Startup on flight tickets
Why did this topic capture my attention?
While I was going through Forbes.ru, an article about flight and airline tickets business came to my attention. I was particularly interested in this topic, as I had no idea on how this B2C (ecommerce) industry works. The following blog post will be dedicated to a brief description of how a company can become an intermediary between airline corporations and end consumers, followed by a success story of a
Russian flight tickets startup that found a way to stand out among its world class competitors with deep pockets.
How flight tickets industry works?
In order to become a distributor of flight tickets, companies have to go through a number of consequent steps. First of all, they need to attain membership of International Air Transport Association (IATA), which is a trade association representing and serving the airline industry worldwide. As the next step, companies have to join the global distribution system of flight tickets (e.g. Galileo or Amadeus), and develop a software assisting customers with selection of the optimal flight. After accepting credit card payment, companies have to send customers e-tickets and receive the negotiated commission from each ticket sale.
However, despite relative simplicity of entering this business, flight tickets distributors face a big challenge: how can they attract customers to buy from them? Cheap prices is not an option, as distributors, by definition, represent an intermediary between airline companies and end consumers, and often cannot sell flight tickets cheaper than the airline companies themselves.
The following section provides an overview of OneTwoTrip, a Russian flight tickets distributor that found a new way of providing value to its customers.
The company was created in 2011 by a Russian entrepreneur Peter Kutis. After three months of existence, OneTwoTrip had 30,000 unique customers per month. These customers purchased on average 100 flight tickets per day, for an average price of $400 per ticket. OneTwoTrip charged 3-4% commission fees from each sale, resulting in monthly revenue of 100 * 31 * $400 * 0.04 = $49,600 (Forbes, 2011). Impressive results for a newcomer!
How is OneTwoTrip different from competitors?
OneTwoTrip decided to use the differentiation (rather than cost) strategy, an “approach under which a firm aims to develop and market unique products for different customer segments”. The company provides its customers with unique flight ratings varying on 1-10 point scale and 1-5 stars scale. These ratings combine and reflect a number of valuable factors attributable to each flight, including: information on historical and expected flight delays, aircraft’s “age”, distance between seats, probability of flight cancellation, qualification of pilots, service quality in respective airports, managerial competence at airline companies performing the flight and other. There is a strong rationale behind inclusion of each of those factors in the rating. For example, flight delays often occur due to management’s inability to negotiate with a certain airport. Therefore, managerial competence is a valuable parameter in estimation of flight cancellation probability.
However, OneTwoTrip spends a decent amount of money (this information wasn’t disclosed) to get access to all of these information and keep it up to date. For example, in order to find out “age” of aircrafts performing the flight, OneTwoTrip hired a team of physicist who track pilots’ on-board communications (which is not secret, nor codified).
Based on example of OneTwoTrip it is worth remembering that businesses can always find a way for successful development. OneTwoTrip analyzed what their competitors didn’t offer to the market and merely filled this gap with own services. How could they know that flight ratings are something customers might be looking for? Feedback is one of the key resources, which is unfortunately frequently ignored by companies. As a recommendation, I strongly suggest future managers to try understanding the true customers’ needs and bear in mind that an intelligent combination of knowledge and creativity often leads to astounding results.
IATA Organization, reviewed on 10/10/2015
Forbes Russian, “Startap Na Aviabiletah”, reviewed on 11/10/2015
OneTwoTrip Russia, reviewed on 9/11/2015
Business Disctionary, “Differentiation Strategy”, reviewed on 11/10/2015