Travel Startup Founders from Outside the Industry

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As an investor in travel companies — from private beta travel startups to larger VC & travel growth equity deals — I am fortunate to talk to travel companies of all sizes from all corners of the world.

One common theme are travel startup co-founders who do not come from the travel industry who reach an invisible ceiling when dealing with travel suppliers, reservation systems and members of the trade.

Foremost, If you find yourself in this situation, don’t feel bad. You’re not alone. That’s just the way it is. It won’t change anytime soon.  Heck, I wouldn’t have a job if it was that easy! Took me 12 years in travel (on the agency and travel technology side) to get a feeling for how things truly work and even now I learn new things by virtue of the seasoned executives I work with.

Secondly, there is nothing wrong with this situation. It’s what you do about it that I have an issue with.

How to Fix The Problem

  • Going It Alone: The Worst Thing To Do. There are outliers who do it alone but they are so few and far between that they’re not worth mentioning. The majority (in my experience circa 95% of) shouldn’t. The ones I’ve seen — and I can’t name them or I would — are because they are so different that traditional travel suppliers are willing to give it a shot  and these companies almost always have a very strong ‘IN’. While the founders may not be from the industry, they engaged somebody with some industry gray hair on their behalf. Rarely is it a ‘cold call’ into a supplier. Somebody new to the travel game going at it alone doesn’t have a chance past some fluke wins and never enough to have a sustainable business model. Ask for help, it’s natural
  • Get Good Advisors from the Travel Industry. Former travel executives, former travel company operators, somebody who has already done what you’re trying to do; who can advise you with your strategy and business development.  Somebody hands on through till the deal is completed. Not just an introduction and you’re on your own.  I’m biased but ask any travel startup whether I’m right. It would be one thing if “Going At It Alone” was only 2 or 3 times harder but my experience show it’s considerably longer. 7 to 10 times harder. That’s a lot of time and money to spend hitting your head against the wall — assuming you have the time and money to spare — which no travel startup ever does. All the while other travel startups are popping up every week.
  • Mashup with other travel startups/Web 2.0 Company API’s. Don’t have your own reservation system to pull flights from, what about using the Kayak API. What about a travel affiliate program in lieu of your own relationships. You won’t make alot of $ but you’ll have something to show your clients. Unfortunately this strategy won’t work because you’re selling what’s already out there. If you’re selling the same fares as everybody else, do you expect alot of transactions? You’re just keeping up appearances to avoid gaping holes on your site.  You’ll almost always need deep integration deployments which most affiliates programs don’t offer. It’s a viable interim solution. Travel startups use API mashups because they’re  (a) not concentrating on revenue or (b) as a stop gap measure until professional industrial grade travel technology (booking engines, GDS links, etc..) are available. You’ll need a proper travel technology platform if you intend on building a sustainable business.
  • Use Free or Open Source Data. You can get valuable content from Wikipedia.org to WikiTravel to a variety of places for free or for a low cost. Many travel startups already do if you take a deeper look. They have a core set of unique features complemented by 3rd party API’s (Google, Kayak, IAN, etc..). Panaramio is a good example. There are some good services out there I would use as an interim solution.
  • Do a Round to Hire A Travel Executive. This is a tough proposition. Most investors ‘don’t get’ travel investments. Be prepared for a lot of hand holding, a lot of ‘educating’, a reduced valuation and little in terms of productive post-investment relationships. While an investor “who knows somebody at Expedia” is better than nothing, knowing the contact is 1 thing — actually talking the talk in a way a travel supplier will understand is something only a travel industry executive can do best. Is that investor going to be with you every step of the way for the next 4-6 months it takes to close a deal? It can be done  — don’t get me wrong — but when you’re at a travel startup you don’t have the time to ‘experiment’ and no investor is going to put up with ‘trial by error’ on their dime.  Many a founder has realized money isn’t enough. You need domain expertise. At an angel investment level I think “non-travel” investors should be avoided unless they’re fine with putting in the money and hiring “travel experts” to formally guide the company. Being a “travel investor”, I am biased, but ask any travel startup founder and I suspect they’ll agree with me. If you have to get angel money, augment that with some travel executives and ensure everybody knows their place. The angel investors are the funds and the executives bring the travel industry knowledge.
  • Know What You’re Good At and What You Not. Or find somebody you trust to guide you. I had a meeting a few weeks ago with somebody in the tourism business who wanted to advise our experts on SEO and Online Marketing Initiatives yet prior to the meeting simply outsourced his website to somebody else and wasn’t using the Internet to sell his inventory now. It was purely a content site. My response was, what competency do you have with SEO/Online Marketing? This wasn’t a “I like to listen in so I can learn” call — which I encourage — this was a “I have some serious notions in mind” call yet I’ve never done this before all while I want to work with a team that’s done this for the past 5+ years with people who’ve done online travel marketing for the past 10 years. I gave him the benefit of the doubt and heard a few suggestions only to end the engagement 3 hours later. Its critically important to set the boundaries (ie: the vision is spearheaded by the founders, the travel related decisions are joint but favor the travel executive..) between what the (non travel) founders know and do and what the travel executives will do.
  • One Supplier Is Never Enough. Just because you have 1 vendors inventory — say a hotel vendor — doesn’t
    Image representing Expedia as depicted in Crun...

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    mean you have all the inventory to sell. Said another way, getting Hotels.com or CCRA isn’t the end all of all. They are both fine companies but the more inventory you can get, the better. They may be enough for certain use cases but without knowing the strengths/weaknesses of all the discount discount hotel inventory, how do you know you’re okay? Particularly if you have a broad client base. If you have a niche — say Las Vegas Hotels — and you do a deal with the largest Las Vegas Discount Hotel Provider — you’re golden. Most travel startups don’t follow such a narrow niche.

  • Inventory is critical to any travel startup. You don’t need 1 set of inventory, you need them ALL. Do you even know how many pools of discount inventory are out there — multiply that for every travel product you sell. Let alone getting ‘approved’ at the highest purchasing levels to actually compete with established players. The introductory “you’re a small agency” commissions and price breaks isn’t going to cut it. You need the volume purchasing discounts and its unlikely you’ll get that without millions of dollars of existing volume and a track record even if you negotiate well and are funded. Once you get your account setup — assuming it happens at all and it always takes more time than you could ever imagine — you still have to get the inventory from their system into yours. A Javascript embed isn’t going to cut it. Do you have a team of developers that have nothing else to do? And you need to repeat this for every vendor you plan on adding. If there are 12 pools of discount hotel inventory, that’s 12 integrations, 12 relationships, months for each relationship and that’s assuming you actually get approved. Oh by the way, all of the API’s change all the time so you’ll need to keep up. Did I mention there are discrepancies between what a reservation system says it does and what it can actually do via the API. There are times — shockingly — where the marketing team suggests features the technical team hasn’t implemented yet. As a new client — will you be in on the beta group to figure this out early? I can list dozens of situations any one of whom would bog a travel startup down.
  • Travel Developers, Not Just Any Software Developer. Depending on the use case, you may have no choice but in hiring software developers versed in travel technology. Simply hiring very good programmers isn’t enough. There is a steep learning curve when it comes to travel supplier integrations and the nuances of travel trade that cannot be taught on the fly. Who’s going to teach them at a travel startup without travel founders? I’ve seen this happen time and again. The project does get done but multiples longer and costlier than intended. Which to a founder translates to stress and investors screaming at you for missing deadlines. There’s enough that can go wrong with any software development package — which are sometimes rushed, poorly planned and underfunded — coupled with offshore development headaches that by the time you throw in the travel trade learning curve, the founder is really dealing with a low to single digit success rate for an on time deployment.

You can see why travel startups have a low hit rate when it comes to penetrating the industry. They’re fishes out of water. Rest assured there is help out there.

Give Me Your Feedback

Do you work at a travel startup? What are your experiences? Have some ‘horror stories’ to share? If you find this post valuable, please comment and Retweet!

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When Airlines Should & Shouldn’t Charge For Something

Spirit Airlines Airbus 319-132 N506NK

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Here’s a thought, if more than 75% of passengers purchase an ancillary revenue item, it should be included in the ticket price.

If 75% or more of people on a flight buy a meal — meals should be included in the ticket price.

Airlines should have a threshold in lieu of what seems to be a “what can we charge for” and “how much will we get away with” mentality.

Not all ancillary sources are bad. There are the “good” kind of ancillary revenue like day of departure upgrades and premium seating — which airlines need to focus on — and the “bad” kind like baggage fees, food, etc.

Airlines should get creative on “good” ancillary revenue — ie: up selling and cross selling.

In the mean time, ancillary fees are going up up and up!

There are fees yet to be introduced held up purely because the reservation systems the airlines haven’t been able to keep up with the ways airlines intend on charging passengers. The fees we already pay are going up.

JetBlue‘s executive vice president and CFO, Ed Barnes, told analysts earlier this month that the airline has lost some potential ancillary revenue during the past quarter by waiving certain fees in this year’s transition to Sabre.” – Travel Weekly

Why is ancillary revenue growing? It works!

Ancillary revenue is a significant opportunity for Continental,” he said. “And United has done a very good job. There are many issues related to rolling out our ancillary revenue products. There are IT issues, there are global distribution system issues, there are timing issues in terms of where it is in the chain of purchase, whether it’s a prepurchase or day of departure or post-purchase.” According to Travel Weekly,

When Will All This Stop?

Not anytime soon barring an airline charging for something we really won’t stand for (ie: bathrooms, to charge for sitting down on the plane versus standing up..).

Who’s Bucking the Trend?

Southwest Airlines which maintains no baggage fees.

Are Frequent-Flier Deals a Good Deal? – WSJ.com

British Airways destinations

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Thoughts relating to Are Frequent-Flier Deals a Good Deal? – WSJ.com.

Pretend your mileage is a product that you have to ‘buy’ (earn or purchase bonus miles) and ‘sell’ (redeem for tickets or upgrades).

Cost Price

Travelers who buy frequent-flier miles pay about 3 cents per mile, but then they typically redeem them for tickets at 1.5 cents each—or even less.

Sale Price

Redeeming miles at the right time (there’s actually a seat on a flight you want) and for the right ticket is what’ll determine if you make a ‘profit’ or not.

United believes savvy road warriors, not just infrequent fliers, are taking advantage of the bonus mileage offers. When redeemed for upgrades or for last-minute tickets, miles can deliver more than 3 cents of value apiece, sometimes up to 10 cents a mile or more.

It turns out buying 140,000 miles for $4,139 and redeeming them for an award ticket (you have to pay a fuel surcharge, too, of up to $600) is cheaper than buying a first-class ticket, which starts at more than $12,000 for a Seattle-London round-trip. You buy miles for 3 cents apiece and redeem them for a ticket worth at least 8.6 cents per mile.

You have to do the math.

It turns out buying 140,000 miles for $4,139 and redeeming them for an award ticket (you have to pay a fuel surcharge, too, of up to $600) is cheaper than buying a first-class ticket, which starts at more than $12,000 for a Seattle-London round-trip. You buy miles for 3 cents apiece and redeem them for a ticket worth at least 8.6 cents per mile.

The math works for business-class tickets, though not as dramatically. For Seattle-London tickets, British Airways tickets start at $5,037. Buying 120,000 miles from Alaska costs $3,548. Even after the fuel surcharge, you’ll save more than $1,000.

Alaska offers bonus miles a different way as well: The airline gives customers the chance to pay extra when buying a ticket to add 1,000, 2,500 or 5,000 “Fly and Buy” miles to the mileage earned. Paying for an extra 5,000 miles costs $117 tax included, or 2.3 cents per mile. That’s a discount to outright mileage purchases—buying 5,000 miles separately from a ticket on Alaska costs $148 tax included.


When to Redeem

There’s not magical solution — it’s all very hit or miss.

  • Redeem for Upgrades. On the whole, upgrades have been quite ‘profitable’ for me. Especially from economy plus to business class — British Airways specifically which is nice since I have a credit card that earns BA points.
  • It helps to have  ‘elite status’ or find seats at the last minute.
  • Plan in Advance. I hate telling people that but it’s true.
  • Look for Last Minute Seats
  • Unless it’s an emergency, I shy away from redeeming “anytime” awards.

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