Organizations, by their very nature are designed to promote order and routine.
They are inhospitable environments for innovation.
— T. Levitt, Professor – Harvard Business School
One of the fundamental challenges to innovation is funding. For travel this is notoriously tough to crack. I recently came across two articles which attempt to broadly address the question and whose conclusions provide guidance for both startups and travel providers of what to expect.
The first article was from Lufthansa Innovation Hub’s Medium Travel Tech Radar, “We used AI to analyze the earnings calls of airlines and discovered: Wall Street ignores digital innovation“. It starts off setting the scene quite strongly in stating that:
“digital transformation is arguably the greatest threat to well-established companies in a variety of industries. The airline sector is no exception”.
The team at Lufthansa Innovation Hub then explained their approach
we applied Natural Language Processing (NLP) and clustering algorithms — with the help of our data intelligence partner Quid to analyze 8,223 paragraphs of unstructured text information (equaling 483,713 words) from 60 earnings-call transcripts published between 2015 and 2018 by the following airlines:Lufthansa, JetBlue Airways, Easyjet, Air France KLM, Southwest.
[…] the bulk of Wall Street’s other 1,542 questions and comments focused on short-term financial metrics (in particular profitability) with little apparent interest in long-term strategy. Moreover, analysts preferred to discuss external factors affecting income levels and margins, such as fuel price changes, workforce strikes, weather abnormalities, and currency fluctuations.”
one thing all earnings calls have in common: They barely discuss digital innovation. “Digital talk” has not become more important over the years
[…] digital innovation efforts by airlines seem to be of little interest to Wall Street.
For the uninitiated, this is surprising considering the market pressure put on airlines with seats alone becoming almost a commodity yet for those in the airline industry it is well-known day-to-day frustration.
The other article came from CBInsights on “The State Of Travel Tech: The Startups, Investors, And Trends Shaping The Future Of Travel”. In it, they point out that investment in the broader definition of travel is ripe:
With 348 investment deals, 2017 was a record breaking year for travel tech and represented the fifth consecutive year of deal growth. The year also set a record high in term of dollar amount with close to $5.3B invested
Looking at the lineuep, companies that standout include Online Travel Agencies (such as Traveloka) and lodging/hospitality (such as AirBnB, OYO, TuJia). One of the key takeaways that this side of the industry has woken up to is that:
In this low margin business, size matters a lot and the broader the offering, the more likely are travelers to use a booking platform.
The takeaways of the above two analyses for travel startups are pretty straightforward:
- startups targeting directly airlines will struggle since airlines & their investors have little real appetite
- the rest of the travel ecosystem including OTAs and lodging/hospitality still offer opportunities and support
In contrast with the first article, the airline industry is slowly starting to realize that they cannot survive on seats alone. But in order to broaden their offer they will need to act more like their OTA brethren and convince their management & investors to a bolder strategic commitment to innovation if they do not want to stagnate.