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The Overlooked Investment Opportunity in Travel

Rachel Obenshain is the COO of Xeniapp, Inc., a travel technology company that lets travel professionals compete in the modern world.

“Be fearful when others are greedy and greedy when others are fearful” - Warren Buffett

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One of the best lessons I learned during my 15-year career as a hedge fund investor was that when most people are on the same side of a trade, there is a significant opportunity to be found by taking the other side.

Two technology companies jump to mind. Shopify, which is now worth $138 billion, made a bet on the independent retailer. Many investors had assumed that was a dead category. How could independent retailers ever compete in the age of Walmart and Amazon? But Shopify realized that by giving retailers a technology platform, they could and would compete successfully.

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Similarly, Etsy made a bet on independent crafters. Many people assumed that category would go the way of the horse and buggy, as crafters could only sell at flea markets or on rickety fold-out tables in a parking lot somewhere. Like Shopify, Etsy recognized that crafters and makers could grow and thrive if provided the right platform.

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Today, there are few sectors more reviled than the Travel Agency space. Conventional wisdom dictates that the whole industry is over, a relic of the past. “Who even uses them anymore?” people ask. “I just booked my own flight to Cleveland last week!”

Without the benefit of investment dollars, travel professionals have had no access to innovative new technology. Today, few independent agents offer their clientele a modern experience (like a web-based portal for interaction) instead of phone and emails. Agents are still using 50-year-old B2B booking systems, often requiring new programming languages to use. Investors claim the travel agent sector is shrinking (it’s not, and in fact, it’s growing), but certainly it could be growing much more rapidly if it had access to modern technology. How often would you use Amazon if you had to call them every time you wanted to buy something?

Does the travel advisor industry merit investment spend? Yes, because contrary to popular belief, the travel industry is growing. According to IBIS World, in 2019, travel agents booked over $300 billion worth of travel worldwide and $119 billion in the US alone. The global bookings volume by travel agents had steadily increased annually since 2015 (the pandemic derailed travel in 2020, but it has come roaring back in 2021). In the US, travel agency employment increased year over year each year from 2017 to 2019.

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So why do people use travel agencies when Expedia and Booking.com exist? They do it for the same reason that people use private wealth managers when e-trade exists or use decorators when Wayfair exists. They do it for the expertise. Consumers don’t need help executing travel bookings (although it would be nice to have someone else do it for you). They need to know where to go.

“You can buy your own stocks just as readily as a stockbroker, so why use one? For the expertise,” said Dan Ilves, senior vice president of TravelStore. “Do you have the time to make the right calls and do the research? The confidence to do it on your own? If you do, great. Personally, I want the advice and guidance of somebody who lives and breathes that industry and has insight that I don’t.” Baily Berg, Washington Post, May 13, 2021

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Here is an overview of some of the main “bear case” points we hear when talking about investing behind travel advisors:

Conventional wisdom:

“No one under 60 uses travel agents.”

Reality

Travelport, a travel technology company, recently conducted a study finding that 33% of travelers anticipated an increase in their use of advisers because of the pandemic. The age group seeing the biggest increase in usage was the 18- to 38- year-old bracket, in which 39% of respondents said they were more likely to book an upcoming trip using a travel agent. Washington Post, 2021

The American Society of Travel Advisors also conducted a post-pandemic study, finding that 27% of travelers always or often relied on a travel advisor. According to the report, 44% of people who sometimes or rarely used an advisor are turning in that direction. “Consumers have learned their value during the pandemic, especially when things don’t go the way they want them to go like so many have experienced these last 12 months. I’ve never seen interest and confidence in travel agents as high as it is now,” said James Ferrara, co-founder and president of InteleTravel.” Gobanking Rates, June 2021

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Conventional wisdom:

“I can book travel myself! I know how to use a booking engine.”

Reality

Of course, anyone can use a booking engine. But what happens if the airline cancels your flight? If the hotel turns out to be under renovation when you arrive? How many hours do you want to spend resolving those issues personally? What if you are planning a complex trip that requires visas and local knowledge? What if you are traveling for business and need to observe your corporation’s rules in place for travel? For simple, single-leg, domestic trips, many people do not need a travel professional. But for more complex trips, many people do.


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Conventional wisdom:

“Using a travel agent is more expensive than booking the trip myself.”

Reality

A 2019 study by the American Society of Travel Advisors shows that travelers can save, on average, 3.5 hours in trip planning and over $300 per trip when using a travel advisor. Travel advisors can secure upgrades, special access, and amenities. Some of them also have access to wholesale rates and can pass savings on to their travelers.

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