How travel unicorn Hopper went from mass layoffs to doubling revenue
It was shortly after airlines began canceling all their flights that Frederic Lalonde, CEO of the flight-booking and travel app unicorn Hopper, had his phone number and email address leaked online.
Lalonde estimates he personally received somewhere around 10,000 calls, voicemails, and emails from customers concerned about pandemic-induced flight cancellations or changes. “Was it pleasant? No,” Lalonde tells Fortune.
At first, the pandemic wreaked havoc on the Montreal-based flight-booking startup, now one of the most valuable travel unicorns in the world—worth $3.5 billion after its latest round of funding in August. “Being candid, I thought we were dead,” Lalonde says. International borders closed, travel plans dissipated, cruise ships were docked, and flights emptied. At Hopper, customers—and revenue—disappeared for months on end. On top of that, the company was digging through an enormous backlog of customer service complaints (“hundreds of thousands,” Lalonde says) over canceled trips.
“Imagine if everything Amazon sold for three months was returned to them on the same day,” Lalonde says. “That’s literally what happened to us, and every other company that sells travel.”
In the early days of the pandemic, Hopper’s revenue had actually surged. In March 2020, when the costs of flights had plummeted, customers started scooping up cheap tickets. Hopper had its biggest month ever in March—selling more flights in one day than it did the rest of the year, according to Lalonde. The problem was that nearly all of those flights purchased were ultimately canceled, and that revenue had to be refunded. “In hindsight we should have shut the app down,” he says.
By April, flight sales had dropped to just 10% of typical levels—and the few customers left were mostly international travelers who had been stranded abroad and were trying to return home, Lalonde notes. That month, Hopper laid off 40% of its 362 employees. “April 2020 was really dark,” Lalonde tells Fortune.
Flash forward about a year and half later: Hopper has ballooned to more than 1,200 employees (which includes the return of about 10% of the staff it laid off). It pulled in $175 million of funding last month after another $170 million round in March. Hopper more than doubled its pre-pandemic peak revenue in the first quarter, and it is on track to post $1.5 billion in travel sales by the end of this year. Corporate partnerships could nudge that up to $2 billion, according to the company. Despite the global surge of the Delta variant that has threatened to re-shutter events and borders, business at Hopper has never been better—not even close.
The reason why? Data.
Back in the air
Lalonde had already started describing Hopper as a fintech rather than a flight-booking app a few months ago. Approximately half the unicorn’s revenue stems from not the cut it gets from the flight, hotel, or car rental bookings themselves but the add-ons Hopper sells. There is the price freezing feature, where individuals can pay Hopper a nonrefundable deposit (usually around $30) to hold the price of a flight for up to 14 days. Hopper also allows customers to pay a premium to be able to change the date of their flights or cancel them entirely. There’s another add-on for disruptions: If travelers miss their connecting flights for any reason, they can get on board the next flight out of that airport from any airline at no additional cost.
Hopper pays the airlines or vendors out of pocket the necessary costs for tickets or changes to bookings, but it makes the math work by data-powered risk modeling. Machine-learning technology uses data points from its 60 million customers and flight data to calculate the probability a flight will be canceled, a passenger will miss their layover, or how prices may move overtime, and spits out a premium charge to the traveler accordingly.
These add-ons have become quite popular for Hopper users: About 60% of Hopper’s customers are purchasing them—meaning that those customers are spending, on average, about 10% to 15% more per ticket or booking than they were before, according to Lalonde.
This summer, travel bookings surged to record levels at Hopper as people anxiously, yet carefully, made plans to vacation again, making the unicorn’s add-ons increasingly appealing. That, paired with the ongoing high flight cancellation rate, has delivered a surge of new data for Hopper’s algorithms—making them more reliable, and therefore more profitable for the company. “The amount of data points that we got in the pandemic, in the recovery, we would have had to accumulate over decades. It was incredible,” Lalonde told Fortune.
Hopper has begun leveraging that extra 10% to 15% of revenue from its fintech features to attract corporate partners. Capital One announced earlier this month that it had released a new travel portal in partnership with what Hopper has dubbed “Hopper Cloud.” Capital One will offer eligible credit card users the option to make bookings online through a portal developed with Hopper. Also available to them: The option to pay premiums to cancel flights or freeze prices. Capital One and Hopper will share that extra revenue, according to Lalonde. He said there are other partnerships in the works that will be announced in coming months, but declined to offer any specifics.
Hopper’s rapid expansion is evidently drawing the attention of both pre-existing and new VC money. In total, Hopper has raised nearly $600 million in funding, according to Crunchbase, with backers including Goldman Sachs, Capital One, GPI Capital, WestCap, and others.
Like many unicorns, Hopper isn’t yet profitable, but it’s using its fresh cash to hire another 500 employees—300 of them in customer service. The company has also invested in its customer support software (its automated tools solve about 60% of customer requests). It also plans to continue buying up other travel startups to help it pursue new services (GDX Travel in Colombia, which Hopper acquired in late 2019, built out its car rental capabilities) and new markets (it has expanded into Latin America and Europe).
While the pandemic may have nearly taken Hopper out of business, Lalonde is amazed at how the company was able to bounce back. As for Lalonde’s cell phone number, it’s still accessible by a quick browser search, and he decided not to change it. “You can Google it and text me if you want,” says Lalonde.
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