Travel start-ups hit a bumpy road

They were riding on the promise of steady double-digit growth, but with travel restrictions and cancellations, their problems are mounting

Four months ago when a Bengaluru-based start-up focused on niche adventure tourism for corporate executives made its pitch to investors, its prospects looked promising.

The company was reporting a 10-15 per cent growth in its bookings annually — with potential for even higher growth.

Then, almost overnight, the calls for cancellation surged. As the coronavirus pandemic spread through the world and one after another countries cancelled inbound flights, the story turned upside down, leaving the promoters, all in their early 30s, devastated.

There are over 3,000 travel-tech start-ups in this space currently and most are struggling to make sense of the impact the pandemic might have on their business. The travel market was worth $5.71 billion in 2015, and expected to reach $13.6 billion by 2021, according to a report by management consulting firm Praxis Global Global. But COVID-19 has come as a shocker for these start-ups. Most are less than five years old, and after having raised seed and Series A capital were in the middle of raising money for growth.

Venture Intelligence Data shows in 2016, venture capital investments in travel start-ups was $108 million, rising to $1,029 million in 2018 (including $1 billion in Oyo Rooms). Those figures dropped to $89 million in 2019 and in the current year, VCS have invested $15 million in one deal. These investments were spread across the various sub-sectors, including bookings, activity marketplaces, short-term rental, tourism and hotels.

Inbound tourism, according to the Confederation of Indian Industries’ Tourism Committee, is worth $28 billion annually in value terms, with 60-65 per cent of it being generated between October and March. With almost 80 per cent cancellation in March, the potential loss is staggering. The prospects for new bookings for October to March 2021, which should have started by this time, look no better.

Deep Kalra, founder and executive chairman MakeMytrip, in an interview recently said many people are putting their plans on hold. Outbound business accounts for nearly 20 per cent of Makemytrip’s business.

Investors are, however, trying to support the startups. Commenting on the trend across the sector, Ashish Fafadia, partner, Blume Ventures, says, “There is a very high degree of panic and fear in the system and things are going to have a much deeper impact across the board for every business with an element of mobility. The only companies that may not see as big an impact is media, online education, health and agritech.”

He makes a case for “a resilience pool of capital within the fund” to support performing companies who are now struggling for capital. “It may impact the performance for two quarters, that is something that we have to take in our stride. We are helping them by making sure that the commitments in the term-sheets are made,” he says.

Counsel and guidance to soothe the nerves of jittery founders is also something investors are now taking more seriously. “We have already been interacting with the portfolio companies over the last two to three weeks since we started to see some of these things. We have had discussions with the founders of these companies. Our discussions are strictly on a one-on-one basis,” says Fafadia. “These things hit you when the quarterly numbers come out. We are just three to four weeks into it,” he notes.

With many countries going into lockdown, an immediate rebound is hard to see. Vatsala Subramanian, founder and CEO at Vatsala Tourism Academy, who works travel start-ups that are into arranging international and domestic tour packages, says almost 90 per cent of the business was cancelled. April to June is the peak season for outbound tourism for Indian families and people start booking air tickets in December-january.

Larger companies have a buffer when it comes to working capital, but any sudden disruption becomes a question of survival for start-ups. “There is absolutely no business for some of the start-ups to even meet their minimum expenses. The overheads are already there and many have loans, having splashed out on marketing ahead of the high season,” she says.

Refunds for cancelled air tickets are also slow to come as airlines insist on offering an alternative date for travel, and this is adding to the cash crunch. “We may see at least a handful of travel tech start-ups close forever. Even if coronavirus is controlled in two months, it will take another six months for people to get the confidence to travel,” says Subramanian.

Those focused on domestic travel have been less affected, but even they are starting to feel the pinch. Swapnil Tripathi, chief business officer, Intrcity by Railyatri, which has raised around $15 million from Samsung Ventures, Entrust Family Office and others in January, says: “While the impact of the disease outbreak on leisure travel industry as a whole could be 20-30 per cent, for us it could be in single digit impact.”

All this could delay fresh funding in the sector as investors are waiting for the storm to blow over before taking a call, he says.

Vaibhav Agarwal, founder and CEO of online budget hotel booking firm Fabhotels, which raised funds from Qualcomm Ventures, Accel India, Goldman Sachs, among others, last year, says: “Business travel is down 20-25 per cent. There may be some recovery in May but currently everyone, including investors, is keeping a close watch on this evolving situation.”