The travel industry has seen its fair share of ups and downs in the last three years. And this could be one of the biggest understatements of the century. While airlines and large hotel chains suffered and worked with governments for financial help, there were countless casualties in the form of small hotels, tour companies, restaurants, and more. The industry is already demanding, living and dying by competition, low margins, and the movement of the tourist season influx. Adding in a major disrupter that lasted several years was incredibly difficult, and many companies did not have enough in reserve to weather the storm. Some were able to get loans and were rescued, while others had already overextended themselves and had to close shop.
So now that the dust has settled, where are we in preparing for the next pandemic, the next global conflict, or some other disaster that will force us to put our lives on hold for a year or more? In terms of tourism in general, the industry is booming with activity, as people who have had travel restricted are very excited to make up for lost time. Is this sudden boost in revenue enough to make up for the lost revenue in 2020-2022? No, but is it a start. Is it enough to help smaller companies build a nest egg that can protect their livelihood through more uncertain times? Not even close.
Is it a lost cause, and are these many charming B&Bs, local tour companies, and historic restaurants at the mercy of global events? Maybe, but maybe there are strategies that can help long term. Let’s dive in and look at some of the more obvious, and then offer some unique Web3-based models that scale with the community.
Planning for Uncertainty
For these travel-dependent companies, there is an ever moving equation that involves minimizing costs, maximizing revenue (through pricing right and attracting the most customers possible), and planning for both high volume and low volume periods. The most obvious way to help for these low volume periods is to first look at what recurring costs are required during this time, and how to minimize them. While assets like a property, vehicles, equipment, etc. are going to cost whether there are customers or not, other recurring costs like utilities, supplies, and labor can be reduced to use only what is required for low volumes. This is somewhat dependent on how predictable these lower volume periods are and how quickly the owner can reduce and increase these elements. There is a risk of being too aggressive with reducing these assets, and needs to find a balance.
An uncertain event like a pandemic is in many ways like the off-season: low/no volume, and the ability to reduce some costs, but the remaining labor costs (including the cost of the owner to live) and all the larger assets that aren’t paid off must still be addressed. Small nest eggs can quickly deteriorate when an off season is longer than expected, or if an unexpected event causes a lockdown. Taking a loan can be helpful in the short term, but at the same time can increase the risk of business closure since the loan repayment gets added to those irreducible expenses.
A Better Aligned Model
Web3 has a unique ability to more closely connect a community, spread the options for fundraising, and offer real rewards to those who participate. This can be seen on the crypto side with users purchasing tokens, staking/lending them, and earning token interest as a result. But could this same model be applied to the physical world? By tying NFTs to real world assets, this might allow a business to better align and improve the loan model, all without involving a bank or even interest rates. Gamification is the process of aligning motivations of various players to promote certain behavior. By using these same principles, those small businesses in the travel industry could potentially create a strong community with a vested interest in their success that goes far beyond simply being a fan.
The most direct example of this is a revenue sharing token (RST) from the Web3 travel platform Arakis. Instead of using traditional investment models or non-valued rewards points for loyalty programs (which have a strong likelihood of never being used), this model better aligns the reality of the travel industry. Simply put, a member of the community can browse through RSTs, each of which represent a physical asset. Think of a hotel room, a restaurant table, a boat tour: anything that could be booked by tourists. Users can buy the token, and the proceeds go to the travel company who owns the asset. This upfront money can be used by these companies to better strengthen their business by purchasing longer term assets instead of relying on mortgages, loans, and steady tourist revenue. Community members, apart from gaining a strong connection to the travel company, now earn the right to share in the revenue whenever that asset is booked. This could be very lucrative for the owner of the token, and the travel company only has to share revenue when there is revenue earned. This re-aligns the tourism rises/dips and takes away significant burden during low seasons or unexpected closures. The revenue shared with the RST owner is not a heavy burden because it is only shared when revenue is earned. For the RST owner’s part, there are additional opportunities on the secondary market as they can buy and sell RSTs as assets.
Better Prepared for Next Time
Unique problems require unique solutions, and 2020 showed us that there are likely more unique problems ahead that could crush businesses that are doing quite well today, unless those businesses are insulated from the violent swings in customer volume. The revenue sharing model may just offer the unique solution needed to weather the next storm, and offers the added benefit of these travel companies gaining a following and community through vested fans who want nothing more than their continued success.