Investments in travel technology startups hit a record high $5.2 billion in 2015, a 125% increase over 2014's year-end total, according to research company CB Insights. Analysts are attributing the trend to an overall growth in travel and the need to meet challenges in developing markets as well as consumer demand.
"We've seen a very similar trend," said Douglas Quinby, research director at Phocuswright, which each year conducts research tracking the state of startups. "We've definitely seen a similar trajectory in terms of growth."
Quinby said funding for travel technology companies has "more than doubled every year since 2013." Phocuswright's State of Startups 2015 report, which includes data through 2014, reveals $6.4 billion in publicly disclosed funding in 2014.
"Even if you strip out some of the big funding rounds like Airbnb, the growth has still been pretty significant. And then, if the travel industry is expansive enough to consider companies like Uber and Lyft as part of travel, then of course the numbers go pretty much through the roof and out into the stratosphere."
Notably, CB Insights did not include car-hailing services like Uber and Lyft.
Henry Harteveldt, an industry analyst with Atmosphere Research Group, tied the boom in travel-tech investment to the fact that "travel itself is growing, and it is growing globally and in different ways."
Development is rampant in large markets such as Brazil, China and India, Harteveldt said, but there are also "secondary developing markets," like some African companies, the Middle East and some Asian countries, like Vietnam. Those markets have a growing base of travelers who are mobile-focused. "So there are all these different challenges that are out there, some travel-specific, some where other solutions can help travel, and that is why we are seeing the investment," he said.
Chris Anderson, a professor at Cornell University's School of Hotel Administration, agreed that creating mobile-friendly technology was a big reason 2015 saw such a large jump in travel tech investment.
While those investments have been increasing steadily, 2015 marked the biggest year yet, by far. According to CB Insights, in 2010, there were 59 deals totaling $137 million in investments. The next year saw an increase, with 89 deals totaling $710 million. After a relatively steady 2012 and 2013, the next big jump was in 2014, when 245 deals totaled $2.3 billion. Then came 2015: As of Dec. 21, 348 deals had resulted in $5.2 billion in investments.
"Travel is becoming more and more digitally intermediated as time moves on with lots of firms capitalizing on this intermediation — hence the spike in investment," Anderson said.
Anderson noted that the digital research and booking phase space has become more consolidated, noting Expedia's acquisition of Orbitz and Travelocity. "Then we see lots of development in other parts of the value chain where digital intermediation adds value in the eyes of consumers," he said.
Consumer need is driving many travel startups, Anderson said, which addresses why corporate investments are rising.
According to data from CB Insights, through Dec. 23, corporate investors and corporate venture capital groups upped their investment in travel-tech companies to $2.27 billion, far above 2014's $987 million and 2013's $201 million.
Anderson did warn that consumer-driven developments will start to eat into profits of traditional travel suppliers such as hoteliers. Traditional cost structures will still be in place, but fees to technology providers will increase. The more prevalent technology becomes, the larger the impact will be on profitability, causing an eventual increase in rates, he said.
Harteveldt said the 2015 increase could also be attributed to a strong U.S. economy and venture firms with money to spend. The increase in investments in travel tech firms will likely continue, he predicted, especially considering evolution in the distribution channel via IATA's New Distribution Capability, but "it will inevitably plateau."
"Investors will put their money in a lot of these different startups with the understanding that most won't make it," he said. "Some will be slight successes, but, you know, they are hoping they're holding that winning ticket to the Powerball."