Hopper CEO Fred Lalonde: Growth Plans and Defending Fintech – Full Video

Just days before announcing a reduction in its workforce, Hopper CEO Fred Lalonde joined Dennis Schaal, executive editor and founding editor of Skift, at the 10th Skift Global Forum to discuss the company’s strategic direction and profit goals.

Lalonde also addressed the breakup with Expedia. Lalonde stated that Hopper’s fintech products “have high customer satisfaction rates and have been successful in protecting customers’ travel investments.”

Watch the full video of Lalonde’s interview:

Interview Transcript

Dennis Schaal: Fred, third year in a row, third time’s a charm.

Frederic Lalonde: Thanks for having me again.

Schaal: Of course. So we’ve got a lot of news to get to, a lot of Hopper news, and then a lot of other topics. We’re going to talk about everything from burn rates to Bunny Bootcamp. Get ready for that one.

Lalonde: We love bunnies.

Schaal: Some big Hopper news yesterday, they struck a deal with Hotelbeds and WebBeds, two bed banks to pick up about 700,000 hotels. So admit it, Fred, when Expedia ended their partnership with you, they removed about perhaps half of your hotels. Hopper said, “Nah, no impact.” Got a little spin there, Fred, or what?

Lalonde: Your research team actually covered this. Expedia lost those bookings, not Hopper. So we’ve been multi-sourced since we started. We work with all sorts of players around the world. I think the thing that’s been a little bit less covered is that we’re 65% direct-

Schaal: In the US?

Lalonde: … in North America, and we’re inching onto that globally. I don’t actually think those were Expedia’s hotels. I think the hotels themselves own the inventory, and we’ve been working since 2016 to build those relationships directly with chains, independent properties. We’re probably the first company to reach this scale since Booking and Expedia originally started doing that in the ’90s.

So there was very, very little impact, and with this announcement we just made, we’re actually building international supply, which is really important as our customer base continues to grow.

Schaal: So let’s see if it shows up in the earnings report about how Expedia lost all this business from Hopper, TBD.

So the Expedia breakup… Okay, this was Expedia’s Dear John letter to you. Actually, I think they said it in person, but this is what they said publicly: “As Hopper’s product has evolved, we’ve determined that the features exploit consumer anxiety.” You were talking about consumer anxiety last year. “And they confuse customers, leading them to purchase services they neither need nor fully understand.”

They cited misleading marketing, high pressure sales tax, questionable insurance practices. Yesterday, Peter Kern said it took 27 clicks to book a flight on Hopper because there’s so many offers along the way, whereas in Expedia, six clicks.

To that, you say what?

Lalonde: I’d like to remind Peter that there’s no clicks on phones. They’re actually taps, so there’s a completely different framework here for what we do. The way that you look at this problem, what you’re calling the breakup, it is 100% competitive. I think you actually showed a video of this, of Peter going out and saying how proud they were of powering us and being a partner.

Schaal: I think you said he was being polite.

Lalonde: Yes. Well, so fundamentally, we’ve been growing in the US. Our MIDT data, which is the air data, I think we peaked above 13% market share. You have to ask yourself, “Where did that share come from over the past four years?” Some smaller OTAs got in trouble during the pandemic, and we took some share, but the vast majority of it came from Expedia. We have a much better B2B platform, much better B2B product, and that’s a huge chunk of their business. So I don’t think there’s any mystery that that reaction was competitive above everything else.

Schaal: I was just going to ask you what was the breaking point because that seemed to be pretty abrupt.

Lalonde: I mean, you should ask Peter that. Maybe you did. Fundamentally, Peter didn’t call me. We didn’t have a conversation around this. You may have heard about it weeks or months before I did actually.

Schaal: No, I heard about it the same day you did.

Lalonde: So fundamentally, that’s an Expedia question. We’re an open platform. We’ve worked with a large number of providers, and we try to do one thing, which is to make travel accessible, save money with the bunny. It’s how we were started. It’s all about making sure that our users, which are younger, they don’t have the same access to credit as a lot of the older people. Sometimes it’s their first trip. We are here to work backwards from that problem and make it easier to travel.

Schaal: Let’s just take one example and we’ll drop the subject. So they talked about a best refundable fare that you offer. It’s touted as refundable by Hopper, and they said sometimes that fare can be hundreds of dollars higher than the fare initially quoted. Then, the customer loses the credit if he or she cancels the flight.

Lalonde: Right. So the truth is we price our refundability, Cancel for Any Reason, around 20% of the flight price, which allows us to deliver the product. There’s a big difference between what we do in terms of refundability and a full refundable fare. When the airlines build refundable fares, they come with all sorts of other benefits. What we offer is an ancillary, and the pricing points that you’re quoting on this are just an anomaly in some extreme. The reality is this is priced to actually deliver the surface in a consistent way. There’s another point that I like to make, which I don’t think has been talked about a lot. Since we launched fintech five years ago, we have paid out over a hundred million dollars to customers, airlines, car rental companies, and hotel chains. Let me say that again. We put a hundred million dollars back in the pockets of customers, and we made the revenue management systems of our partners whole by doing that.

I think the underlying component here is people are stressed about travel. I think Expedia might have had a statistic that said 55% of people are more stressed of traveling than going to the dentist. Their delays, we heard about a quarter of those have been delayed. When customers use our products, what they’re doing is they’re protecting the value of what they’ve invested in travel. If you take disruption protection, there’s been a lot of talks about disruption, two thirds of people are worried about their flight being disrupted or late. A third of them have actually experienced a disruption, and a third of them actually had to pay out of pocket. That’s money that a lot of our customers, because they’re younger, just don’t have.

The other component about our products, which I think is important, we refund instantly. A huge amount of the value proposition here is the immediate refund component, and this is something that’s not well known, but 60% of our customers use debit cards. At 19, you don’t necessarily have the credit rating that we have. This is a very privileged audience, and so the fact is a lot of our customers, if they have to change their ticket, they simply cannot afford to wait the 10 to 14 days to get the refund from the airline. We’re fronting that money to make sure they can go on and rebook it. A huge amount of these products were designed from customer feedback.

Schaal: So many questions. Okay, you made some news. We’re making some news today. So Hopper Cloud is your distribution, your partnership thing. You power Capital One, you power a bunch of others, and you’re rebranding that. You’re calling it HTS, Hopper Technology Services, and you’re also adding some new services, some e-commerce services. Talk about that for a second.

Lalonde: So the genesis of this, our B2B business, was the original idea of offering fintech outside of the Hopper app, which we started working on during the pandemic. Today, it’s half of our revenue. So this is a business that did not exist three years ago that’s become-

Schaal: And it’s not just fintech though, right?

Lalonde: No, absolutely not. So we do fintech. We do loyalty, so you referred Capital One, but we actually power loyalty programs for other banks, globally. So this business has been growing faster than anything we have ever done. There’s a couple reasons for that. One of it is when we offer the fintech products on other major brands, we’ve done this with airlines, we’ve done this with other bank portals, consumers voluntarily spend more on their travel to actually get the flexibility, the protection that these products offer. So this is not just a Hopper thing. It’s turned out to be a universal need. There is a true market that’s created by the complexity and the anxiety that comes with travel. The other component is that I think we have the best loyalty platform in the world that we co-develop with Capital One. There’s been a lot of write-ups, including your own organization around this.

The third pillar, which is new, is that we’ve had customers that we are talking to about the fintech that have come to us and said, “Why don’t you power all of our e-comm?” I think it’s not a big secret. We’re generally seen as having the best mobile experience in the category. A lot like Brian was saying, I don’t spend so much time in our P&L. I obsess about the product. I obsess about the user experience, so do a lot of people at Hopper. I think it’s been generally recognized that mobile’s eating the world, and you need to have a pristine digital experience. We also understand the needs of the younger customer. Millennials are starting to get a little bit older. Gen Z’s coming up. They’re digital first, Short first, YouTube first, TikTok first. I think we have a unique understanding of that audience. So what’s happening now is customers are coming to us saying, “Would you consider powering the totality of our e-comm stacks, search-

Schaal: Airline websites, are they a target?

Lalonde: We’re in conversations with a lot of partners. These are big public companies, so I can’t talk to specifics, but you’re going to hear a bunch of announcements over that. So we-

Schaal: Google powers a lot of websites.

Lalonde: They power just the search, right? So they don’t do a lot of the e-comm. Traditionally, Amadeus, Sabre-

Schaal: United, Alaska, American.

Lalonde: Yeah. We’re talking about the digital experience. We’re talking about blending fintech. We’re talking about the native mobile, the web mobile. So when we looked at this market opportunity, we thought it would make sense to actually expand the brand to Hopper Technology Solutions. The other component is we want to make it clear if somebody’s using our technology, there’s no OTA deal on the side. This is purely a service that we offer to these providers. If you’re asking me what the future is going to look like, I think the future of our fintech products is going to be on the direct channels. The app is our innovation hub. We can afford to experiment, try different things. We can optimize, but when I look at the future, I think the global distribution of our e-commerce and our fintech products on direct channels is going to be the big story that we’ll be talking about in five years.

Schaal:So does the consumer get less of priority because you’re talking about next year, two thirds of your revenue are going to come from HTS?

Lalonde: The consumers go to direct channels also. We build our products by looking at behavior, looking at data. We’re probably the most data-centric product company in the space. We started that way doing data. One thing that’s interesting now is we have a view of more than just our millennial audience. We see the shopping behavior. We see the redemption behavior of these products. We see what they attach globally on multiple tiers, whether it’s Capital One or other partners that we have. That data is feeding the algorithms, the pricing, the risk that we take, and it’s also letting us develop new things. What I like about our app is we can try things. We can put a bunny on something. We can experiment. Some things work, some things don’t, and we can double down on the ones that work. You don’t want to be doing that on a major direct channel. I think that balance lets us build better product.

Schaal: Don’t forget to put some questions in the app for Fred. We’ll get to them if we have time. Let’s go to a short video. This is you last year at the Skift Global Forum talking about the looming recession:

Lalonde: I like it.

Schaal: Admit it, Fred.

Lalonde: I like anxiety.

Schaal: High anxiety.

Lalonde: I think anxiety is a great business opportunity. I love anxiety.

Schaal: So I was saying to Glen yesterday, he wants people to chill. We got your back. It’s the connected trip. You want people to have a lot of anxiety.

Lalonde: I want people to be worried that the logistics around the trip might not be great, and I want to provide a complete delightful antidote to anything going wrong at a price point that they’re [inaudible 00:12:59] about.

Schaal: So you’re like a casino. You’re betting that the price doesn’t go up too much.

Lalonde: No, actually everybody’s chipping in $5, and if your price goes up, we make you whole.

Schaal: I picked the wrong video. So last year, you were talking about you have to cut your burn rate. Okay. So basically, the company is 16 years old. Have you made any profits yet?

Lalonde: I’m going to talk about that video because you showed it. I’m actually super glad that you showed it.

Schaal: That video, I think Expedia noticed that video last year.

Lalonde: Yeah. And so that comment, which was obviously a joke, you could hear people laughing in the room, was taken out of context by a competitor. If you continue to play that video, we go on to talk about how we’re solving the anxiety, how about this is a real market problem, how this exists. I noticed also this is the first year you might be wearing a suit on stage because you’re famous for what you do.

Schaal: I decided to upgrade after last year.

Lalonde:So what was the other question you wanted to ask me?

Schaal: Oh, about the burn rate?

Lalonde: Yeah. Profitability is the goal. Now that money is not free, everybody-

Schaal: Because last year, you said profitability was the goal. So what progress?

Lalonde: Still remains that. The cloud business is actually profitable, which is not hard to understand. We’re investing heavily now in building our direct supply, but you’ll see in the next couple of years, like everybody else, we’re figuring out how to break even, and that’s coming. The fact that the B2B business is scaling so quickly is also hugely useful. The other thing too is it’s very, very important for us to continue to innovate, continue to build products. Our international footprint is growing. We’re starting to service major banks internationally and other customers, so it’s all about creating a balance. As you know, we’ve raised a lot of money. It’s not about the cash that you have in the bank; it’s about building a healthy business that can scale. We’re currently focused on two things. One is continuing to build out the direct hotel supply because that’s how you build good cashflow, good profitability, and the other component is just getting really, really good at the new cloud services that we’re offering.

Schaal: So no IPO in ’24?

Lalonde: Look, it’s going to happen eventually. It’s not the priority this year. Although we’ve been following Instacart and Klaviyo, I think things are starting to thaw. I think that’s good for everybody in the industry, whether you’re a startup or in the growth phase, seeing the appetite for the pipeline open up like that. Usually these cycles last four years, I think you and I are old enough to remember that this happens periodically. This is not our first correction. I think we have a long way to go. We’ll see what the consumer demand does. Travel’s been really, really good for the last two years, but I actually feel good about that marketing opening up, but in no rush to go in there.

Schaal: Great. I got help from the audience. Frederic didn’t answer Dennis’s question. Are your sales practices unfair and misleading? What would you say is the approach to your buying user flow?

Lalonde: So I’ll answer it. Absolutely not. Our fintech products have CSATs that are 85, 86%. Those allegations were made by a competitor. Having opinions about a user flow, in my opinion, doesn’t matter. What matters is what our customers want. When you talk to our customers, they will tell you all sorts of things. One of them, which was my favorite example, 25% of the people that freeze a price, they tell us that they do it because they do not have the money in their bank account to pay for the full ticket. The customers that add CFAR, it’s because they do not have the money in their bank account to buy a second ticket. Almost all of these products have been running for four or five years now. They’ve survived a pandemic, Omicron, and they work consistently.

You don’t have that type of product market fit if you do anything remotely close to what people have accused us of. I’m actually very proud of what we’re doing. Price freeze alone, we paid out $5 million. Those are $5 million that we gave out to customers to protect them against a price increase and protecting the airline’s yield management system. This has been a win-win for five years, and actually, it’s a market. It’s more than a Hopper thing. I will predict that you will see other people entering this market.

Schaal: They haven’t so far, but let’s see. You won a partnership with Uber to power their flights. That must have pissed Expedia off as well. Although they say it didn’t, they walked away from it. How’s that going so far?

Lalonde: It’s good. It’s super early days. It’s pretty local. It’s in one country. I think everybody’s learning. If you’ve been following Uber’s business, they also broke even, I think, for the first time this year, which is formidable work that Dara’s team has been doing. So we’ll see how that goes. We’re very happy to be working with them. They’re a formidable product organization. They’re very, very good at building integration, so it’s just been a great learning experience and we’ll see how that goes out. For the rest, you need to ask Peter what he thinks about it.

Schaal: We were talking about rate parity issues and price discrepancy yesterday. This deal you have with WebBeds and Hotelbeds, they’re wholesalers, right? How do you get a deal with a wholesaler when those rates aren’t supposed to be sold to consumers?

Lalonde: This is something that happens in the travel industry. When you’re an OTA in a major brand, you have to make sure you’re not creating problems for your partners. Major hotel chains have best rate guarantees. When somebody undercuts them, they get calls. We do like everybody else. When we receive a call from a partner, either something went wrong with the technology or a glitch, we actually fix the pricing. We control the cell rate that we’re at. We don’t undercut partners. We don’t break best rate guarantees. Being a mobile app is a little bit easier because there’s less scrutiny on what you do there. There’s some hotels that actually want a discount on third party channels. It’s part of their distribution strategy. A lot of independent properties will do that in shoulder season.

Ultimately, the answer is what we’ve been doing is building direct supply, having direct relationships where our market management teams talk regularly to the chains, to the properties so that when there is an issue, they can reach out to us directly. We’ve reached a scale where we’re able to do that. I suspect we’ll be 85% direct if we’re back on stage next year, which is really the goal.

Schaal: We have less than a minute left. We have a call from the audience for a lightning round. What are your immediate thoughts on industry giants, and do any of them represent future partners, Booking, Tripadvisor, Airbnb?

Lalonde: Look, I think competition is a good thing. I think having more rates out there, having more brands you can buy from is good for the consumer. So we built Hopper as an open platform, so I can’t speak to their specific strategy, but I think having multiple partners, multiple partnerships, having inventory source from multiple sources is the best thing you can do for a consumer.

Schaal: Flights for Airbnb?

Lalonde: Ask Brian. What did he say?

Schaal: He’s gone already, and we’re going too, Fred. Thank you.

Lalonde: Thanks for having me.

Schaal: That was fun.