Private Jet Companies and Airlines Know How to Profit From the Eclipse

XOJet

Brisbane, California-based XoJet will handle about 60 flights to solar eclipse areas, the company said. It is one of many private jet companies and airlines profiting from the eclipse.
XOJet

Skift Take: We doubt the eclipse 99 years ago had such a commericial bent. But, hey, why shouldn’t aviation businesses try to profit from a natural phenomenon?

— Brian Sumers

For the well-heeled looking for a last-minute plan to see next week’s solar eclipse, a U.S. private-jet operator is offering an option for $10,000 a seat.

Million Air is whisking customers to remote airports where the moon will totally block the sun’s rays for a time on Aug. 21. Passengers will watch from lawn chairs near the wings of the plane while an astronomer offers expert commentary and views of solar flares through a telescope.

“Our idea is that, instead of tailgating at a ballgame, we’re going to wing-gate under the path of total eclipse,” said Roger Woolsey, chief executive officer of the Houston-based company. “We’ll load the jet up like a pickup truck, with the picnic baskets and the Dom Perignon and the snacks.”

The flights reflect the solar show’s bonanza for private-plane operators, which is on a par with major holidays and sporting events. The Federal Aviation Administration is putting up temporary air-traffic control centers in Oregon, where the total eclipse will begin over the U.S. as it sweeps toward South Carolina along a 70-mile band. Jackson Hole, Wyoming, a hot location for the luxury-jet set that’s in the path, is out of aircraft parking spots.

‘Super Bowl’

“The magnitude has a Super Bowl feel,” said Brad Stewart, CEO of XOJet, which owns a fleet of 41 aircraft. “The idea of the eclipse has captured the imagination.”

The coast-to-coast total solar eclipse, a phenomenon that last occurred 99 years ago, is giving an extra boost to a private-jet charter industry that already enjoyed a 6.7 percent increase in charter activity in July from a year earlier. XOJet, based in Brisbane, California, will handle about 60 flights to eclipse areas, Stewart said.

At Jet Linx, bookings to see the eclipse began a couple of months ago after a customer broached the idea, Chief Executive Officer Jamie Walker, said. Now the Omaha, Nebraska-based company has 16 flights planned. The average cost to rent out a light jet is about $4,000 an hour and $8,000 for a heavy jet such as a Gulfstream 450, Walker said.

NetJets, the private-jet company owned by Warren Buffett’s Berkshire Hathaway Inc., has about 500 bookings to and from the eclipse zones. That puts demand on par with the busiest holiday times around Thanksgiving and Christmas, Kristyn Wilson, a spokeswoman for the company, said in an email.

“We do, on occasion, experience peaks related to popular events. But demand of this nature, especially on a Monday in August, is truly out of this world,” she quipped.

‘Cosmic Cocktails’

Commercial carriers are also getting into the mix. Alaska Air Group Inc. is operating a charter flight that takes off from Portland, Oregon, for select astronomy enthusiasts and eclipse chasers. Southwest Airlines Co. is providing special viewing glasses and offering “cosmic cocktails” on flights most likely to experience the eclipse’s maximum effects.

Pilots flying during the event will have to keep an eye out for about 100 high-altitude balloons that students in coordination with the National Aeronautics and Space Administration will launch to capture live footage of the eclipse, the FAA said.

People outside the path of totality will still be able to see dramatic partial eclipses with no help from private-jet operators charging thousands of dollars. But the fever to pack up the family and fly off to a place in the path of complete darkness has been increasing as the natural phenomenon nears, said Ron Silverman, U.S. president for VistaJet in New York.

“The biggest challenge right now is finding an airport that we can get into,” Silverman said.

©2017 Bloomberg L.P.

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

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Millennials Aren’t as Bad as You Think and 6 Other Tourism Trends This Week

Fabrizio Bensch  / Reuters

Millennial business travelers actually spend less than many people suspected. Visitors take a selfie at the exhibition stand of the Maldives at the International Tourism Trade Fair (ITB) in Berlin, Germany, March 9, 2016. Fabrizio Bensch / Reuters

Skift Take: This week in tourism news, we looked at millennials who surprise us. This diverse group really does buy luxury products and its business travel spending is relatively conservative.

— Sarah Enelow

Throughout the week we post dozens of original stories, connecting the dots across the travel industry, and every weekend we sum it all up. This weekend roundup examines tourism.

For all of our weekend roundups, go here.

>>We’re giving you the chance to check out which companies you’ll get to network with at Skift Global Forum. Is your company missing from the list? There is still time to register! Companies Attending Skift Global Forum

>>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: Hertz and Avis Prep for Future With Self-Driving Car Partnerships

>>Cruise companies are finally seeing the booking behavior they desired as more passengers reserve their places earlier. But observers wonder if selling inventory too far in advance means cruise lines are leaving money on the table: Cruise Passengers Are Booking Earlier Than Ever. Is That a Good Thing?

>>There is no one strategy to win over millennials. Brands should focus on what they offer in terms of quality and then communicate that through as many channels as possible to increase their awareness among this diverse but growing demographic: 5 Factors That Influence Millennials’ Luxury Spending Habits

>>Destinations around the world need to wake up and realize that social problems related to tourism aren’t going to solve themselves: Summer of Overtourism: 4 Lessons for the Travel Industry

>>Tour operators have longed for Turkey and, to a lesser extent, Egypt and Tunisia to return to their previous popularity. All of these destinations offer better value to consumers than Spain, which is at close-to-full capacity and more expensive. Their return is also good news for the people who rely on tourism for a living: Tour Operator CEOs Say Turkey Is Coming Back to Take the Strain Off Spain

>>Millennials are more frugal when traveling for business than their older coworkers. Who would have thought — and who knows how long that will last? Millennials Aren’t as Bad as You Think — Skift Corporate Travel Innovation Report

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Airline Stock Weakness After Attacks in Spain Is a Buying Opportunity, Cowen Analyst Says

American Airlines

An American Airlines aircraft shown on July 13, 2017. A Cowen analyst argues it’s a good time to buy airline stocks after share prices fell following the attacks in Spain. American Airlines

Skift Take: Travel and transportation-related stocks often dip after a crisis but when travelers return, so do share prices.

— Dennis Schaal

Airline stocks stabilized Friday, a day after the shares were pummeled following a terrorist attack in Spain during the busy summer travel season.

Shares of American Airlines Group Inc. fell 48 cents to $45.55; United Continental Holdings Inc. rose 5 cents to $64.75; Southwest Airlines Co. gained 2 cents to $53.17; and Delta Air Lines Inc. was unchanged at $47.53. The four stocks had each fallen from about 3 to 5 percent Thursday.

Cowen analyst Helane Becker said in a note to clients that travel bookings would probably slow “for a few days” after the Barcelona attack but pick up in September.

Airline stocks have slumped since mid-July over concern the carriers are diluting prices by adding seats too quickly. Becker said the pullback created a buying opportunity for investors.

Warren Buffett’s Berkshire Hathaway Inc. disclosed this week that it trimmed its airline investments. The firm’s stakes in American, Delta, United and Southwest fell by about $415 million on Thursday and $20 million on Friday. They’re still worth more than $9 billion.

This article was written by The Associated Press 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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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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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

PRC Time Shares

Author: Ryan Wolkov

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