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How Montreal travel app Hopper plans to compete against Google, Amazon and Airbnb while chasing $2 billion in bookings

Frederic Lalonde, CEO of Hopper, speaks at the Collision conference in Toronto in May 2019
Frederic Lalonde, CEO of Hopper, speaks at the Collision conference in Toronto in May 2019. Iain Sherriff-Scott/The Logic
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Travel app Hopper is set to significantly increase its hotel listings and launch new services for flyers as it seeks to double bookings to an annual rate of $2 billion by the end of 2019.

The Montreal-headquartered company’s moves come as Google and Amazon start to build out their own travel offerings and Airbnb considers a new transportation division.

In a sit-down interview with The Logic, Frederic Lalonde, Hopper’s CEO and co-founder, explained how Hopper hopes to double bookings in just 12 months by launching flight add-ons like insurance and by rapidly expanding the number of cities where it lists hotels.

“You’re going to see us grow,” he said. “There’s no possible question about that.”

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Talking Point

Hopper, the Montreal-headquartered predictive-travel app, plans to add hotel listings in 1,600 cities and offer insurance and other airfare add-ons this year as it looks to grow its gross bookings to an annual rate of $2 billion. It’s trying to become a “superapp” for travel as tech giants like Google and Amazon expand into the trip-booking space.

Hopper’s core feature is its price forecasting. Users input a combination of dates and cities, and the app tells them when flight tickets are likely to get more or less expensive in the days before departure. The company, founded in 2007, has raised $235 million in funding to date, including a $128-million Series D round in October 2018.

The company had a gross bookings run rate—its sales extrapolated over a 12-month period—of $1 billion at the end of 2018. It does not disclose revenue.

Even at its $2-billion bookings target, Hopper would be a tiny player. Travellers booked US$1.6 trillion in flights, hotels, trains and packages in 2017, according to Phocuswright, an industry research firm. Booking Holdings, which owns Priceline and Kayak, had gross bookings of more than US$92 billion in 2018. Expedia Group—which acquired Lalonde’s last company, Newtrade Technologies, for an undisclosed price in 2002—had over US$88 billion in 2017.

This summer, Hopper will dramatically expand its hotel-booking offering, which was first launched in October 2017. The app currently has 20 cities with significant inventory—200 or more properties—including San Francisco, Miami, Mexico City and London.

Hopper’s worldwide lodging plan involves over 270,000 hotels in 1,600 cities, including major travel and tourist destinations like Beijing and Phuket, Thailand. “It’s about considerations like building and location—it’s very different than air,” said Lalonde.

The company is also exploring flight add-ons. “We’re very interested in all types of insurance products, because our customers have been responding very well to that in testing—everything from bags to cancellation,” said Lalonde. The company is also looking at fare protection and price guarantee products. It’s aiming to have the new offerings in place by the third or fourth quarter of 2019.

Over the last year, Hopper has formed agreements with several airlines to share data, receive early access to their new booking systems, and eventually sell unbundled flight services like baggage and priority boarding. The firm has a joint research collaboration with Lufthansa, which uses artificial intelligence to assess customer preferences to recommend upgrades and add-ons.

Hopper’s internal machine-learning tools account for about 20 per cent of the company’s sales, according to Lalonde. The algorithms suggest when travellers might want to change their plans for a better opportunity. For example, a customer watching the Toronto-to-Rome route might find a cheaper ticket to Milan, instead.

The company’s AI also figures out whether to make these recommendations. “Do I wake him up at 3 a.m., because there’s a mistake fare that’s been filed to a destination that’s 100 kilometres away from where he wants to go?” said Lalonde. That’s what good travel agents used to do, he noted.

The algorithms usually decide correctly. When Hopper makes a recommendation of an alternate route or dates, its conversion rate is three times higher than when it sends users a notification about a trip they’re tracking. “Thus, we’ve proven that we’re all incompetent at planning our own travel,” said Lalonde.

Lalonde acknowledges that users still price-check the app against competitors. “We will earn our keep by being the best marketplace that removes all the friction, but also gives you lower fares,” he said.

In November 2018, the firm dropped its $5 booking charge, and transaction conversion increased. The app now offers a tipping option, and the company said over 60 per cent of users leave one. Hopper also makes commissions from flight and hotel bookings. The company has doubled headcount in the last year, 289 employees.

A quarter of Hopper’s revenue comes from outside Canada and the U.S., and the international business is growing at twice the pace of the domestic one. A few years ago, users often couldn’t find predictions for some overseas routes—Mumbai to Toronto, say—and prices were sometimes higher than those available elsewhere.

Hopper’s base fares have since become a lot more competitive. The firm got International Air Transport Association accreditation as a travel agency in several European and Latin American countries, giving it access to cheaper, local flight pricing.

It also connected new data sources, which helped fill out the missing predictions. And, it’s started offering what Lalonde called “hacker fares,” plotting routes across different airlines that don’t normally fly together. “We’ll actually sell those to you as one thing, and we’ll manage the connection,” explained Lalonde.

But the tech giants are coming. In May, Google rolled all its travel-planning features—including hotel and flight search and reservation integration with Maps—into a single landing page called Trips. The same month, Amazon began selling domestic air tickets on Amazon Pay in India, partnering with local travel website Cleartrip. The e-commerce giant previously offered hotel rooms globally, but shut down that service in 2015.

Chinese online travel giant Ctrip is also expanding outside its home country. And, in February, Airbnb hired Fred Reid, founding CEO of Virgin America, to lead a new transportation division. The short-term rental company has been exploring an expansion into air since 2017, when it reportedly held talks about acquiring Hopper.  

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Lalonde isn’t concerned about new competition, partly because of the size of the industry, and partly because of his business model. “Am I worried? No. It’s [an] $800-billion category. Would I be worried if I was a traditional web-based [company]? Yes, I would,” said Lalonde.

Hopper doesn’t rely on search engine optimization or marketing to attract customers, unlike airfare aggregators and content-driven websites. “All the businesses that are lead-gen and referral—all these Trivagos and TripAdvisors—are going to get squeezed as the Googles start to do more and more of that,” Lalonde said.

The company is preparing for what Lalonde sees as the future of the travel market: customers booking every part of a trip through “superapps” on their smartphones.

Further capital injections may be on the horizon following the 2018 raise, which was one of the largest venture capital deals in Canada that year. Hopper makes money on its transactions, but reinvests earnings. The company’s growth can “support several billion dollars of future raise,” said Lalonde, although “there’s no reason for us to take that capital in now.”

Growth comes relatively easy, because the category is consolidated. “I don’t need to sign up drivers, I don’t need to list homes, I don’t need to put vegetables in boxes,” Lalonde said. “The airplanes are in the air, the hotels are built.”