MONTREAL — There were plenty of reasons why travel startups Sonder and Hopper could have been two of the more whimsically named companies to go under because of COVID-19. After all, Sonder, a short-term-rental firm, and Hopper, a travel-booking app, offer accommodations and air travel in an era of lockdowns and idled jets.

Yet both companies are very much alive, and growing despite the travel industry’s enduring pandemic hangover. And both used a combination of strategic layoffs and timely, VC-backed cash infusions to see themselves through the worst of the pandemic.

Consider Montreal-based Hopper. The bunny-bedazzled app, which saves users money by suggesting to them exactly when they should buy their plane tickets, struggled mightily at the pandemic’s outset. The company laid off more than a third of its workforce and fielded thousands of customer complaints about its service. To a large extent, Hopper’s many malaises were a reflection of the state of the global airline industry, which lost a combined US$188 billion in the last two years, according to a recent KPMG study. It’s hard to make money on airplane seats when as much as two-thirds of those seats are mothballed on tarmacs.

Except Hopper has bounced back, to say the least. Today, the company boasts nearly 70 million downloads and a US$5-billion valuation—more than six times what it was in April 2020. The company launched car- and short-term home-rental verticals and a suite of “bespoke fintech products” during the pandemic. It also entered into a US$170-million partnership with Capital One to develop the latter’s travel platform. It hired 500 new employees. And while the company’s page on the Better Business Bureau’s website still has a customer rating of F, it is now far quicker in responding to complaints, probably because it bulked up its customer-service support. (Hopper CEO Frederic Lalonde didn’t respond to my request for comment.)

The pandemic has been similarly brutal for those in the hospitality game, and Sonder, the Montreal-founded, San Francisco-based short-term-rental platform, wasn’t spared. Sonder laid off and furloughed about the same percentage of its employees at around the same time as Hopper.

It also underscored a weak point in Sonder’s business model. As its co-founder and global real estate head Martin Picard told me in an email last week, the company has secured most of its 5,000-plus units with five- to seven-year leases. Sonder paid rent on these even as COVID-19 meant many sat vacant—though the company was able to stanch losses in part with “new use cases during the pandemic, including travel health-care professionals, and launched extended-stay campaigns,” Picard said. Yet this can’t hide Sonder’s piping-hot burn rate. The company spends a lot of money, a fact reflected in its net loss—over US$64.5 million in the third quarter of 2021, up 16 per cent from the same period the year before—though its revenue was up 155 per cent to US$67.5 million.

Much like Hopper, Sonder remains very much a going concern, with the company snagging a US$1.9-billion valuation in its SPAC-enabled Nasdaq debut in January—though its current underwhelming stock price is an indication of the company’s lukewarm debut on the markets. And it was able to get to the Nasdaq only because investors threw money at the company in its time of need. “The mentality was, ‘Things are tough now; do I believe that we have the best company and the best team to win in this market? OK, I’m going to double down,’” said Isaac Souweine, a partner at Montreal’s Real Ventures, an early investor in Sonder. “It’s all about investor confidence in the management team.”

In Sonder’s case, it meant a US$170-million raise in June 2020 led by WestCap Group, Inovia Capital, and Fidelity Investments. It began life as a public company with approximately US$310 million in private investment in public equity capital. The influx allowed the company to survive as competitors like Lyric, Stay Alfred, and Domio shuttered. As one of the few left standing, Sonder is now sometimes considered a slightly smaller version of Airbnb. Meanwhile, as The Logic first reported, Hopper saw a US$70-million infusion early in the pandemic and US$175 million in Series G funding from Brookfield Asset Management, Stack Capital Group and Drive Capital, among others. It allowed Hopper to hop on while others, like Montreal-based FlightHub, floundered.

Duly flush with cash, both Hopper and Sonder appear ready to feast on two years’ worth of pent-up demand. Both companies target Gen Z and millennial travellers, who are key to a resurgence in the travel and hospitality sectors. For both companies, there is an obvious caveat: their prospects look sunny so long as COVID-19 doesn’t lock us in our houses once again.

Recovery or not, Sonder still faces the issue of its leases. Not owning the rooms it offers has obvious benefits, not the least of which is the ability to secure new spaces without the cost and burden of ownership. Yet being lease-heavy during the pandemic and resulting economic downturn was arguably the loudest of death knells for Breather, the Montreal-based flexible-workspace provider. These leases, Souweine told me, “remain one of the significant challenges of the business.”

Sonder’s Picard says the company began mitigating its exposure to leases prior to the pandemic, including relief clauses in the event of a recession. “We outlined a path to profitability in our recent investor deck that shows this coming as early as 2024,” he said.