We’ve been wanting to write this article for a very long time. It will be a story in several parts, but that’s for a reason: we sum up all about CitizenPlane’s grand vision and how we see the air distribution market.
This is part 1/3:
Air distribution inefficiencies
Air distribution is a rather mature ecosystem: pricing is super-optimized, everything is vastly automated and the customer is given an incredibly vast array of choices. Yet, it also means it’s complex, rigid and therefore riddled with inefficiencies.
The most evident one is probably the sheer number of empty seats in a plane. We have all been on a flight with almost half of the cabin empty. Of course there are structural reasons to this, chief one being that people tend to travel at the same time, which creates peak and off-peak times.
Yet, as it turned out, it’s not the only reason. There are many seats that are simply not on the market. Why is so? For many reasons:
- Most plane tickets sales happen in the GDS — which are huge databases with all the offers available. Except to be in there, you have to be an airline. So if you purchase 10 plane tickets, you will not be able to re-sell these in the GDS.
- Tech is hard: no access to GDS? You can just build your own API! This is true (that’s what we did), but it entails much more than just displaying an inventory. You have to manage passengers, requests, etc. This is not worth it unless you have a significant volume.
- Commercials are hard: speaking of volumes, no partner will make the effort to sell your content if it’s too limited: the cost of integration is more than the profit they could make.
- Acquiring traffic is costly: you may think that you will sell these tickets by yourself. But then again, you have to get the right customer, precisely at the dates where you have stock. This costs a fortune in advertising.
- There is a specific know-how: selling a plane ticket doesn’t just consist of taking the money and putting people on the list at the airport. One needs to handle after-sales, specific requests, etc. — i.e. customer support.
In a few words, selling is hard for smaller suppliers because they can’t benefit from the enormous economies of scale that bigger airlines enjoy. Even if they learn the know-how and marketing specifics of the industry, this business needs to scale to be profitable. Let’s take two examples:
- Accommodating passengers’ requests after the sale: this can happen any time, so you will need to have a customer support team. How much revenue must you make to justify the cost of one operator? How much must you earn to develop a web-app where passengers can pass their requests?
- Acquiring traffic: you can develop know-how at acquiring traffic on your website. But then, there is another problem: passenger expects flights at precise dates and times, and even if your targeting is right, chances are you won’t have the correct dates in stock. And what if your customer wants to fly-out with you but fly-in with another airline?
This list could go on, but as a bottom line, let’s keep in mind air distribution is really hard, especially for smaller players.
But who are these players anyway? Actually, there are many. The first ones we built the solution for are tour-operators. Indeed, their business is basically to get hotel supply at good prices (or owning them right away) and bringing as many people in. To do so, they need to market low prices and, more importantly, predictable prices.
Hence, many of them either charter entire planes to their hotels or purchase a block of seats from a regular airline and sell a packaged offer of plane + hotel at a fixed price. This works great but, inevitably, there are empty plane seats along the way (either because they have to charter a plane that has more capacity than their hotel or because of marketing mistakes).
Actually, this market never ceases to amaze us by its size. There are empty seats literally everywhere! You can read more about our first few months here.
How does this work? Very simply, actually: by providing a platform as easy to use as any web service you’re used to. Since images often speak better than words, here’s how you can upload a flight online in less than 1 minute.
What’s more, the airline industry is incredibly homogeneous across the world — everything is standardised. Therefore, CitizenPlane can be used by basically any company on the planet having flight tickets to sell. Let’s take two players as an example:
- Charter brokers, whose job is to charter a plane for a private client, often have positioning flights, i.e. empty flights going from one airport to another, just to bring the plane at the right place. That’s right: there are entire planes flying empty, just because it’s too hard to resell seats. Well, not anymore.
- Airlines also have issues tracking their commercial operations. Whenever you run a campaign, the mix of fixed costs (like advertising) and variable costs (like the GDS fees per booking) make it horrendously hard to track the actual money that is being made. They also have to deal with blocks of seats that are given back to their sales teams by tour operators and charterers who can’t sell these on their own.
As one can see, airlines represent a big part of this structural problem. But the sheer size of this headache isn’t limited to what we’ve just seen.