If things go according to OptionIt’s plans, a major U.S. airline next year will exclusively use its platform to sell consumers options to lock-in fares on selected routes.
Thus, Bing Travel may advise consumers when to buy, and FareCompare may offer flexible calendar flight search, but OptionIt and an airline partner would give consumers the ability to lock-in a low fare for three days or three weeks perhaps with little risk.
Here’s how it would work.
A consumer looking to fly from New York to Las Vegas a couple of months from now could lock in a $369 fare on a major carrier website by purchasing an option for $35 or handing over some airline miles to secure the fare for a few days or weeks.
By the time the option period expires, the consumer would then have to pay the $369 even if the fare has escalated to $450. Whether the consumer purchases the ticket — or doesn’t — the money or miles spent for the option goes to the airline, which splits revenue with OptionIt.
Thus consumers would have paid the $35 option plus the $369 fare to secure their reservations.
So, the airline gets the booking plus some ancillary revenue from the option.
“That’s what an option is,” says Michael Proman, OptionIt’s vice president of marketing partnerships and development strategy. “It takes someone who can’t commit and gives them a little bit of hope. It’s OK to be half pregnant.”
Launched in July 2009, OptionIt says it is in late-stage talks with a couple of U.S. airlines — at least one is a major carrier — to license its SaaS-delivered and patented technology to one airline on an exclusive basis.
OptionIt, which would pay a percentage of the development costs to tie into the airline’s revenue management system, acknowledges that an airline might see a shortfall on some tickets if consumers exercise their options and book at a price lower than the current fare.
But, Proman says the flexibility provided to the consumer would be a key differentiator for the airline in its marketing as the technology, offered on a white-label basis on the airline website, would be offered to the airline partner on an exclusive basis.
The idea is that the airline would drive customer loyalty and a lot of incremental bookings by being the sole airline-ticket-options provider in the U.S. market.
“It would almost be a disruption from a marketing perspective to do this,” Proman says. “If every carrier could do this, it wouldn’t be special.”
“It’s almost creating stickiness,” Proman adds.
OptionIt knows a lot about options.
Its founders are members of the Chicago Board of Trade and OptionIt holds a patent, Pappas et al., for its “method and system for reserving future purchases of goods or services.”
Proman says OptionIt until now has focused exclusively on the sports ticket market, but is making a push into the travel, where it sees potential opportunities for airlines, hotels and car rentals.
The OptionIt service would be an ancillary revenue stream for the airline, and would provide a new service to consumers, unlike “people charging $9 for a pillow, when it’s not really a value-add for the consumer,” Proman says.
“We are in mid to latter stages in terms of discussion,” he says. “We believe within the next three months we’ll have an agreement in place.”
If that happens, look for a major U.S. airline to begin offering fare options early in 2011.
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this is interesting. The option has value, but if the fare decreases, can the traveler apply the option price to the lower fare?
Maybe we’ll see a derivatives market for airfare options develop soon afterward (TIC)!
Jonathan: I don’t think so, but I’ll find out.
Brilliant, just brilliant. Air Canada, WestJet, I hope you are you reading this!
Steve: I hope so, too:)
I agree Dennis – no reason to do it – that’s part of the risk. But maybe the option price could be applied toward a pillow for the flight!
Actually, this could certainly have implications for managed travel, but could probably get confusing for consumers if not kept simple.
Jonathan -
To answer your question, we’ve found that prices traditionally escalate closer to date of departure and very rarely do you see prices drop.
With this said, the option–just like a stock option–enables you the ability to purchase something (in this case an airfare) at the price you locked in. Unlike a “future,” there is no obligation to follow-through on the ticket purchase, so you’ve effectively eliminated the risk.
Nonetheless, I like where your head is at… maybe Orbitz wants to include this in their “price assurance” platform
Michael
Agreed, Michael. My background is largely finance so I’m excited to see if your concept could catch on as a call option approach as Priceline’s founding was essentially airline put options.
Perhaps there’s a way to work this approach into the mix for corporate deals with airlines along with negotiated pricing?
Good luck!
This sounds very similar to the “Time to Tink” recently announced by Air France, see: http://www.airfrance.fr/FR/en/local/resainfovol/achat/reservation_achat_airfrance.htm
But the AF version seems to be cheaper – and does not include a third party….
Fred -
This is a similiar concept; however, OptionIt has a patent to do this in the States (with other international patents pending). for more on the patent, see: http://www.freepatentsonline.com/7313539.html
Michael