Singapore’s Outdated Mass Transit System Is Causing Problems for Commuters, Tourists

Bloomberg

Singapore, the city-state known for its incredible cleanliness and efficiency, is uncharacteristically suffering from mass transit woes. Bloomberg

Skift Take: It looks like commuters in New York City and Singapore have a lot in common these days. If both cities don’t improve their public transit systems, it’s a lose-lose situation not only for locals but tourists, too.

— Deanna Ting

Singapore’s reputation for slick infrastructure and efficient public transport received a knock Friday morning as two of its five mass transit rail lines suffered signaling failures, leaving thousands of disgruntled passengers late for work and unleashing a tirade of criticism on the social media sites of the two rail operators.

“Lovely….I’ll send ye the bill for the cab I’m having to take to work,” wrote one commuter. “Hello #mrt where are you? forgot to get out of bed this morning?” riffed another. Pictures of packed stations, queues for buses and stranded trains soon did the rounds in a city unused to the kind of disruptions that commuters in places like New York and London face regularly.

Singapore’s Mass Rapid Transit operators, SBS Transit Ltd., which runs the newest and driverless Downtown line, and SMRT Corp., operator of the oldest North-South line, both blamed faulty signaling for the delays. The two lines, which both run north from the city center, were operating normally by 9:15 am. SMRT advised commuters to cater for “additional traveling time” on the North-South Line on Friday evening.

The delays are symptomatic of a learning curve that many Asian cities are facing as they upgrade infrastructure to cope with swelling urban populations. In Singapore, where car ownership is discouraged with taxes that push the cost of a Ford Focus over S$100,000 ($73,300), commuters are in the front line of the change to driverless rail networks.

For decades, the city’s award-winning airport, bougainvillea-fringed highways and spotless mass transit trains have been the envy of neighboring countries. But since 2000, the island nation’s population has jumped from less than 4 million to more than 5.6 million, straining a public transport network that has struggled to keep up.

System Review

The efficiency of the system led to overconfidence, said Lock Kai Sang, engineering professor at the Singapore Institute of Technology and a former member of an Independent Advisory Panel appointed by the Land Transport Authority to assess the rail system’s power supply.

“At a certain point, there wasn’t sufficient attention being paid to the maintenance,” he said. “They were too confident at one point.”

Now, he says, the government and rail operators are putting in a lot of effort to install systems that allow predictive maintenance, designed to stop problems before they occur.

This morning’s troubles occurred because of two separate and unrelated faults, Singapore’s Land Transport Authority said in a statement. A fault on SBS’s 3-year-old line meant the trains had to be manually driven from the shed onto the main line before the computers could take over, causing delays on the route.

On SMRT’s North-South line, the second mass transit rail to open in Southeast Asia, trains had to run at reduced speeds for safety reasons due to signaling faults. The 29-year-old line has been plagued with glitches for months as the company installs and tests a new signaling system that would ultimately allow that route to also be driverless.

The Land Transport Authority said both incidents behind Friday’s delays would be “thoroughly investigated”.

Improving Service

While SMRT runs its lines, the rail network and stations were taken over by the government in 2016 to allow the operator to concentrate on improving service. Previous disruptions to the network, which is less than half the size of the New York subway system, have sometimes been punished with fines of as much as S$5.4 million for the operator.

But Singapore commuters are losing patience. For most workers, the MRT system is the only quick and affordable way to get to work. It has also tarnished the city’s reputation, especially among workers who remember when they could brag that they had one of the best rail systems in the world.

“With the recent setbacks, I would not want to boast that the Singapore system is world-class,” said Lock at the Singapore Institute of Technology. “Once we have the problem fixed, I think we’re moving there.”

Or, as one commentator on social media remarked, next to a picture of schoolkids queuing at a train station to get an excuse note for being late for examinations: “Poor kids. When I was their age I could set my watch according to the train schedules.”

–With assistance from Lena Lee Livia Yap and Sebastian Tong

©2017 Bloomberg L.P. This article was written by Sterling Wong from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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National Park Service Vows Confederate Monuments Will Stay at Gettysburg National Park

Matt Rourke  / Associated Press

In this June 5, 2013 photo, a monument to Gen. Robert E. Lee mounted on his horse Traveller sits atop a ridge held by Confederate troops, above the field of Pickett’s Charge in Gettysburg, Pennsylvania. National Park Service officials said in August 2017 that Confederate monuments at Gettysburg National Military Park will not be removed from the battlefield. Matt Rourke / Associated Press

Skift Take: As Confederate monuments come down across the American South, many people make an exception for museums that chronicle history, the good and the bad. Racist symbols in a public square may be different than racist symbols behind metaphorical glass, meant to ensure we never forget.

— Sarah Enelow

Officials with the National Park Service said the Confederate monuments at Gettysburg National Military Park in Pennsylvania will not be removed from the battlefield.

Katie Lawhon, senior adviser for the park service’s Gettysburg battlefield office, told the Reading Eagle the site-specific memorials are important, and the park service’s job is to historically and objectively tell the stories the monuments commemorate.

Her reassurance comes after a heated debate over Confederate monuments spread across the U.S. Three people died amid turmoil in Charlottesville, Virginia, Saturday over the planned removal of a statue of Confederate Gen. Robert E. Lee. Four protesters have been arrested in connection with the toppling of a Confederate statue in Durham, North Carolina, and Baltimore dismantled four monuments under the cover of darkness late Tuesday night and early Wednesday.

Barb Adams, a volunteer at the Gettysburg battlefield, said the removal of the statues is breaking her heart.

“It’s just so upsetting to me — these men, these soldiers fought for what they believed in,” she said.

Area tour guide Elaine Leslie suggested putting up statues honoring abolitionists Harriet Tubman or Frederick Douglass.

The Gettysburg battlefield has more than 1,300 monuments that tell the story of the deadliest engagement in the Civil War. Thirty of them are dedicated to Confederate states, military units and individuals. More than 7,000 soldiers died in the Battle of Gettysburg from July 1 to July 3, 1863.

About 3.7 million tourists visit the area each year, according to a nonprofit that promotes tourism in the county.

______

Information from: Reading Eagle, http://www.readingeagle.com/

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Hyatt and Expedia Formally Sign New Deal

David Mitchener  / Hyatt

The lobby of the Hyatt City of Dreams in Manila. Hyatt has formally signed a new contract with online travel agency, Expedia. David Mitchener / Hyatt

Skift Take: Any potential crisis has now been definitively averted, at least until this contract expires.

— Deanna Ting

Hyatt confirmed it formally signed a new contract with Expedia, definitively putting to rest any doubts about whether the two companies would renew their distribution agreement.

A spokesperson for the Chicago-based hotel company issued the following statement Friday:

“Our formal agreement with Expedia is complete. The team at Expedia worked quickly and productively with us, and we are pleased to continue our long-standing relationship without interruption to Hyatt hotel distribution on all Expedia platforms. As we continue to build the value proposition for our guests who book directly with Hyatt, we also work with third-party distributors to reach guests who might not be frequent travelers or who otherwise have a reason to book through these sites.

The CEOs of Expedia Inc. and The Priceline Group are Speaking at Skift Global Forum 2017. Get Tickets Now

“These recent agreements with both Booking.com and Expedia allow us to achieve our goal of making Hyatt hotels available where many guests are booking while also reducing costs and improving flexibility.”

Skift also reached out to Expedia for comment but the company has not yet responded to our inquiry.

The Hyatt spokesperson’s comments echo what Hyatt CEO Mark Hoplamazian said during a recent second quarter earnings call with investors.

“We agreed, in principle, in terms that optimize how we go to market and enhance our partnership with Expedia,” Hoplamazian noted. “We recognize the value of online travel agencies keeping Hyatt top of mind for customers,” he also added, mentioning Hyatt’s new contract with Booking.com as well as the company’s then-pending agreement, in principle, to continue its partnership with Expedia.

Hoplamazian was careful to emphasize Hyatt’s partnerships with online travel agencies like Expedia, while also reminding those companies and investors of the “preference our customers have for our brands” and that “owners are demonstrating their preference for Hyatt because they understand the value that can be created with Hyatt-branded hotels.”

The reference to property owners preferring Hyatt comes as Expedia has tried to build a wedge between Hyatt and its owners, arguing that their total costs and fees would be lower for an Expedia booking. That’s a premise that Hyatt disagrees with.

In his prepared remarks, Hoplamazian also took the time to explain the company’s distribution channel strategy, which is to “drive bookings through Hyatt channels so we can build stronger relationships with our guests.” He noted that the company has also expanded its discounted room rates for loyalty members, added new features to the mobile app, and “optimized the Hyatt.com booking path.”

Hyatt and Expedia’s rocky road to a new deal began earlier this year when Hyatt notified its hotel property owners of the possibility that their hotels may not be distributed via Expedia if the two companies were unable to reach a favorable new agreement.

Hyatt also quietly signed a new and restructured distribution agreement with Expedia’s biggest rival, Booking.com, as a hedge against a potential impasse with Expedia.

However, on July 31, the deadline for Hyatt and Expedia to sign a new deal, both companies announced they had reached an agreement in principle.

Had both companies not signed a new contract, it would have been interesting to see how Hyatt would have fared without distribution on Expedia and its numerous online travel agency sites, and it could have, potentially, set a precedent for how other hotel companies establish their relationships with those companies.

Either way, the Hyatt-Expedia contract negotiations process was emblematic of the tension that exists between hotels and online travel agencies, as hotels pursue more direct bookings to avoid paying commissions to those sites.

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Airbnb Rentals Surge in Path of Solar Eclipse

Airbnb

Airbnb is seeing a surge in bookings in relation to the upcoming solar eclipse. Airbnb

Skift Take: The solar eclipse is highlighting one of Airbnb’s biggest strengths: a flexible and highly elastic supply model, perfect for adding more inventory just when you need it.

— Deanna Ting

On Aug. 21, for the first time in nearly 100 years, the earth, sun and moon will briefly align to cast darkness on a narrow trajectory between Salem, Oregon, and Charleston, South Carolina. For homeowners living on the route of the Great American Eclipse, the stars appear to be aligning for them to reap a small fortune renting their homes on Airbnb.

In the past month, Airbnb Inc. listings and bookings have surged as astronomy enthusiasts scramble to find accommodations along the “path of totality,” the 70-mile strip projected to go dark this Monday. Over 29,000 homes, single rooms, plots of grass and recreational vehicles along the eclipse’s trajectory are registered for rent on Airbnb. More than 50,000 people are booked to stay in rentals over the weekend, compared with about 11,000 last week.

Smaller cities in the eclipse’s path have seen the largest jump in listings. Casper, Wyoming, an industrial hub known for its oil refineries, saw Airbnb listings increase 31-fold compared with this weekend last year. Casper is considered one of the best places to watch the eclipse. Nashville saw listings increase by just 40 percent for the eclipse.

For some small towns on the eclipse route, Airbnb has become a welcome lodging partner. “We’ve never had an event like this happen here and we have no idea what to expect, or where to put everyone,” said Theresa Anderson, the volunteer president of the Chamber of Commerce for Rigby, Idaho, a town of about 4,000.

Rigby, which has a bed and breakfast and one hotel, has encouraged its citizens to open their homes to Airbnb, said Anderson. According to the San Francisco-based company, more than 700 people are planning to stay in a Rigby Airbnb on Sunday night. On the same day last year, Rigby had just one guest. Remaining listings for this weekend range from a $2,000-per-night five-bedroom house to a $100-a-night plot of grass to pitch a tent at a farm, no bathroom access included.

Eclipse weekend is proving to be a great marketing opportunity for Airbnb, which seeks to solidify itself as a cheaper alternative to hotel chains. Rigby’s sold-out Motel 6 is charging $330 per night, over three times its normal rate, for a queen room this weekend. The average Airbnb booked in Rigby is about $127. (It’s double the cost of the rental from last year.)

“It used to be difficult, if not impossible, for regular people to benefit financially from these kinds of events,” said Nick Papas, a spokesman for Airbnb. To promote its eclipse-path listings, Airbnb hosted a sweepstakes contest with National Geographic. The winners receive free flight and lodging in the outskirts of Bend, Oregon, where the eclipse is expected to begin at about 9 a.m. on Monday.

In Hopkinsville, Kentucky, a city on the path of the eclipse that’s also home to world’s largest bowling ball manufacturer, hotel rooms cost about $425 this weekend. An Airbnb room in Hopkinsville this weekend is about $260 per night. There, the nightly rate for a patch of backyard grass ranges from $68 to $150.

Some hotels have been accused of price gauging for the event. Last month, Oregon’s Justice Department urged visitors to confirm their hotel reservations after receiving complaints that some hotels were increasing prices or canceling reservations to rebook them at double or triple the price. Oregon officials said they had identified 12 hotels that may be unfairly charging tourists.

©2017 Bloomberg L.P. This article was written by from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Tourists and Locals Return to Barcelona’s Las Ramblas After Attack

Manu Fernandez  / Associated Press

A man jogs by armed police officers standing next to their vans on a street in Las Ramblas, Barcelona, Spain, Friday, Aug. 18, 2017. Manu Fernandez / Associated Press

Skift Take: During a summer in which we all asked if Barcelona was broken, the city’s response to a terrifying event argues loudly that it is as resilient as ever.

— Jason Clampet

Tourists and Barcelona residents tentatively returned to Las Ramblas on Friday morning for a subdued stroll down the leafy boulevard, a day after a van attack filled it with fear and bloodshed.

Dozens of armed police officers in blue and neon-yellow uniforms were stationed near Placa de Catalunya and the street was still closed to vehicles, but all other signs of the previous day’s terror had been cleared away.

Newsstands were open selling papers and souvenirs, and by midmorning, some ice cream shops were starting to lift their gates. Notable exceptions were the iconic flower stalls near where the van came to a halt after killing at least 13 and injuring 100. And metal gates were closed at the entrance of La Boqueria, the expansive market that is one of the city’s most famous tourist attractions.

Enrique Camprubi, a city resident for 40 years who walks down Las Ramblas nearly every day, said besides the police, the scene didn’t appear very changed.

“We don’t have to be afraid,” said Camprubi, who volunteers at a nearby center named after Mother Theresa. “And we aren’t afraid because that’s what they want, the Islamic State, they want to scare us so that we stay at home. That is last thing we’re going to do.”

The number of pedestrians was about the same as a regular summer morning, but the crowd was much quieter than usual. Many somberly walked in silence, staring down at the distinctive curved paving stones.

A family from New York said outside La Boqueria that they were undeterred when they boarded a plane last night after hearing about the attack.

“We all feel fine, right?” Tara Lanza said as the whole family exchanged reassuring looks.

“It’s sad,” said her husband, John Lanza. “You can tell it’s obviously quieter than it usually is, but I think people are trying to get on with their lives.”

Their tour guide, Gaston Magrinat, an American who came to Barcelona in 1999, said he couldn’t help thinking that he or his kids could have been among the victims.

“Thinking how often I come down this avenue? Not just for work but also with family,” he said. “It’s a recreational area as well. You come with the kids and get ice cream and stuff like that. It could have easily been me.”

This article was written by Albert Stumm from The Associated Press and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Chinese Travelers Love Duty Free and That’s Creating Big Revenue for Airports

Zhanyanguange  / Wikimedia Commons

A Duty Free shop at Beijing’s airport. Retailers sell a lot of merchandise at these shops, and airport operators profit from sales. Zhanyanguange / Wikimedia Commons

Skift Take: Chinese travelers love of duty free is not just creating a bonanza for Chinese airports. Chinese passengers are buying so many goods at stores in North America, Europe and Australia that many retailers are designing shops to cater to them.

— Brian Sumers

Chinese airports are in fashion among equity investors, and this trend may be enduring.

Already benefiting from a surge in international and domestic travel, the nation’s listed airports have received an extra boost this year: the first increase to domestic takeoff and landing fees in a decade and a doubling in the commissions they can charge duty-free operators.

Such positive news has already shown up in their share prices. Beijing Capital International Airport Co. has climbed 54 percent this year, while Shanghai International Airport Co. and Guangzhou Baiyun International Co. are up at least 36 percent. Despite those gains, they’re still undervalued as the market has underestimated the impact from the new duty-free contracts, which don’t kick in until late this year, according to Nick Langley, co-chief investment officer at RARE Infrastructure, which is 75-percent owned by Legg Mason Inc.

“It’s our view that the earnings growth will be reasonably substantial for the next few years and we don’t believe the market has priced that in today,” said Sydney-based Langley, who’s recently been adding to his holdings of Chinese airports. “We’re expecting pretty substantial upsides in share prices, even from here.”

Chinese regulators have allowed airports to run open tenders this year for duty-free concessions. Under new agreements finalized in June, operators at Beijing airport will share almost half of their sales with the airport operator, compared with about 20 percent earlier. The concessions have also increased by a similar magnitude at Guangzhou airport, while leases for Shanghai aren’t expected to be renegotiated until 2019.

In addition to the revenue bump for the airports, the new market-based approach will drive a more commercial mindset from duty-free operators that should lead to better retail offerings, Langley said.

“The impact on earnings is actually greater than what the market had initially thought,” said James Teo, an analyst at BNP Paribas SA in Singapore. “The market will rally further when they see the actual earnings improvement.” Teo is the No. 1 analyst in Bloomberg rankings for Beijing and Shanghai airports.

While Beijing, due to its large retail space, is the biggest beneficiary of the new duty-free contracts, Shenzhen Airport Co. is the major winner from the increase to domestic aeronautical fees because it has a lower proportion of international traffic than its peers, said Teo.

Shenzhen Airport, whose share price rallied as much as 23 percent year-to-date by early July but has since pared more than half of that gain, is a “close second” to Beijing among his favorite Chinese airports, he said.

Narrowing Gap

There could also be further increases in the domestic takeoff and landing fees in the coming years, said John Lin, a Hong Kong-based portfolio manager at AllianceBernstein Holding LP. The difference between domestic and international levies is greater in China than many other places, he said.

“There was a gap in the first place because it was partially driven by a policy preference to develop the domestic travel market,” Lin said. “Now that the passenger market is growing healthily, we might see that gap starting to close.”

While the government has given a fillip to Chinese airports this year, it also poses a risk. A second airport for Beijing, slated for completion in 2019, would threaten future cash flows of Beijing airport if authorities decide to fold it into the existing airport company, said Samir Mehta, a senior fund manager at JO Hambro Capital Management in Singapore.

“So far, indications have been that it’s unlikely the listed company will be involved,” said Mehta, who holds shares in Beijing airport. But “shareholders are unlikely to have a big say in what the decision is going to be,” he said.

Travel Boom

The new airport will cap future passenger growth at Beijing airport, while Shanghai and Shenzhen have better expansion potential, said Lily Zheng, a research analyst at AllianceBernstein in Hong Kong.

Fueling the growth in Chinese airports in recent years has been a travel boom led by rising incomes and urbanization. China’s travel market was equal to 9 percent of gross domestic product in 2016 and is forecast to grow at an annual rate of 8 percent in the next decade, according to data from the World Travel & Tourism Council. If retail offerings improve, those Chinese tourists may spend more money at the country’s airports.

“The best way to describe airports is that they’re shopping centers with runways attached,” said JO Hambro’s Mehta. “And unlike in other industries, the airport shopping experience is unlikely to be dramatically impacted by the Internet.”

©2017 Bloomberg L.P.

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Social-Media Influencers Have Little Sway Over Asia-Pacific Travelers

Shizuo Kambayashi  / Associated Press

Foreign tourists wearing traditional Japanese kimonos rest on a bench in front of a Japanese confectionary store near Sensoji Temple in Tokyo. Shizuo Kambayashi / Associated Press

Skift Take: There is a ton of variation in the behavior of travelers from different countries across the Asia-Pacific region. Travel companies should pay more attention to the specific needs of the travelers they’re trying to reach.

— Andrew Sheivachman

Asia represents one of the fastest-growing regions for the travel industry, yet concrete insights into the behavior of these travelers has been hard to come by.

Amadeus partnered with YouGov to survey 6,870 adults across the Asia-Pacific region who traveled internationally in the last year about their preferences and habits.

Among the more interesting findings from the report was that influencers have little influence in Asia-Pacific travelers’ trip-planning decision. Word-of-mouth and online reviews are the most important factors.

Amadeus and YouGov’s findings, published in a report titled Journey of Me Insights: What Asia-Pacific Travelers Want, show that many travelers from the region want personalized recommendations and suggestions from travel brands.

About two-in-three travelers polled, 64 percent, said they would share personal information in exchange for offers and personalized experiences. But there were big differences depending on the nationality of the traveler; while 80 percent of Indonesians were open to sharing personal information, just 31 percent of Japanese travelers were open to sharing.

The report as a whole shows the need for travel companies and marketers to pay attention to specific markets in Asia-Pacific instead of approaching travelers across the region in just one way.

“Travelers are the bedrock of travel, and there is no traveller today quite as important as the Asia-Pacific traveler,” said Albert Pozo, president of Amadeus Asia Pacific, in a statement. “Yet the irony is that even as we talk about the ‘Asia-Pacific traveler’ – it doesn’t exist. The diversity we see across nationalities, gender and generation in this region is astounding. More than that, our research has showed us that the preferences, behaviors and demands of travelers vary enormously from one country to another. The industry must come to grips with this. The one-size-fits-all approach is a thing of the past.”

Here are three more insights from the report.

Laptop and Desktop Still Rule

There’s been a large focus lately on how travelers across Asia, particularly in China, have embraced mobile apps. But the evidence from the Amadeus report shows that traditional laptop and desktop devices remain the most popular way to book.

“More Indonesians research trips on mobile (69 percent) and book through mobile (62 percent) than on laptops or desktops (60 percent and 56 percent respectively),” states the report. “Chinese travelers show the highest preference for booking trips through mobile (66 percent) compared to all other travelers. In Australia, Japan, New Zealand the gaps between laptop/desktop and mobile are the largest, with 78 to 92 percent choosing the former compared to 11 to 33 percent for the latter.”

Nobody Cares About Influencers

Travelers from Asia-Pacific countries are fairly traditional when it comes to planning a trip; word-of-mouth recommendations and online reviews are the most important factors, while brochures and influencer endorsements are least impactful.

Thai travelers, interestingly, are the most affected by social media channels when it comes to trip planning.

Some Travelers Use Mobile More Than Others

The popularity of mobile apps across Asia, particularly apps for social networking, is well-known. But usage while traveling varies widely depending on nationality.

Additionally, the vast majority use Wi-Fi to connect to the Internet when abroad instead of mobile data.

“Most respondents from Asia-Pacific use Wi-Fi (71 percent) to stay connected when they are traveling abroad,” concludes the report. “Respondents from Korea have a high preference towards using international roam-as-you-go services (56 percent) whilst respondents from Malaysia, Indonesia and Singapore prefer to use a local sim card purchased at the destination (54 percent, 58 percent, 56 percent respectively).”

You can read the full report below.

Download (PDF, 2.9MB)

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Despegar Files for $100 Million IPO and Expedia Could Benefit From Its Growth

Despegar

Damián Scokin, an executive who worked for 11 years at the consulting firm McKinsey, became the new CEO of Despegar in February. He replaces the founding leader of the company, Roberto Souviron, who left the CEO role as the company prepares for an IPO. Despegar

Skift Take: Despegar is on track to attract a $1 billion valuation. That’s impressive. But its newish CEO needs to pivot the business away from a reliance on selling airline tickets, which are becoming less profitable for his firm by the day.

— Sean O’Neill

Online travel agency Despegar — whose name comes from the Spanish verb that means “to take off” — has filed for an initial public offering on the New York Stock Exchange.

Despegar said it hopes to raise $100 million. But Renaissance Capital, an IPO research firm, estimates the company will raise $300 million. This range of estimates suggests that the market will place a $1 billion or greater valuation on Despegar, making it Latin America’s first online travel unicorn.

The company, which claims to be the largest homegrown online travel agency in Latin America, has not set an initial share price or a date for the IPO.

Hedge fund Tiger Global owns 57.3 percent of the company as of Thursday, before the offering. General Atlantic Partners owns 5.4 percent. Expedia is another key holder of equity. The company’s five founders and a few other investors also own shares.

In February Roberto Souviron left his 18-year job as the top boss. He is no longer on the board of directors, either.

Tiger Global has installed a new CEO, Damián Scokin, an executive who worked for 11 years at the consulting firm McKinsey. From 2012 to 2015, Scokin served as CEO for LATAM’s international business unit, where he was in charge of leading the merger and integration process of LAN Airlines, LATAM Airlines Group’s predecessor and the biggest airline in Chile, and TAM Linhas Aereas, one of Brazil leading airlines.

As majority owner, Tiger Global chose to remove the startup’s founding CEO from day-to-day operations. The firm was not happy with the delayed process of ramping up to an IPO, says Argentinan news publication Reportur.

Expedia’s Interest

Despegar has a well-known U.S. investor, Expedia, with a 16.4 percent stake in the business prior to the IPO. The stake represents the online travel giant’s one-time $270 million equity investment in the business in March 2015.

As part of the relationship, Despegar relies exclusively on Expedia for the hotel and other lodging products that it offers for all countries outside of Latin America through at least March 2022.

In the six months ended June 30, 2017, Expedia and its affiliates provided 9.5 percent of Despegar’s gross bookings.

Interestingly, the agreement requires Despegar to reach a threshold of marketing fees — meaning, a percent of gross profit received by Expedia from travel bookings made through the platform — equal to $5 million in any rolling six-month period, or else Expedia may require the company to pay a $125 million termination fee.

The IPO filing reveals that Expedia has agreed not to acquire more than a third of the voting power of Despegar’s outstanding shares within three years post-IPO unless it makes a bid to buy more than three-quarters of the shares.

In brief, the Bellevue-based giant is keeping its options open but shows no signs of being in a rush to acquire the company.

Bumpy Road

Despegar was founded 18 years ago by five entrepreneurs who met at Duke’s Fuqua business school in the U.S. The company had to survive the post-2001 financial crisis, the current recession in Brazil that is almost becoming a depression, and the Argentine financial crisis of 2001-02 and recession of 2016.

Today it has considerable market share. Amadeus, the travel e-commerce vendor, says that approximately 15 percent of all airline tickets purchased through its system in the region during 2016 went through Despegar and sister brand Decolar.

Despite the regional economic turmoil, the company has been recently profitable. In the first half of 2017, it had 2.5 million customers generate $248.5 million in revenue on $2.1 billion in gross bookings.

Looked at another way, in the full year of 2016, the company booked $411 million in revenue and $18 million in net income on $3.3 billion of consumer transactions.

It has more than 2,700 employees —  including more than 800 developers — in offices in 21 countries. But it is having “voluntary” reductions that will eliminate between 60 and 100 positions this year in the run-up to the IPO.

One key to the startup’s success was its decision to move early to offer more flexible payment options. Today half of its transactions are paid on installment plans. This year it will also expand its installment payments plans and add other payment options, such as debit cards and acceptance of multiple credit cards in a single transaction, to attract more customers.

Despegar’s top markets are Argentina, Brazil, and Uruguay. The company holds the top ranking of all online travel agencies in Latin America by desktop traffic, according to SimilarWeb.

Achilles Heel

Despegar’s seeming weakness is its dependence on air. About 60 percent of its revenue comes from selling airline tickets, including the 2.6 million tickets it sold in the first half of 2017.

Its revenue sources include commissions from airlines, incentive payments from reservation tech middlemen like Amadeus, and service fees charged to consumers.

Trends in the U.S. and Europe have seen airline commissions and incentive payments from the tech middlemen decline over time, and that drop may also happen in Latin America. As noted in the company’s IPO filing, Despegar’s contracts with airlines often limit how high of a fee it can charge consumers.

In short, the company’s revenue model may be vulnerable to shocks.

A sign of that vulnerability is revealed in the IPO filing. American Airlines discontinued its access to the airline’s inventory from July 2013 to March 2016 as a hardball negotiation tactic. Since then, American has resumed supplying it with tickets.

There’s a strategic issue here, too. Hotel commissions are more substantial, on average, than airline commissions are. Despegar needs to rebalance to depend more on hotels if it wants to maintain steady growth.

A rebalancing won’t be easy, though. The Latin American hotel market is more fragmented and less eager for online distribution than some other markets. In Latin America, the top ten hotel chains had an estimated 15 percent market share in 2015, compared to 51.8 percent in the U.S. during the same period, according to Euromonitor International.

To encourage more hotels to participate, Despegar plans to invest in its software that offers suppliers tools to manage their inventory better. As of June 30, approximately 23,000 of its hotel suppliers in Latin America were directly connected to its booking system via its extranet or via more than 35 third-party channel managers.

Despegar needs to dramatically boost participation and engagement from tens of thousands of other property owners.

Growth Plans

After the IPO, the company says it may use some of the funds raised to pursue opportunistic acquisitions that enable it to enhance its offerings, build its marketplace, enter new geographies, or enhance its operational infrastructure.

The company also plans to replicate in new markets what it describes as its successful introduction in 2016 of new products, such as bus ticket sales and a local concierge service, in test markets.

Despegar says that its 120-person marketing team will get better at marketing. It plans to expand initiatives like offering exclusive discounts on related products upon a consumer checking out and post-sale emails and personalized in-destination mobile marketing with offers for additional travel products that may be relevant to customers’ initial purchase.

Overall, the move to an IPO suggests the company succeeded in its initiative, begun more than a year ago, to eliminate phone bookings in favor of online bookings only and to rejig its online and offline marketing. (See Skift’s interview with Despegar’s CMO.)

But some criticize the company’s executives for not having led the business to achieve its full potential, especially when compared to how quickly some other online travel companies have grown elsewhere during the same period

While it claims to be online travel’s largest Latin American player, Despegar only takes a slice of the total spent on online travel in Latin America overall. A variety of other small, national players, and global conglomerates like Priceline Group, also take slices of the pie.

Despegar better stay hungry if it wants to live up to its destiny of “taking off.”

Ryan Wolkov

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Millennials Aren’t as Bad as You Think — Skift Corporate Travel Innovation Report

ITU Pictures  / Flickr

Millennials usually spend less on business travel than their more experienced colleagues. Pictured are millennials at a meeting.
ITU Pictures / Flickr

Skift Take: Millennials are more frugal when traveling for business than their older coworkers. Who would have thought — and who knows how long that will last?

— Andrew Sheivachman

The Skift Corporate Travel Innovation Report is our weekly newsletter focused on the future of corporate travel, the big fault lines of disruption for travel managers and buyers, the innovations emerging from the sector, and the changing business traveler habits that are upending how corporate travel is packaged, bought, and sold.

Dealing with the habits of millennials, particularly their penchant for ignoring corporate travel policy and booking whatever they want, is a big challenge for travel managers.

New research on business travel spending from Concur, however, shows that millennial travel patterns are actually a bit more conservative than older workers.

Concur’s research shows that younger travelers spend 18 percent less overall than workers aged 35 to 65 on dining, entertainment, and hotel bookings. Millennials spend less, in particular, when traveling to Asia, Europe, and the Middle East.

Strangely, millennials spend 3 percent more than older generations on hotel expenses, but that increase is offset strongly by savings on other aspects of their trips. (Speaking as a millennial who travels for business, I suspect this has something to do with purchasing Wi-Fi access for multiple devices, or high-speed access).

In other news, we got a briefing last week from Uber on their ambitions for a revamped Uber for Business platform. They’ve listened to their customers and created tools for travel managers to better manage business traveler spending.

We also take a look at what recent changes to hotel chain cancellation policies mean for business travel, and why hotel CEOs remain bullish on corporate travel growth.

— Andrew Sheivachman, Senior Writer 

Business of Buying

Uber for Business Got an Update That Gives Companies More Control:  Uber’s refreshed business platform will help streamline corporate rideshare use, especially for unmanaged travel programs.  Read more at Skift

Hotel CEOs Say They’re Cautiously Optimistic About Corporate Travel: But shouldn’t executives be a bit more concerned? At least that’s what one analyst is wondering, and we are too. Read more at Skift

Air Berlin’s Slow Collapse Into Bankruptcy, Explained: Over in Italy, no one wants to let Alitalia go. The Italian national carrier is also bankrupt, but keeping the airline is a matter of national pride. There’s no such love for Air Berlin. It’ll probably disappear, and that’ll be OK. Read more at Skift

Hotel CEOs Discuss Recent Cancellation Policy Changes and Hint at More to Come: As hotels tighten up their revenue management practices, expect more of these cancellation policy changes to take place in the near future. Read more at Skift 

U.S. Government Per Diem Increases Yet Again: Government workers will be allowed to spend $2 more on business travel during the 2018 fiscal year. Read more at Business Travel News

Disruption + Innovation

Hawaiian Airlines Is Handling Customer Service Inquiries Via Text Message: In the not too distant future, we expect bots will be sophisticated enough to handle almost all customer service inquires sent via text message. But we’re not there yet, so it’s refreshing Hawaiian Airlines is going with an all-human approach. Read more at Skift

Hilton CEO Looks to Airbnb as Hedge Against Power of Expedia and Booking.com: In some cases, the hotel-online travel agency relationship is still a tense situation, but for most big hotel companies, it’s still business as usual. Read more at Skift

Hertz and Avis Prep for Future With Self-Driving Car Partnerships: Car rental giants are looking to the future, with the goal of handling logistics for whatever company ends up winning the automated car arms race. If you can’t beat them, join them. Read more at Skift

Meeting Planners Are Struggling With the Fast Evolution of Event Technology: Innovation in event technology today relates as much to how planners use the platforms that already exist, as compared to new advancements in the technology itself. Read more at Skift 

COMMENTS

Skift editors Hannah Sampson [hs@skift.com] and Andrew Sheivachman [as@skift.com] curate the Skift Corporate Travel Innovation Report. Skift emails the newsletter every Thursday.

Subscribe to Skift’s Free Corporate Travel Innovation Report

Ryan Wolkov

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Author: Ryan Wolkov

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Airlines Pack More Seats Onto Each Plane and Manufacturers Try to Make Them Comfortable

Southwest Airlines

Southwest is one of many airlines introducing slimline seats. They allow carriers to pack more passengers in the same space but some travelers find them uncomfortable. Southwest Airlines

Skift Take: Airlines and seat manufacturers do try to make seats comfortable enough. But let’s be clear: Travelers want tight seating. By their actions, most passengers have shown they want cheap prices over anything else. Airlines can only offer bargain fares if they pack planes with seats.

— Brian Sumers

Every so often, officials at Rockwell Collins Inc. pitch a one-day job offer to residents near its Winston-Salem, N.C. design center: Earn $100 for sitting in an airplane seat for eight hours.

Show up for the gig, and there’s nary a drinks cart or flight attendant in sight. The rows of seats are arrayed in a testing area at the company’s design and engineering complex. Even without engine hum or overhead bins, “it’s kind of like they’re on the plane,” says Alex Pozzi, vice president of research and development at the company’s campus here.

Over the years, seat researchers at B/E Aerospace, which Rockwell acquired in April for $8 billion, have gleaned a few insights about life in the air. Most people are just fine for two hours. As the third hour approaches, stiffness increases and comfort declines. At four hours, however, a sort of derièrre detente is achieved, and the levels of discomfort recede. After all, when you’re stuck inside a sealed, speeding tube at 35,000 feet, resistance is truly futile.

There are many reasons to despise flying, from delays, to fees, to overzealous TSA staff. But shrinking seats and the pain, claustrophobia, and rage they can trigger are arguably the biggest reason why travelers loathe airlines. The modern seat, with its power to pack more customers onto any given plane, is at the very heart of the industry’s 21st century economics. Slimmer seats and less legroom between rows—known as pitch—has enabled “cabin densification” across domestic and international fleets. More seats, quite simply, means more money and lower operating costs.

There are limits, however, even beyond physical constraints. Regulators mandate a certain ratio of attendants to seats, and carriers want to keep labor costs down. Still, the trend has clearly been moving toward scrunching you. While 34 to 35 inches of pitch was once common for economy class, the new normal is 30 to 31 inches, with several major carriers deploying 28 inches on short and medium flights. Soon, however, that squeeze-play may come to an end.

The seat factory in Winston-Salem is at the center of testing the physical limits of human tolerance. One part of its live studies involves giving only some participants Wi-Fi access, an exercise that typically reveals a direct relationship between distraction and seat-staying power. “You can easily see the difference in ratings for the exact same seat if you have entertainment,” says Pozzi.

Yes, a good sci-fi flick can ease the harshest heinie-holder, and it’s no coincidence that most seatbacks on long-haul flights have a screen. But this is small compensation for the sacrifices required of air travelers who, having run the gantlet of parking, ticketing, security, and terminal, visibly slump when they find that their assigned seat has gotten even smaller.

Let there be no doubt about the shrinking quarters in economy—space is tight. Reallocation of aircraft real estate has allowed airlines to install new, medium-tier cabins between first class and economy. The front of the plane where the big money sits remains largely unchanged when it comes to space. The shrinkage, unsurprisingly, has been in back.

In recent years, the “slimline” seat has become the de facto standard by which airlines outfit economy cabins. This design is inches thinner than predecessors and markedly lighter, allowing carriers an additional cost-saver by reducing weight and thus fuel burn. Today, an economy seat that tips the scales above 9 kilograms (20 pounds) is, by an airline’s measure, too heavy to fly.

Carriers are “segmenting the economy cabin into two or three buckets,” said John Heimlich, chief economist at Airlines for America, the industry’s U.S. trade group. These efforts help “to minimize the market-share loss to ultra low-cost carriers [ULCC] or to other modes of transport.”

When Boeing Co. introduced the twin-aisle 777 in the mid-1990s, a nine-seat breadth was standard. Now, the aircraft—flown by carriers worldwide—often seats 10 across in economy, making life even more miserable for passengers. Boeing’s 787 Dreamliner has become notorious for its economy-class pinch with nine across-seating—and on some 787s, these seats are only 17 inches wide. (Airbus’s new A350 is also typically configured with nine seats across, but its cabin is about four feet wider, so it could fit 10.)

This cabin squeeze and seat-shrinking has helped increase earnings in an industry that’s gotten used to fiscal stability. But it occasionally results in some bad public relations. Two United passengers got into a kerfuffle in the summer of 2014 when a man stuck a “knee defender” device on the seat in front of him to prevent reclining, causing the seat’s occupant to grow irate. The crew diverted the Denver-bound flight to Chicago to eject both combatants.

In early May, news leaked that the world’s largest airline, American Airlines Group Inc., planned to add three rows of seats separated by only 29 inches of pitch on its new fleet of Boeing 737 Max, which arrives later this year. That arrangement would allow for an additional row of extra-legroom seats, which American calls main cabin extra, between first class and steerage. The move would have broken the current 30-inch pitch limit among the six-biggest U.S. airlines, putting it closer to no-frills carriers such as Spirit Airlines Inc., which offers a mere 28 inches.

Less than six weeks later, American reversed course—not because of passenger outrage, but because of flight attendants. American Chief Executive Officer Doug Parker said on July 28 that employees pushed back at having to be the front-line defender of a new level of cabin-class stratification. Parker said employees were telling him, “‘You’re going to put us in a position where we need to explain to these customers that indeed this is necessary so that we can have one more row of main cabin extra?’”

Parker explained the underlying calculation: “While we could convince ourselves that that might be able to produce somewhat higher revenues on the aircraft, what it was doing to our perception with our team wasn’t worth it.”

No airline has yet edged below 28-inches of legroom, although at least one major seat manufacturer, Zodiac Aerospace, has shown a prototype designed with just 27 inches. Italy-based Aviointeriors SpA gained attention in 2010 with a “standing” perch-style concept called SkyRider. That “seat” hasn’t passed regulatory muster, nor won any orders, although periodically a ULCC will speak favorably about such seating possibilities. Last month, South American carrier VivaColombia was the latest to raise the prospect of standing flights.

This rush to squeeze ever-more money out of passenger posture may soon slow. Carriers such as Delta Air Lines Inc. are looking to exploit this issue by retaining some creature comforts its competitors have ditched. It’s kept nine-across seating on its 777s, “one of the only in the world” to do so, says Joe Kiely, Delta’s managing director of product and customer experience. Delta has also led an industry trend to fly larger aircraft on more routes, reducing the role of regional jets. JetBlue Airways Corp. took pitch into consideration for its Airbus A320 fleet, which will see legroom shrink by more than an inch, to 32 inches, starting this fall. Despite the contraction, JetBlue wanted still to be able to advertise “the most legroom in coach.”

Meanwhile in Europe, low-fare king Ryanair Holdings Plc will pitch its 197 seats on the new 737 Max at 31 inches—one more than American, which plans for 30-inches of legroom in a slightly smaller version of the new 737 it begins flying in November. The battle over comfort, or more accurately less discomfort, is on.

Smaller seats and legroom have come in for scrutiny by a powerful federal appeals court. A three-judge panel recently ruled that regulators must consider setting minimum space standards, agreeing with aspects of a consumer group lawsuit that warned safety is being compromised. In emergencies, the Federal Aviation Administration requires fully loaded planes be emptied in 90 seconds or less.

“This is the Case of the Incredible Shrinking Airline Seat,” U.S. Circuit Judge Patricia Ann Millett wrote in the July 28 ruling. Her court, the U.S. Court of Appeals for the District of Columbia, handles most cases involving federal regulators and rules, a fact that may give airlines pause as they decide whether to shrink seating further.

Flyers Rights, a nonprofit advocacy group, contends that seat space has shrunk at the same time passengers have gotten larger. Those developments could lead to a catastrophic outcome during evacuation, the group warns. It also points to a less dramatic peril exacerbated by tight quarters and longer flights: deep-vein thrombosis, or blood clots in the leg, which can kill.

“Our concern is that it will take a Titanic-type disaster to make a change if we don’t get regulation,” says Paul Hudson, the group’s president. The court decision may “give impetus to getting seats back to where they’re going to be both safe and potentially not unhealthy.”

Bills pending in both houses of Congress would mandate rules on minimum airline seat space. In the past, such efforts have failed; the U.S. Department of Transportation has likewise been reluctant to address the topic. Airlines frequently say that such regulatory moves targeting key revenue centers—baggage fees, seat space, ticket-change fees—could lead to higher fares. Hudson, who previously worked as an aviation attorney, dismissed the industry response as a knee-jerk reaction.

“I’ve never heard that argument not raised,” he says

Airlines offer a few other rejoinders to the chorus of complaints. One is airfare: Faced with a choice between discomfort and higher fares, an overwhelming majority of travelers choose the former. Another is pricing-power. While industry consolidation did allow carriers to cut costs and command higher prices on some routes, average U.S. airfares have been one of the few consistent goods to hold firm against inflation over the past 20 years. Slimming the seats and tightening the space, the airlines argue, is a rational response.

The industry also points out that new seats, while thinner, are far superior to older models. Carriers’ zeal for lighter, durable, ergonomic seating has yielded engineering advances. Body shape and size, along with better materials and design, have become integral to airline seat manufacturing, and all four of the industry’s major players—Recaro GmbH, Thompson Aero Seating,  Zodiac Aerospace, and Rockwell Collins—are fiercely competitive in such areas as materials and ergonomics.

The L-shaped seat of yore has morphed into something more akin to a pivoting cradle-chair, seat designers say. And the once-flat seat pan, the chair’s frame and source of much anguish, is now generally curved. The passenger’s lower back is also finding fresh support in the newer designs.

American noted repeatedly that its seat selection for the 737 Max is a newer Rockwell Collins design, called Meridian, that’s more comfortable than prior economy-class seats. That’s the same seat Southwest Airlines Co. chose for its 200 new Max aircraft and its current 737-800s. United Continental Holdings Inc. is also purchasing the Meridian seat for its Max 9.

During a tour of its Winston-Salem design complex in May, Rockwell Collins officials invited reporters to sit in a variety of newer seats, including the Meridian and Aspire, a model aimed at two-aisle aircraft on long-haul routes. Tom Plant, vice president and general manager of aircraft seating at the company’s Interior Systems unit, asked the “passengers” to guess how much legroom each seat had. The pitch was 29 inches, but all the guesses were too high, mostly 30 to 32 inches.

Designers had managed to create a clever illusion of space. And that illusion means money.

©2017 Bloomberg L.P.

This article was written by Justin Bachman from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Ryan Wolkov

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