Fixing flights still cumbersome, only a few players can be globally competitive, says Etraveli’s Hedlund
WHILE everyone is dreaming of “better travel” ahead, post-Covid, it will still be a while before flight bookings become a good consumer experience and in fact, according to Mathias Hedlund, CEO of Etraveli Group, it’s gotten even more complicated during this period.
When asked what’s the most cumbersome thing he wanted to fix in flights during Episode 5 of the WiT Travel Roadshow last Thursday, Hedlund was quick with his response, “I still think that we all should be a bit ashamed that it’s so difficult to book. The whole economics about flights makes us and others create booking paths that are not consumer friendly, to be frank, because if you make them too consumer friendly, you cannot compete on price.”
He said it’s been interesting to see newcomers come into the industry, thinking they can solve it and then having learned more, realise how complex it is. “I do think we can go further. All of us have learned a lot during this crisis, that we have way too little automation in the refund area, to manage all these changes and cancellations. It goes all the way from airlines to GDS to agents, it’s not automated enough and thereby not the good consumer experience.”
And it’s not getting any easier. Said Hedlund, “You might think with all the development of NDC (New Distribution Capability), it would become less complicated but NDC is not the same thing for each and every airline – they adapt it in a very different way and this actually benefits the larger players and the ones with more tech capabilities.”
Ironically, it is this very complexity that keeps companies like his flying high and profitable, and a necessary part of the travel ecosystem. “I always tell my team that with our group, we actually embrace complexity. That’s a chance for us to differentiate, to gain market share. Therefore I’m very optimistic about the future because despite these efforts to simplify for intermediaries and customers, it is actually becoming more and more complex, and people like us are more required than ever.”
It was this thinking that led Hedlund who came in as CEO in 2014 to get the group away from being a classic OTA to becoming a global flight platform to power consumer travel brands. At the time of introducing the new strategy, he had said, “We didn’t have a choice, it was either that or slow death, you know, like Thomas Cook.”
Clearly that risk has paid off because in 2019, it scored a breakthrough when it sealed a partnership with Booking.com to power its flights which gave it a solid foundation for future growth.
Picking the right path to succeed
He told the WiT audience, “There are of course different ways to succeed and we had to choose the way to succeed in our case … we have found our way to grow fast and at high profitability.”
Of the partnership with Booking, he said, “… it expands every week actually; it’s been very busy now over summer as well, when we’re launching new markets, new features. It’s a very tight cooperation where Booking.com is building on its connected trip and flight is an anchor product for the connected trip.”
It certainly puts the group in a solid position to power players such as Google Flights with which Hedlund says it has a good partnership and “I hope to support them in their ambitions going further”.
He acknowledges the competition – “there are many other players. It’s very evident now that many players want to provide flights but realise that it is so complex in order to be competitive and that’s where we fit into the picture. So yes, I see us powering a lot of different players but it’s going to be a very few of us that are capable of being globally competitive.”
Consolidation is therefore inevitable and Etraveli Group acquired TripStack and Flight Network in June 2019 to strengthen its presence in the US. Asked if he was considering further acquisitions to expand beyond Europe and the US, Hedlund said that while there are quite a lot of stressed assets for sale, there’s been nothing to whet the appetite.
“We have been working harder actually on partnerships and trying to build those strategic partnerships and we hope that we will be able to launch a few of those in the not so distant future. We see that we actually have the organic capabilities to develop further, even in Asia, but it takes some time and for a company like us, we have to prioritise as well.”
Investing in Korea and Saudi Arabia, seeking to grow in Asia via organic capabilities
Currently, sales are primarily coming from Europe and North America which explains why the group is back into growth, with those two markets having recovered to some extent. Another advantage is that with a strong balance sheet, the group did not have to take on debt last year when many companies were struggling to stay afloat. “It was tough but we invested during the crisis – we are actually more people today than we were before and we actually sell more now than we did before the crisis although there is still a lot of recovery to come,” said Hedlund.
He said that with Europe and North America in early stages of recovery, “we are actually on index 110 compared to 2019 but the profitability is slightly lower. The reason for that is that it’s a lot of short haul flights so the long haul flights have not started to come yet but that will eventually come as well.”
As for how consumer behaviour has changed at this time, Hedlund said the biggest concern is still “will I get in the air, will I get my refunds?”
“There is a lot more need for security and flexibility products,” he said. However he also noted that consumers are not as price sensitive at this moment “because the ones that really want to travel, they are so keen to travel that their price sensitivity is slightly less. That’s something we believe will come back though when things normalise more.”
Within Asia, he said the group was actually a bit under the radar, selling in several markets and being competitive “but we don’t have the right distribution yet or we might lack a single component such as payments not being good enough”.
It is investing in South Korea and Saudi Arabia, and will be investing in several Asian markets within the next 12 months. “We are already a valid player in Asia Pacific with specific capabilities like virtual interlining – airline-friendly virtual interlining where we discuss with airlines on how we can get together with them to sell virtual interlining in the best way. Those capabilities are already there for Asia as well; it’s more for us to really put in the effort to enter the market and make those connections.”
“Payments super important for unit economics”
As the previous CEO of Klarna, Sweden’s top payments company, Hedlund is aware of the need to tackle the complex pain point of payments. He’s put “one of my absolute best team members” to solve the problem. “That’s how important we deem it to be; we have a sizable department for payments with a lot of experts, both in supplier and consumer payments. I think we are in a very advanced position there compared to others but still with a lot of lead way to go.”
The importance of solving payments in cross-border travel was underscored recently when Booking Holdings decided to set up a separate fintech division to “further remove financial friction from the travel process”.
Said Hedlund, “We look upon the initiatives from Booking Holdings and others with great interest and we will happily cooperate and support where it’s an interest to do so. But it cannot be understated – payments within travel is super important, both for the customer experience and for conversion for unit economics.”
While public markets and investors in general do tend to discount companies with higher flight exposure versus hotel exposure, Hedlund is steadfast on staying focused on flights. “We are focused on flights and that’s exactly how it should be for us.”
He recognises he wouldn’t be able to compete on a global scale with strong brands in accommodation. And because it attracts most of its traffic from meta channels or partners, “the propensity to buy accommodation from us, when consumers are coming in with that intent is rather low. We have accepted our position and really tried to go deeper into that position, rather than going broader.”
It will add trains and other forms of transport and combine that with virtual interlining.
Preparing for a potential exit – what route will it take?
Commenting on valuations and the recent development that saw South Korea’s Yanolja raise US$1.7b to develop a global meta-platform, Hedlund said valuations were not something that worried him “because if you have a really strong growth and have high profitability, you will be valued by the public market or investors. We have proven that before in our previous rounds. You have to do what you can with what you are, and yes, there are some incredible valuations out there for certain type of companies, and especially within payments, etc but that’s not us. We are trying to be the absolute best that we can be in, in our segment of the market, and doing so globally.”
Asked if he would consider a SPAC merger which seems to be catching on in Europe as well, he said, “We are owned by CVC, it’s the largest private equity in Europe so eventually, we will exit again and that can be a sale to someone strategic within the industry, it can be to another financial institution, it can be a listing.
“And within the listing option, of course, SPAC is an alternative but I cannot comment on the attractiveness of those different tracks. We expect also to be higher value than before the crisis in our potential exit because we have taken a lot of market share. And if you look ahead, what we should be able to do if the market recovers, it would merit high valuation.”
As for how it feels to be building a global flight business in a country that started the “flight shaming” movement, Hedlund said that not being a famous consumer brand, it is not in the forefront of the debate. However, it is something it takes seriously “because we are all here for the long term and trying to provide a sustainable industry for generations to come”.
It supports BoardNow, a coalition for companies who want to make sustainable aviation fuel the new standard. “The long term future is of course electric and I really hope we can crack that together.”
It was one of the first, almost 10 years ago, to sort itineraries based on emissions “and you see some big brands doing that now. That was an early move to show that consumer should have the ability to select the options. We sorted that with algorithms for the last 10 years.”
The sad thing was, it saw very little pick-up as consumers were going more for price and other attributes. Whether this has changed in the current environment, well, that’s up in the air, so to speak.
* Watch the video of the interview here.
