Welcome to our June Spotlight Newsletter

This month we  shine our spotlight on ID90, an early Fund I investment and one of Thayer's larger positions. ID90 is the leader in the airline employee travel benefits market and with it's 2015 acquisition of Interline Travel & Tour, recently launched Trebeca brand and a TAM of $20-40Mn, this Dallas-based company is primed for some impressive growth. All indications are that CEO Mike Stacy and his team are more than prepared for it and the future looks great.
In this issue: Spotlight on  ID90

I D90 provides solutions for the "closed group" travel space that allow travel suppliers to market to specific customer groups and provide employers and associations with valuable perks for their employees and/or group members. The company is the leader in the airline employee travel benefits market; providing non-revenue air travel solutions on a B2B basis directly to 24 airlines as well as hotel, rental, and cruise discounts on a B2C basis to the rest of the airline industry. The company also serves the broader employee travel benefits market where its novel B2B2C approach results in Life Time Value to Cost to Acquire ratios far superior to other industry participants. ID90 is based in Dallas, TX and Jeff Jackson sits on the Board.
Company Overview 

ID90 was founded in 2006 to help airlines address the complexity of airline employee "staff" or "pass" travel. One of the major benefits/perks of working for an airline is the ability to fly for free (or for a nominal amount) on a space-available basis for leisure travel purposes. While commercial ticketing systems and online booking capabilities evolved rapidly in the late 1990s and early 2000s, the systems used for staff travel lagged far behind, due to both the additional complexity involved in staff travel ticketing and the lack of prioritization of these systems by airline IT departments. As a result, staff travel was often handled either manually with employees calling into the customer service call centers, or by clunky quasi-automated systems being used by the carriers. ID90 offered an alternative to these antiquated in-house systems by creating a modern online ticketing platform that could be used by any airline (and quickly customized for their staff travel rules) to provide airline employees the ability to book pass-travel tickets via online and mobile devices.

With the transition to a new leadership team in 2011, ID90 began to evaluate ways to leverage its beachhead in employee air ticketing in order to sell addition travel products into this base of 20M frequent and active leisure travelers (2M airline employees worldwide and 18M airline retirees, family members and designated buddy pass riders). The company was able to secure access to hotel and cruise inventory offered at extraordinary discount levels (average savings of 20% vs. Expedia and 25% vs BAR) due to the closed-group nature of its offering and the ability to direct deals to highly desirable travelers. ID90 now has a rapidly scaling ancillary sales business, with y/y revenue growth of 83% for hotels, 108% for rental cars and 243% for cruises through the first 3 months of 2016.

In 2013, ID90 was approached by Interline Travel & Tour, Inc., a competitor in the airline employee space about a potential combination. Interline operates a series of online/offline travel agencies in the US, Europe and Canada and markets directly to airline employees through SEM, email, direct mail and print collateral distributed into airline employee workplaces. Interline focuses on all-inclusive resorts and cruises and leverages inbound website lead gen and outbound calling and mailings to drive sales. It wasn't until late 2015, that ID90 and the owners of Interline came to an agreement whereby ID90 would purchase the Interline business to become the leader in the airline employee leisure travel market. ID90 would benefit from Interline's 500k member database and strong brand recognition, while Interline's business would be accelerated with ID90's modern online booking platform, more robust marketing and BI capabilities and more extensive inventory.

With the success of ID90's launch of hotel and cruise bookings via their unique B2B2C customer acquisition channel, the company began experimenting with the idea of offering the same discounted inventory to other "closed groups" including companies, associations and other member groups. The company launched this activity formally under a separate brand, called Trebeca. During 2015 the company signed up 70 clients including Sabre, Active Network, Raymond James, DogVacay, Adara and Marchex, for whom Trebeca has created white label employee travel portals for employee leisure travel (offered as an employee benefit at no cost to either the employee or employer). Based on this early traction and very strong booking/monetization activity through portals deployed with early customers, ID90/Trebeca has begun to build out a lead generation and sales and market capability to drive new client enrollments more aggressively in 2016.
Leading Position in Attractive Core Airline Employee Market. 

Over 24 airlines rely on ID90's B2B technology for employee air bookings including United, Hawaiian, Frontier, Alaska, Spirit, Copa, AeroFlot, Skywest, Sun Country and other regional and freight carriers. ID90's air ticketing solutions are extremely sticky with 100% customer retention since the new management team joined in 2011. The addition of the Interline brands will solidify ID90's leadership position within the airline employee travel segment and provide ID90 with deeper reach into international markets and greater penetration among those employees not covered by ID90's air ticketing customers. With the addition of Interline's member base, ID90 will have over 700k members who can access their unique hotel, cruise and car deals.

Airline employees are a unique and highly attractive segment of travelers for a number of reasons. Airline employees travel frequently with the average ID90 air-bookings member using the platform to book 11 trips per year (inclusive of family members). ID90 estimates that airline employees and eligible pass travelers generate $10-$20 Billion in gross bookings per year - net revenue opportunity to ID90 of $1-$2Bn. Airline employees are also viewed as highly desirable guests by cruise lines and hotels both because of their relatively high spend on ancillaries (F&B and other) as well as their influencer status among friends and family. 

In addition, airline employees tend to have counter-cyclical patterns to their travel. Since airline employees travel on a space-available basis, it is more difficult for them to travel when airline load-factors are high (in a strong economy) and easier for them to travel when load factors are low (in a weak economy). This makes their travel habits and spending less cyclical than the overall leisure travel market. During the 2008-2010 recession, Interline Travel & Tour's revenue declined by only 4% in 2009 while the overall US Travel market experienced a 15% decline in gross bookings.
Highly Complementary Acquisition Adding Scale, Inventory & Capabilities

The Interline acquisition is extremely strategic for ID90 providing both near-term benefits as well as helping lay the groundwork for longer-term expansion. In the travel industry, scale has a significant impact on revenue margins due to the greater influence/buyer power that an online travel company can have with suppliers. In order to obtain broad hotel inventory ID90 works with wholesalers (bedbanks and affiliate networks associated with the major OTAs) with whom ID90 splits its commissions. Typical commissions for the wholesalers are 18-20% of which ID90 gets ~2/3 share for a 12-13% commission rate. By contrast Interline, who has direct relationships with hotel suppliers, operates with a 20% commission margin. On a combined basis ID90/Interline will be able to negotiate higher commissions rates, overrides and marketing dollars (effectively spiffs) which will result in higher revenue margins. 

ID90's inventory is broad-based in nature and includes hotels and car rentals in both cities and vacation destinations throughout the world, as well as cruises. Interline's inventory is limited to all-inclusive hotels in resort destinations and cruises. Interline's inventory is deeply discounted and relies largely on "specials" as a call to action for bookings and as a mechanism to help suppliers clear last minute inventory. As a combined entity ID90 and Interline will be able to cross sell these two types of inventory into each other's customer base's with a very significant opportunity available in exposing Interline's customer's to ID90's broader inventory and allowing them to book this inventory through an easy-to-navigate online platform.

There are strong synergies in terms of capabilities with ID90's expertise focused on online marketing, business analytics and customer-facing technologies while Interline excels at supplier negotiations, direct inventory sourcing, larger ticket sales and higher touch customer relationships. In addition, there is a very strong cultural fit between the teams at ID90 and Interline who have gotten to know each other over an extended courtship period. The Interline management team will stay on in an executive role post transaction and continue to help manage the Interline business and ensure that acquisition integration goes smoothly and the core Interline businesses continue to perform. The Interline management is incented through a two year earn-out structure. The current proximity of offices - Interline located in Austin and ID90 in Dallas - will allow for greater ease of communication and best practices exchange as has already begun to happen with the technology teams in the planning stages for post-merger integration.
Significant Upside Opportunity in Employee Travel Benefits Space

ID90's recently launched Trebeca offering (targeting the employee benefits space and other member-based organizations,) dramatically expands the TAM to an estimated $20-40Bn net revenue opportunity. Trebeca is aligned with the growing trend towards increased emphasis on employee benefits and perks as part of overall compensation packages in the US and is particularly attractive to employers and member-based organizations because it is free to both the employer and the employee (while generating revenue for ID90 through commissions paid by travel suppliers.) With rates 20% lower than other online travel agency sites (e.g. Expedia) on identical inventory, Trebeca represents a real economic savings for employees or members.

Trebeca is sold on a B2B basis (HR department) leading to very cost effective customer acquisition rates relative to conventional online travel agencies. Early customers like Active Network and Sabre have deployed Trebeca throughout their organizations. Active Network is also utilizing Trebeca to book hotels and rental cars for business travel. In addition, Active includes access to Trebeca as part of its ActiveAdvantage membership program for which members pay $70/year to gain access to discounted race entrance fees and a host of other discounts and benefits. Early results among Trebeca customers show very strong adoption and engagement, with 0.35 bookings per member with an average membership tenure of just 6 months.
Strong Management Team, Global Talent Footprint & History of Gro wth

ID90 is led by Mike Stacy who joined the company in 2011 from a venture-backed group travel company called Groople. Earlier in his career Mike worked at Travelocity and CheapTickets and Clear Channel as a marketing and e-Commerce executive. Mike is supported by a very strong technology, operations and finance team recruited from Sabre, Travelocity, and American Airlines, among others. The company benefits from a very cost efficient footprint with a dedicated tech/development team based in Argentina. The Interline acquisition will add sales offices in London and Vancouver which will help ID90 accelerate its global expansion efforts.

The ID90 team has executed very effectively to date; achieving 33% CAGR revenue growth over the last three years while conservatively managing costs and launching new products and services such as Trebeca. The team also has significant experience with merger integration and a high degree of confidence that through post-merger planning already underway, the combination can be executed with little disruption and with immediate acceleration of all lines of business. As one of Thayer Ventures first investments, ID90 is showing every indication that the path forward is a bright one. For Mike Stacy and the team, the hard work and commitment are finally paying off.
       We hope you've enjoyed this issue and        
    look forward to your comments and questions!
 Phone: 415.782.1414  I  Email:  laura@thayerventures.com 
Correspondence: 25852 McBean Parkway, Suite 508, Valencia CA 91355