Quebec private equity firm Novacap has made an undisclosed “major” investment in the Montreal travel-upgrade startup Plusgrade LP, as the company helps its partners take advantage of new trends in a travel sector that is gradually returning to life.
Plusgrade partners with travel companies, usually airlines, to allow travellers to buy or bid on perks such as seat upgrades. The Caisse de dépôt et placement du Québec bought a $200-million stake in the company in late 2018, valuing it at more than $600-million then.
With nearly a year and a half of pent-up demand finally turning into trip bookings thanks to increasing vaccinations, startup investors have begun to heap cash into companies that smooth out the travel experience. Last month, another Montreal startup, Hopper Inc. – which provides travel cancellation insurance and uses artificial-intelligence software to help consumers figure out the best time to make bookings – announced its second infusion of about $170-million this calendar year, valuing it at US$3.5-billion.
Plusgrade chief executive officer Ken Harris said that the pandemic first introduced panic among the company’s airline partners. Many scrambled to offer customers upgrades in the first months of 2020, in order to cobble together ancillary revenue during a wave of cancellations. By the time much of the Western world faced lockdowns that March, Mr. Harris’s team began retooling their offerings to help those partners find even more additional revenue.
“In good times, airlines love us, and in bad times, they need us, because we provide critical revenue streams to them,” he said in an interview Friday.
Plusgrade helped partners in less-developed markets make web check-ins easier, while boosting upselling opportunities more broadly during such digital check-ins to help deliver those airlines some additional revenue. The company also began to offer airlines a “dynamic seat blocker” program to allow customers to prevent adjacent seats from getting booked.
Seat blocking, once considered an extraordinary privilege in pre-pandemic times, was suddenly recast as a precautionary measure – one that Mr. Harris said has yielded significant revenues for Plusgrade and its partners. The company begun working more closely with the cruise and rail sectors, too.
Mr. Harris founded Plusgrade in 2009 after finding himself surprised at how difficult it was to pay to upgrade his seat to business class; it seemed like a lost business opportunity. As the pandemic reshapes travel patterns, he said, leisure travel has outpaced business travel – only boosting airlines’ opportunities to upsell customers into pricier seats that would otherwise sit empty in business class.
“We think that’s a positive trend for us,” said David Lewin, a senior partner at Novacap. The private equity firm sees this both as an immediate opportunity for growth, and one that could be boosted in the long term with potential acquisitions, too. “We’re going to let everybody know that we’re hungry to grow,” Mr. Lewin said of the new company in Novacap’s portfolio.
Plusgrade said in a press release that Novacap was now a “major investor,” but neither Mr. Harris nor Mr. Lewin would disclose the value of the new investment in Plusgrade. But Mr. Harris said that some of the money would be used to reduce the stake of a previous private-equity investor, Boston-based TA Associates.
Plusgrade has about 110 employees, largely in Montreal, with some in New York and Singapore. Mr. Harris said he expected to increase hiring as the company grows. Montreal, he said, has an “incredibly strong footprint in the travel industry” – not just with traditional transportation companies such as Air Canada, Transat AT Inc. and Bombardier Inc., but also Hopper and, for a while, the short-term rental-booking company Sonder Corp., which now calls San Francisco home. “It doesn’t surprise me that you see these incredible travel-tech companies emerge from Montreal, too,” Mr. Harris said.
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Josh O’Kane