In the past decade, Asia has been the innovation hub for the travel and mobility tech (TNMT) sector, with half of global venture capital (VC) funding in the sector flowing into Asian startups. This trend led to the birth of numerous tech unicorns, such as China’s Didi, Singapore’s Grab, Indonesia’s Gojek, and India’s Ola.
What’s more, Asia will maintain its position as a leader in the TNMT industry even after the impact of COVID-19, according to a report by Lufthansa Innovation Hub titled “The State of Travel and Mobility Tech in Asia.”
“When we look at the market in the short-term with a lens, we believe that local incumbents will continue to drive innovation forward in Asia. We also believe that there’s going to be an industry convergence, with a lot more collaboration and integration within technology players in the sector,” Christine Wang, head of business development at Lufthansa Innovation Hub Asia, told KrASIA in a recent interview.
“Moreover, digital acceleration is going to be on the rise, with the adoption of new services on TNMT platforms such as livestreaming sales, e-commerce, and other innovative pricing models evident by Chinese online travel agencies (OTAs).”
According to the report, Asia has been critical in fueling the global TNMT startup ecosystem. VC firms from around the world have poured around USD 150 billion into travel and mobility tech startups from 2010 to 2019, amounting to 8% of total VC funding across all verticals. More than half of that investment has flown into Asian startups in the region since 2010, or over USD 80 billion.
Since 2015, TNMT startups have experienced rapid growth in the region, bagging at least 50% of global VC funding every year. As of 2019, almost half of all unicorns in travel and mobility tech come from Asia. The region is home to 20 unicorns, three more than the US, while Europe has seven unicorns in the TNMT sector. Among Asia’s unicorns, 13 are from China, the report highlights.
Investors have placed a bigger bet on mobility rather than travel startups in Asia, according to Lufthansa. Almost USD 41 billion went into ride-hailing between 2015 to 2019. This includes a USD 2.5 billion investment in Grab in August 2017 from Softbank, Didi, and Toyota, and USD 1.5 billion capital injection in Gojek by Tencent in February 2018.
Asia’s densely populated cities all share transport problems like the lack of mass rapid transportation and guided transit systems, so shared mobility is seen as an innovative transportation mode to enhance urban mobility, and as a solution for first- and last-mile connectivity with public transit, the report explains.
The study adds that continuous investment in mobility can be explained by the high-frequency usage of ride-hailing services, which has opened possibilities for startups to roll out features in new verticals, as Grab and Gojek have both done.
Mobility startups in the region take less time to become unicorns—mostly up to four years—than travel startups’ minimum of four years. Thirteen out of 20 Asian unicorns are in the mobility sector, with companies such as Didi, Grab, Gojek, Ola, Caocao Zhuanche, and Hellobike.
China has been leading the industry as it has received vast investment since 2010. However, the country also saw a drastic 73% funding drop in 2019 compared to the previous year, which could be attributed to cautious investor sentiments during China’s so-called VC winter.
While China experienced slower funding, the rest of Asia, especially India and Southeast Asia, kept a healthy influx of capital. The report suggests that both travel and mobility startups in the rest of Asia bagged USD 9.5 billion in 2019, 61% more than in 2018. Both regions share success factors, including a high proportion of digitally literate population and a fast accumulation of discretionary income.
“I think China has always been a little bit of a role model. When we talk about super apps, or about how companies have started to bundle different types of services into one platform, we see that a lot of Southeast Asian and Indian peers are going after a type of model inspired by the Chinese market,” Wang said.
The rapid growth of Southeast Asia’s TNMT sector is fueled by funding in local unicorns. Between 2014 to 2019, VC funding in Southeast Asia has been largely shaped by three unicorns: Grab, Gojek, and Traveloka, which are responsible for 95% of total funding to the sectors.
Similarly, India also saw its unicorns, Ola, and Oyo, secure most of the funding in the country’s TNMT sector. After China, India is now set to become the next big TNMT battlefield. Travel spending in India is expected to grow robustly, with spending on air travel as the main growth driver due to improved connectivity and affordability.
The COVID-19 repercussion
The COVID-19 pandemic has also affected TNMT startups in the region. Lufthansa projects that total VC investment value and number of deals in the sector will drop by more than 40% in 2020, reaching the lowest level since 2015.
In particular, the travel sector has been the most affected. The report shows that, in 2020, VC investments in travel companies dropped below USD 1 billion for the first time since 2016, 79% down when compared to 2019.
Travel will certainly take more time to recover, the report mentions. However, it also highlights that “face-to-face interaction will retain its cultural relevance in Asia,” particularly in the context of business meetings, which could lead to a faster recovery in corporate travel in the region compared to other parts of the world.
To survive the crisis, TNMT startups have been adding new services to stay relevant. For example, Indian scooter startup Bounce introduced a long-term bike rental plan for up to 60 days to meet surging demand. Meanwhile, in Southeast Asia, both Grab and Gojek are shoring up their food delivery and logistics offerings to make up for drops in transportation orders.
The pandemic has also been a real-life test for autonomous driving technology. JD.com, for example, deployed unmanned vehicles on the 600-meter route between one designated hospital and its fulfillment station in Wuhan, maintaining contactless deliveries during the lockdown.
“We expect [funding next year] to be somewhat subdued given that we’re still in the crisis and we don’t know when it will be over,” Wang said.
While countries across the world are starting to ease travel restrictions, most Asian nations have remained strict to limit another spike in coronavirus cases. However, domestic tourism is now in higher demand, and many Asian governments have introduced stimulus plans to support the local travel industry.
For instance, Singapore launched several support initiatives, such as the Startup SG Founder Program, offering grants up to SGD 150 million and salary support for companies in the aviation, aerospace, and tourism sectors. It is also actively proposing “Green Lane” initiatives to countries with similar COVID-19 situations for essential business travel, and will operate a travel bubble with Hong Kong starting on November 22.
Travel startups are also promoting value-added services like livestreaming to showcase products, interact with customers, and promote sales.
The report suggests virtual tourism through livestreaming has become vital for Chinese travel providers to engage customers in China and Southeast Asia. For instance, five Europe-based tourism boards livestreamed on Alibaba-backed Fliggy to reach Chinese tourists by allowing viewers to visit attractions that are off-limits even to local visitors. The pandemic has led to tighter collaboration among travel players across sectors in Asia, such as the partnership between Grab and Klook, as well as Trip.com and Air Asia.
The Lufthansa Innovation Hub is the digital innovation arm of global aviation company Lufthansa Group. The hub expanded into Asia last year by opening its first office in Singapore. The full report can be accessed here.