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Travel & Leisure

Asia's travel startups battle for survival as investors pull back

Companies show entrepreneurial drive with pivot to souvenirs and meals

KKday expanded into online souvenir sales after the huge downturn in its travel business. (Photo by Yuki Kohara)

HONG KONG -- Things were going well for KKday. The revenues of the Taiwan-based online travel site mushroomed for three years in a row. The startup drew in tens of millions of dollars from renowned investors, including Alibaba Group Holding and Line, and it broke into a string of new markets.

But KKday has arguably had to show as much entrepreneurial mettle to get through the coronavirus pandemic and the associated paralysis in international travel. With orders canceled and revenue down 90% in early April, the company has migrated to a slightly different line of business: selling souvenirs online.

Taiwanese pineapple cake, crab cream in South Korea and Mount Fuji glasses are among the offerings that helped lift KKday's revenue threefold from early April and made up about half of the travel booking site's turnover at its peak.

"We were surprised that it actually worked," Yuki Huang, the company's chief marketing officer, told the Nikkei Asian Review.

The roller-coaster experience is shared by many founders of travel startups. The sector has been a darling of private equity and venture capitalists for the past few years, thanks to a travel boom fueled by Asia's growing middle class. Startups sprang up and thrived on that growing demand.

But with investors turning more cautious about putting money into travel-related businesses -- which many expect could take years to recover -- startups face a Darwinian struggle for survival. A consolation, say some in the sector, is that the companies that survive stand a good chance of being the fittest and most adaptable.

"The travel industry will not be our focus in the short term," said Wang Daoping, partner at China Growth Capital, a seed and early venture investor focused on Chinese startups. But Wang expects new opportunities to emerge in the future. "As the pandemic is bringing changes to the industry, new demand will be created," he said, including online tourism infrastructure and services that target niche markets.

Travel was a go-to sector for investment before the pandemic. Between 2013 and 2019, venture capital investment in travel and mobility skyrocketed 22 times from $1.4 billion to $30.3 billion, according to data analytics company Lufthansa Innovation Lab. The share of travel and mobility in all venture capital funds rose from 2% to 18% between 2013 and 2018.

There has been "tremendous interest" and willingness from investors to put money into leisure and travel startups, said Daniel Yeh, partner and global co-head of private equity at law firm White & Case. But, he said, "Much of that came to a screeching halt this year."

In the first five months of the year, the value of transactions and investments in the leisure sector dropped more than 42% from a year ago, with the number of deals falling from 70 to 56, according to data compiled by Mergermarket.

Yeh, who helps with fundraising for travel startups, said companies tended to burn through cash to gain market share previously but are now adopting "extremely defensive" strategies, cutting noncore businesses to preserve cash. Meanwhile, large travel groups that have been key strategic investors for smaller startups are also feeling the pain and have scaled back or cut off investments in startups.

Investors have started cutting their losses, given the uncertainties in the industry, Yeh said.

That is forcing some businesses to venture into unfamiliar territory as the travel market shrinks.

Sun Hongbo, CEO and co-founder of duty-free e-commerce startup Bonflite, has been busy sourcing masks and medical supplies over the past few months. The move was a stopgap measure to cushion the blow of slumping sales, he said, as the pandemic brought travel retail to a standstill.

Hong Kong online travel site Klook now offers restaurant bookings and food deliveries. (Photo courtesy of Klook) 

More than half of the world's commercial aircraft were grounded as of early June, according to aviation analytics company Cirium, with 75% of countries completely closing their borders to international leisure travel, according to the World Tourism Organization. "The coronavirus outbreak took us, and everybody in the industry, off guard," Sun said.

Bonflite's masks, sourced from China, have been sold in more than 10 countries in the Middle East, Europe and U.S. The startup also works with duty-free shops to ship their stocks of cosmetics and alcohol that are stuck in airport warehouses to customers' doorsteps.

Meanwhile, Klook, KKday's Hong Kong-based rival that is backed by SoftBank Group, has entered the fray in the food and dining sector, offering restaurant bookings, food delivery and home cooking supplies on its platform.

Eric Gnock Fah, chief operating officer and co-founder of Klook, has also started to think about how to adapt to markets changed by the coronavirus pandemic.

"We cannot escape the fact that COVID-19 will change the way we travel," Fah said. Before the coronavirus, people had no qualms mingling with large crowds, he said, but now travelers will prefer solo trips and small-scale family trips, he predicts.

Some startups are already testing the waters on futuristic ideas.

Walk in Hong Kong, a tour agency known for its themed cultural tours, has taken more than 700 students on virtual tours of the city's iconic buildings. The program won financial support from one of the city's largest developers and helped bring in additional revenue after the company was barred from organizing large-scale tours for months, due to social-distancing rules.

The initial success of its virtual tours has inspired the startup to offer more virtual travel products, Managing Director Olivia Tang told the Nikkei Asian Review. "The pandemic is not something that will be gone, gone. It's going to linger on until we have full vaccination of the world population," she said, "That means the ups and downs [of the pandemic] could significantly hamper travel for years to come."

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