factor, particularly if they’re not in the market already, is to really think carefully about the business model that they want to apply. The distribution industry … in travel … has been relying a lot on other people’s working capital … the crisis would change that.”
Advice for startups:
“I would advise them to totally shift. The focus that was probably pre-eminent four or five years ago was around growth … I wouldn’t say necessarily growth at all cost, but growth was definitely their focus.
“The focus should change dramatically to two things, unit economics and sustainability … going forward, healthy, sustainable growth, with good margin, good unit economics, while delivering value to the ultimate customer, should be a much higher priority than it was five years ago.
“I would expect the term contribution margin one and contribution margin two to disappear … these were inventions out of e-commerce that penetrated the travel market where companies were chasing customers, and they were showing their gross margin, which is a fundamental part of unit economics as positive in two layers, the first one from a purely cost of goods sold and secondly, from acquisition of customers. I think that will change.
“I think we will go back to what we used to do… just measure one gross margin and focus on companies that get there much faster, rather than constantly investing in supposedly customer acquisition when in reality, you’re not really acquiring a customer. You’re acquiring a transaction, because you have to go back and acquire that same customer again and again.”
“To be fair, this was a change that was already happening before the crisis … and we already started to see some events that were seminal in that shift. I think the shift was accelerated by COVID.”
What travel sectors will emerge?
“Those that will emerge earlier … are the companies that address local travel (such as) house rentals. The rumours I’ve heard this week is that the online house rentals in Germany, for example, are fully booked already and they’ve never been fully booked at this time of the year. And similar here in the UK where I live, so I think local travel is emerging.
“I think corporate … people that have to travel for work and to build their businesses … those are resurfacing faster. I think medium term … it’s hard to put a range … I think that people will want to make their travel experiences more special just because they will be fearing that there will be fewer.
“… I think that there is a consumer psychology, pre vaccine and post vaccine. I think post vaccine, I expect a very quick return to the norms that we were in the past with perhaps more focus on sustainability. I would expect a post-vaccine world not to look dramatically different than 2019 and the trends we were on at that time from a consumer behaviour point of view.”
What about other sectors like medtech and how they intersect with travel?
“We haven’t yet seen a lot of activity, although we’re expected to see an increase in the intersection between health that can travel, and in some of the combination products around health services combined with travel.
“In fintech, we’re already starting to see some signs where we see some online travel agencies or online travel businesses, trying to and, in some cases, succeeding vertically integrating and including more fintech services, whether that is consumer lending to fund travel, whether that is part of the payments stack, whether that is insurance …
“I think those are very important new product lines because they tend to be services that are higher margin. The downside of it is that most of these services and products, they need very deep understanding of the technology. So it’s not for everybody. Some of these travel companies that are trying to adopt these financial services, they are underestimating the risk involved in taking those products to market.”
How will your approach as an investor change?
“First of all, I would say that we are still incredibly interested in travel tech, in all aspects of travel tech.
“This black swan will be in our rearview mirror for a long time … so we will want to back teams that have had the experience of survival through crisis …
“We will focus even more on unit economics, product market fit, the real strength of the value proposition and the frictionless distribution of the products and because capital will be more expensive, it will be more expensive for us and therefore it will be more expensive for the startups we back and that means that basically the operational leverage demands will be higher.”
Every company should have a Plan B for another Black Swan …
“… even if you look at what Booking.com did signals that – they went out and raised a significant amount of capital through a bond and they still reduced their workforce
“That’s a signal. This is the market leader in online hospitality and everybody should look at that as an example. Basically the advice we give early stage startups, when we invest, is to make sure that there is at least 18 months worth of capital. And we want to have a plan that sees that stretch to 24 months.”
What about sustainability?
“Well, I think you have to survive. To be sustainable, survival is definitely a priority one. I think once you reach that goal … I think sustainability will definitely be very much top of mind. And I’m actually very happy about it. We are driving a lot of that in our investments. And we’re very happy to be driven as well by our own large investors that have a particular focus on ESG (environmental, social governance) and sustainability.
“Most of our investments have a dual focus – obviously returns as well as ESG and sustainability. That second part of our investment thesis is coming to the fore. We are requested more and more by our own investors about what our intentions are, what our views are, and I’m really happy about it … it’s very rewarding to see that now it’s being recognised by the larger financial community.
“I think that will also trickle down from the top from a funding point of view, as well as from the consumer looking more and more to be associated with products and brands that have sustainability as an aspect of what they represent.”
