Downturn conditions are often favourable for start-ups, says RatePunk’s Justin Albertynas
Travel and tech have been a strong match lately. Tech offers solutions to problems that have bothered businesses and their customers in the travel market. However, the economic downturn is thought to slow the innovation process.
The signs of an incoming recession in the tech field were already easily noticeable last year. Silicon Valley started massively cutting investment, firing workers and foreseeing even more job cuts. The share of venture capital in the technology mecca was on the decline: it fell under 20% for the first time. And although the tech stocks also dropped during the pandemic, with the government’s support, they managed to bounce up quickly. However now, with a recession of this size, the forecasts for both tech & travel markets are not so good. Disruption at the airports, lack of employees, major price increases: it’s only a few struggles the travel industry is facing.
And economic factors are of the essence when considering launching new products. So does that mean there won’t be any ground-breaking technologies entering the travel market now? Actually, it could be entirely the opposite. Although it may seem like a paradox initially, it makes more sense when you start digging deeper. Downturn conditions are often favourable for start-ups:
– Certain problems require certain solutions. And start-ups create these solutions. When’s a better time to notice what travellers lack, if not during a crisis? It heightens the chances that the product idea is relevant.
– High unemployment means high job demand. It’s easier to find suitable workers and land a better contract.
– Downturn = lower interest rates for debts.
– Lower pricing. Take ad space and equipment, for example. They cost less since other businesses don’t splash on them that much during a recession.
It’s crucial to reconsider the conception of the right timing here. It’ll never be the right time if you don’t use the opportunity, and that’s precisely what most of the well-known brands in the travel industry did. Here are the names that drew the success to their side: they managed to pop up and keep up during the most ground-breaking global crisis:
Ryanair. It landed a super favourable deal with Boeing in 2001 after the 9/11 attacks. While other airlines were postponing or cancelling orders, Ryanair got the aircraft way cheaper (in some cases paying around 40% less). 100 new 737s for incomparably low rates were the fundamentals for it becoming the leading airline in Europe.
Southwest. The airline managed to keep the profits streak even during the 2007-2008 economic crisis when many competitors went bankrupt. They didn’t adopt additional fees like most, which attracted more customers – their traffic jumped by 5%.
Airbnb. Its success also hides in the economic crisis of 2007 – 2008. Launched in the middle of one of the most significant worldwide recessions, it offered a cheaper alternative to hotels and an opportunity for people to earn money from renting out their properties. That’s exactly what helped it skyrocket: the possibility to travel for less and a new way to make some additional money.
Turkish Airlines. It was the first major carrier to get profits after the COVID pandemic. The first quarter of 2021 was concluded with only a $41 million real operating loss and $61 million net profit. It adapted to the new normal and kept the flight frequency: Turkish Airlines had almost double the number of its closest competitor in Europe – Lufthansa.
The tendency is quite evident: in the travel industry, low costs tend to pop up in the harshest times. Market-shaking events pushed these businesses to search for new ways but not blame it on wrong timing, and the current economic situation can be the needed push for new names.