[MOZIO] Ground Control #1

LIVE How I Got Here Podcasts + Newsletter from Mozio on the Future of Travel & Transportation

Hey friends,

At Mozio we’ve been busy spending the last 8 weeks adapting to the COVID crisis, as we’re sure you have been as well, and as we prepare for the rebound we think community is more important than ever. So we’re doing a few things in a new initiative we’re calling Ground Control.

1) LIVE Podcasts/Virtual Events

Rod Cuthbert, the Founder of Viator and former CEO of Rome2Rio and Dan Ruch, Founder & CEO of Rocketrip kick off our Season 2 of the How I Got Here Podcast we run with Phocuswire, and we have some big names we’re lining up for the next 20 guests. Each podcast for this upcoming season will also be a live digital event - if you are one of the first 10 signups you will be in the Zoom call with us and able to ask questions during the 20 minute Q&A post podcast recording, and after that you will still be invited to the webcast event and can submit questions via chat. The limit is 100 people so sign up fast! The current list of podcasts is below, and also on groundcontrolhq.com.

Rod Cuthbert, Founder @ Viator, 9 am EST, 19th May, Reserve Your Spot Here

Dan Ruch, Founder @ Rocketrip, 1pm EST, 21st May, Reserve Your Spot Here

Azim Barodawala, Founder @ Volantio, 3pm EST, 26th May, Reserve Your Spot Here

Alex Mans, Founder @ FLYR Labs, 3pm EST, 29th May, Reserve Your Spot Here

Randy Petersen, Founder @ BoardingArea/FlyerTalk, 3pm EST, 3rd June, Reserve Your Spot Here

Varun Khona, Founder @ Headout, 8 am EST, 8th June, Reserve Your Spot Here

Eric Gnock Fah, Co-founder at Klook, 8 am EST, 15th June, Reserve Your Spot Here

2) This Newsletter

It will be 90% opinion/10% news. You have enough sources of news telling you how screwed our industry is, but we’re going to keep this more philosophical - our take on what’s going on, how we’re handicapping recovery, and more.

3) A Members-Only Community

Built around our How I Got Here Podcast that you can apply to be a part of (no cost!). It includes a list-serve, and preferred access to the live podcast recordings, and is targeted at founders, C-level execs, VPs and GMs.

Apply or Nominate

Every week we’ll give you our own opinions about what is going on in the industry and update you on new live events with industry thought-leaders.

Our Weekly Update: Hybrid Accommodation’s Lease Liability Structure

Apartment Hotel, Hybrid Accommodation Startups Pivot to Longer Stays & Overextended Airbnb Mini-Empires

We’ve been reading up on the challenges the pandemic has been bringing to vacation rental. The links above share a variety of opinions but this quote stood out as being, we think, a bit overly doomsday, but deserving more analysis:

"Companies like Sonder, Lyric, Stay Alfred, etc.. have taken out huge lease commitments," Lehmann said. "Very few of them will survive, simple as that. None of them can service their debts. This model will disappear just as quickly as it evolved."

We’re not sure we agree with this - in short it completely depends on the internal structure and access to capital, but we agree that when it comes to hospitality the hybrid accommodation models definitely have the worst of both worlds at first blush. First, some background . . .

The Major Chains Own Very Few of Their Hotels

Many of them have a franchise model, making them more nimble than they seem. When you see how a W Hotel is now an Accor hotel, well that’s because the actual owner of that land just decided to affiliate with a different brand, so while they may struggle to pay their corporate salaries right now, they have a comparatively small percentage of hard assets to have to worry about . . .

Airbnb is Obviously Better Positioned

Obviously, they can let certain hosts fail, and they do have some significant percentage of people who are just renting out spare rooms who won’t all of a sudden be able to put that room on the rental market with 20% unemployment . . . and Airbnb is more inclined to have resort properties, the type that people with disposable income might rent for a month to escape the city during the Pandemic.

Local Airbnb Hosts Struggle With Cancelled Reservations And Empty ...

To understand if hybrid accommodation models are screwed we should consider two other real estate dependent industries - work & nightlife.

The WeWork Loophole & Bar Operating Partners

When the whole Adam Neumann/WeWork blowup happened, a little detail that they mentioned is that WeWork is thought to have separate entities own the lease of every property, so if they needed to they could “declare bankruptcy” for one of those entities and get out of a 10 year commitment they may have made right away. If you don’t think entities can do that with the parent entity staying intact, well, just look at our current President.

The discussion around hybrid accommodation also reminded me of a conversation I had with In Good Company Hospitality Company a year ago - they told me how they own 8 bars, but also run the bar/restaurant at the Mondrian here in NYC as the “bar operating partner.” That means they actually didn’t have lease liability for that property, they were just operating the bar for the hotel, who owned the lease, and had their costs covered received a percentage of profits in exchange. Potentially smaller upside than if they had owned it, but much smaller downside as well.

(If you’re curious why I know about this, it’s because my other company is a private club concept called Maxwell, our own newsletter here, and we’ve explored every way of insulating Maxwell Social, Inc. from lease liability as every VC and angel is skittish post WeWork implosion about having any exposure to real estate, and we’re raising separately for every property we open and Maxwell, Inc. will operate as basically a “bar operating partner”)

The real question to ask hybrid accommodation startups is: what percentage of your leases are you fully liable for? Is it a separate legal entity that owns the lease? Did Sonder, Lyric, Zeus, Domio, etc., negotiate with property owners for a revenue share and no downside liability?

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Interested in ground transportation services? Check out the Mozio Group site to learn more about our partnerships with Hertz, American Express Global Business Travel, Toronto’s GO Transit, JetBlue, Air France and tens of thousands of travel agents.

Go To Mozio Group

Uber Eats, Grocery Delivery, Airline Cargo & Long Term Stays - Repurposing Assets During the COVID Crisis.

This quote from Dara Khosrowshahi, ex Expedia CEO and current Uber CEO, got me thinking:

“While our Rides business has been hit hard by the ongoing pandemic, we have taken quick action to preserve the strength of our balance sheet, focus additional resources on Uber Eats, and prepare us for any recovery scenario. Along with the surge in food delivery, we are encouraged by the early signs we are seeing in markets that are beginning to open back up.”

5 months ago Uber bought Cornershop to expand into grocery delivery. Having an Eats business to fall back on could be one of their saving graces. Uber is also expanding into grocery delivery in France in partnership with Carrefour, Doordash has started to deliver household essentials in addition to meals, and DeliveryHero has also said they will deliver groceries.

It seems that the travel and transportation companies that will rebound the quickest are the ones that do the best job of creatively repurposing their assets to the new normal, and ones that had a couple divisions and are a bit more diversified are better built to survive this pandemic.

Mozio has dealt with this ourselves by noticing that with the shutdown of buses, trains and planes, private transfers, not to airports but city-to-city in the 20-200 mile range have increased. While a fraction of the normal volume, they are higher margin. We’ve noticed that many of these trips are blurring the line between tour & transfer - many people want to get from one city to the other and have a stop along the way to sightsee - something that doesn’t fit normally into a Viator/Klook/GetYourGuide sale or a normal transportation website.

Airlines are taking a page out of this book as well as ones that have no history of operating cargo-only flights rapidly try to adjust to the new normal.

Virgin Atlantic cargo-only flights

The current count of bankrupt airlines is three: Flybe, Virgin Australia and Avianca. An airline’s ability to pivot into cargo could be a harbinger of if it survives or not.

One interesting question is which airlines are best placed for this - that article mentions how Chicago has a historical connection to Germany and United’s European hub is in Frankfurt so they are taking advantage of that connection to run a lot of cargo flights between those two locations. Another random stroke of good luck is United’s hub in Guam with a U.S. airbase that needs supplies. Certain airlines may benefit from pure luck re where their hubs are located, and clearly airlines like Etihad and airline groups like IAG that had pre-existing cargo-only flight verticals are better able to adjust. Historical relationships to particularly hard hit regions, fortuitous location of hubs and more could affect which airlines come out of this alive.

Which brings us back to accommodation.

The marketing on these sites has changed to reflect their focus on those short term mitigation strategies.

Sonder is probably better positioned for long term stays in cities but I wonder how much demand for that there actually is. While Airbnb may not have fixed assets, there are many people who spun up mini Airbnb empires or bought properties or kept rooms open in their houses assuming that income, and the overall liquidity of their platform will be threatened if they don’t find a way for those people to keep their properties on the platform too . . . it’s not fully known what percentage of Airbnb’s inventory exists solely to be sold on Airbnb but this is likely the end of the types of landlords who would acquire 10 properties and run them for profit. They have all the vulnerabilities that Lehmann talks about without any of the ability to cover their asses and pivot and get out of leases and definitely don’t have “bar operating” type agreements and Airbnb will only support them with things like their $250M compensation fund for so long . . . it will likely lead to a correction in the market, a using of Airbnb for more of what it was originally intended for, to fill up your spare room.

That said, I’m curious though if the churn ends up being net-neutral for Airbnb - a roommate of mine recently bailed on his commitment to us, and we put a room up on Airbnb we that wouldn’t have existed if not for this crisis . . .

Other Tidbits We Found Interesting

Drew Patterson (Founder of Jetsetter) on Why COVID Will Benefit Google Over OTAs.

Drew makes a good point that while in the past crises have accrued to the benefit of OTAs, after all, if you’re a struggling hotel you are going to search for bookings from every channel possible, this crisis is different - Google has a natural place and a more developed travel product that it doesn’t have to pay for clicks to keep top of mind. Expect their position to improve relative to OTAs.

Save Your Employees, Sell Your Airplanes Instead

Found it fascinating that a bunch of airlines are looking to do a sale leaseback deal to help give themselves liquidity.

“Cathay’s six aircraft sale and leaseback had a transaction price of $704m. With $2.6b annual staff costs, or $217m a month, the aircraft sale, to over-simplify finances, covers three months of employee costs assuming full allowances and per diems (which are not occurring) and no unpaid leave (which is being taken up). The transaction occurred before Cathay announced it would further decrease capacity from 65% to 96%, adding more financial pressure.”

AirAsia CEO Tony Fernandes Out For Now Amid Airbus Bribery Probe ...

It brought up another interesting dilemma we’ve debated though - we’ve had a few calls with Mozio partners who have barely laid anyone off and it reminded us of the pledge by Tony Fernandes, Founder & CEO of AirAsia, to keep as many employees on as possible. While the “employees are our most valuable asset” credo is true and admirable, actions like this might fly in the face of another rule of thumb which is that you should cut fast and deep to maximize chances of survival when in crisis. Obviously every company is faced with a different predicament, and I think the wisdom of each strategy will be dependent on each companies support from their local government and how long this crisis lasts. If we’re back to work in a couple months, continuity could be the wise choice.

Force Majeure, COVID & Airlines

We thought this article in Quartz was useful because most of us would think of a Pandemic as an “act of God.” Some airlines are taking advantage of those clauses to give coupons instead of refunds, others are being prevented from doing so by their governments.

“After the Canadian government relaxed regulations that would ordinarily oblige airlines to issue a refund for cancelled flights, five Canadian airlines, including Air Canada, invoked unspecified force majeure clauses to issue passengers with credit vouchers for their cancelled flightsIn a statement, airline Air Transat said it was within its rights: “In such a force majeure situation, way beyond our span of control, we do not have to issue a full refund for travels that have not been completed.” The airlines have since been sued by a passenger.

The US Department of Transportation has taken a far less liberal view in a seemingly identical situation. In an enforcement notice published April 3, the US Department of Transportation left little wriggle room for troubled US airlines to lean on force majeure clauses. “Passengers should be refunded promptly when their scheduled flights are cancelled or significantly delayed,” wrote Blane Workie, the department’s assistant general counsel for Aviation Enforcement and Proceedings. “The focus is not on whether the flight disruptions are within or outside the carrier’s control, but rather on the fact that the cancellation is through no fault of the passenger.” In other words, force majeure does not apply.”

Carnival Swamped With Bookings After Announcing August Return

This is I’m sure every industry watchers favorite game right now - is this going to be an L-shaped recovery, a V-Shaped one or what? How quickly will bookings return? Some encouraging news from Carnival that bookings have skyrocketed. While Carnival is one of the cheaper cruise lines with a younger clientele, they also own half of the other cruise lines, and in general I think cruise lines could be false positives - most cruisers are retired, so not having an income for a couple months is basically their normal life . . . it remains to be seen how travel is effected for demographics that will feel the pain of layoffs and a recession more acutely . . .

The Future of Sanitised Air Travel

A THA (Transport Health Authority) to compliment the TSA, over 60 different changes to touch points leaves us wondering just how expensive flying will be, and where the 80-20 is.

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Interested in ground transportation services? Check out the Mozio Group site to learn more about our partnerships with Hertz, American Express Global Business Travel, Toronto’s GO Transit, JetBlue, Air France and tens of thousands of travel agents.

Go To Mozio Group

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David Litwak

Founder & Executive Chairman @ Mozio Group, Host of the How I Got Here Podcast, Founder & CEO @ Maxwell Social, tweets @dlitwak