One of our regular Tnooz readers recently asked: "Why is there no HotelTonight for airline tickets?"
It's a topic that deserves some analysis.
HotelTonight is, of course, the hotel booking app for smartphones and tablets created two years ago by a well-funded US startup. The app sells rooms at limited times (for same-day sales only, from noon daily) at dozens of destinations in North America and Europe.
HotelTonight limits the inventory it displays to a handful of hotels in any city at any time. The severely edited list of choices makes it less overwhelming for a user to choose a hotel on the go. The app has been downloaded three million times and has spawned a legion of copycats.
In light of the success of same-day booking for hotels, there are equally several possible explanations for why no startup has attempted to make an app that sells a tightly edited selection of last-minute plane tickets.
For example, Alex Bainbridge thought that one very simple reason was:
"Because young 20-something founders don't sit around at midnight going: 'Umm, if only I could fly to X, NOW'… But they do go to bars and find they need to stay overnight somewhere… for various reasons!"
"HotelTonight does a good job of generating incremental bookings (or so they say), rather than replacement bookings—or getting long-term customers."
Eventually, as Tnooz's intrepid air product historian (and resident old person), I agreed to take up the challenge and answer the question in detail.
Would mobile make a difference?
I think there ARE some opportunities in mobile for selling air product creatively, but a specific mobile model focusing on last-minute plane tickets will not work.
Some airlines have become quite good at selling in the mobile channel. For example, AirAsia, Jetstar and EasyJet are among the airlines that have managed to conduct effective last-minute sales via devices. But these are not truly 11th-hour, same-day, last-minute sales.
The offers are for departures still several days away.
Certain time periods work well for selling fares on short notice via mobile. But this is not offered on a consistent basis. Could a process work with this?
Actually in the 1990s, I worked with a company now part of Lastminute.com (owned by Sabre) which had a bid model.
You, the customer, placed your bid on a flight, and the auction was run around you with the price response coming back to you, IF you were in the catchment.
This was pretty much as Hotwire and Priceline did. The beauty of this was that the response came to the mobile.
Could it be time to do this again? In the US market, at least I don’t think distressed airfare sales via mobile devices will be anything but a marginal business.
My reasoning is simple: Americans are cash rich but time poor. Europeans are more open to spur-of-the-moment travel, and have more flexible employment time to make these sorts of decisions.
Perhaps, as some have suggested, creating a smaller universe of options for fares will lead to more sales because consumers will be less overwhelmed by choices on a mobile device's more limited screen space.
I still cringe at the thought of a large GDS who once demonstrated its original mobile product to me which had a SCROLL function through ALL airports as a key feature of the product. That wasn't user-friendly, to say the least.
So it seems that there could, theoretically, be a service that was to offer a severely edited choice of flights for arrival within 12 hours.
We have seen apps like Next Flight head in that direction, though it lets you see available flights without letting you book those flights either directly or by being sent off to another company's booking engine.
Teasing consumers without offering them the chance to actually buy a product seems pretty silly.
It's my premise that there are multiple reasons for the absence of an "AirTixTonite.com." So before you rush out and purchase the domain name, which is still available at the time I'm writing this, here are some guidelines as to why I don’t think the concept will work:
- There aren't enough last-minute empty seats
- It would be tough to do, from both technical and business development perspectives
- There is likely to be only moderate value offered to the customer
- If it became successful, the airlines would kill it
- There is no trust by the consumer in a pricing model that offers a "discount".
- It has been tried before, with moderate success, but not recently
"Plenty of empty seats – What a waste"
It is an absolute truth that airline inventory is a perishable commodity. Once a plane takes off, an airline can no longer sell any seats that might remain empty.
Yet in the past decade or so, we have seen consolidation in the airline industry. The idea that airlines have planes flying around half empty is no longer true.
Since deregulation in the US commenced in 1979, more than 50 airline companies have gone bankrupt—some more than once! RIP are famous names such as Eastern, TWA, PanAm and National.
In fact, very few US airlines that launched post-deregulation survive.
More recently, other airlines have merged, such as United with Continental (2010), and Delta with Northwest (2008), and, over in Europe, British Airways with Iberia (2011) and Lufthansa with Swiss (2006).
Mergers tend to lead airlines to reduce services, combining formerly overlapping routes and hiking fares in the absence of competition.
Air capacity - the number of airline seats available for sale - has modestly declined in the US, according to Airbus.
During peak seasons, finding a spare seat is especially difficult. A case in point: in the US, between now and January 16, only between 10% and 14% of seats will be empty on average, according to the AAA.
Thus the amount of "spare capacity" is, practically speaking, very small. Tight capacity means that suppliers hold the power when it comes to setting pricing and availability. That equals little chance for innovation by intermediaries - aka startups selling apps.
Surely it's easy?
Actually, no. Setting up supplier agreements is a complicated process filled with restrictions and regulations.
There are significant technical challenges in setting and managing pricing. Access to the inventory is also challenging, particularly for startups. Despite being officially deregulated, the airlines market is one of the most heavily monitored and controlled markets in modern business.
Getting bonded, licensed, insured, passing state and national laws—not easy.
Further, I would say that there is an expectation from US consumers about the BREADTH of offering.
This goes back to opaque price product offerings of Priceline and Hotwire, in which consumers know the name of the airline or exact itinerary information (such as if it's a redeye flight) until they pay their money.
Neither company's opaque product for airfare was a huge profit-generator because many people stopped using the sites once they realized what airlines and flight times they had been given.
In the US, attempts at true intermediary opaque air products from Hotwire and Priceline have largely been marginalized to a very small number of transactions.
Would there be a great deal?
Probably not. Prices for US domestic tickets have risen in recent years. The average price of a domestic ticket has risen from a low of $270 in 1996 to $384 now. (Though in inflation-adjusted dollars, the price hasn't changed, which is one of the benefits of deregulation)
The chances of a deal being able to find it, source it, and distribute it, is not that great. For proof? Look no further than your favourite travel site. Run a search for a route, and look at the the calendar pricing grids for the current range of ticket pricing.
Then see if could you get a deal off these fares? Unlikely. Metering the supply to keep people's interest alive becomes very hard. In other words, you would have to keep the consumer’s interest by offering product consistently.
Consumers get bored easily.
As a way of illustrating my point, look at frequent flyer points and miles. Over time these have been devalued. Yes, people still search even though they are getting lesser returns. Why? Duh – its free money in the bank.
Could some make great strides with such a service anyway?
Well, sadly, this is an obvious one. If a startup, like our hypothetical AirTixTonite defeated the odds to become successful, then the suppliers would either have no inventory left (because the app and its clones would be too good at selling the distressed inventory).
Or else the airlines would pull the inventory to start selling it more creatively on their own, eliminating the middleman.
Remember that an airline typically makes the highest yield sale on the last-minute traveler who is often doing anon-discretionary business trip and will pay through the nose for a ticket.
So, a real problem here.
Further it doesn’t do anything for the brand value if the proposition is that the offer is there but the delivery is not. (Just look at the complaint boards for a certain US airline who offers fares if you join its low price club!).
In my view, trust in airline ticket sales is so tenuous that three attempts at a sale and someone will move on and NEVER come back.
A lot of data demonstates that business travellers tend to have higher yield than leisure travellers. But do remember that the business ranks are declining percentage-wise.
What about one of the big boys? We marvel at the brand value of the 600-pound gorilla, Expedia, who can be late to market in apps and instantly get five star ratings and then dominate.
So, maybe...
Has anyone tried it?
There have been many attempts at providing a true last minute service for airlines. Just as there have been attempts at providing other forms of dynamic pricing models.
Once upon a time in Europe, last-minute sales was such a common concept that operators stationed booths at airports to sell last minute seats or packages actually to people who would show up with cash in hand and be prepared to travel. At Nuremberg Airport, for instance, families would turn up and literally shop for tickets from offers hand-written on white boards.
Let's just say that is not as common as it once was, but agencies still sell tickets on-site at the airport. Go to any airport in Germany and you will find a few agencies in each location. For example at Frankfurt (the main airport in Germany) more than 20 agencies operate still.
L’Tur and others came from this work and transitioned to the online world easily. Of late, this has fallen out of favour.
But the time lag is usually the problem that kills it. Making the right pricing decisions requires work. Indeed, several attempts to sell distressed merchandise in airlines have not changed the mode of distribution.
Ultimately, as all of the above examples suggest, there is a trade off in trying to create a mobile app to sell distressed inventory at the last-minute, a lot of extra work and some potential results, versus the status quo (keeping existing models and their high-yield ticket sales to profitable business travelers).
So, if you were an airline, which path would you choose?
NB:Clock aircraft image via Shutterstock.