Startup pitch: AirHelp gets fliers compensation for cancelled flights and more
Travelers complain. Mostly, it seems, about airlines. Yet despite their griping, travelers rarely take advantage of consumer protection laws to get compensation for excessive delays and cancellations.
It’s free to submit claims, but few do. So what if a company reduced that friction of filing claims, while also educating consumers about their rights?
Enter, AirHelp, a startup that helps passengers receive compensation they’re owed from the airlines.
When your flight is delayed or cancelled, Airhelp may be able to make the airline pay — especially if the flight passed through the European Union, where consumer protection laws are strict.
Today AirHelp launched a new tool: Users can permit the search their Gmail inboxes to find any previous flights that may qualify for claims.
The new email search feature — using the OAuth authorization standard, similar to TripIt‘s and Superfly’s in-box search tools — is relevant because claims can be filed three years back for some European cases.
New player in the payback game
AirHelp recently graduated from the famed startup incubator Y Combinator.
Since its April 2013 launch, the company has helped give consumers close to $1 million in compensation, while automating the filing process.
It’s mainly consumer focused, but the company says it has partnerships with some travel companies where it has automated the claim process for them and their customers.
So far, the founders have focused their Web- and app-based product first on European air travel, specifically for a regulation called EU 261. The rule requires airlines to compensate travelers for an excessive delay, a cancellation, or overbooking.
The founders estimate that only 2% of eligible travelers file for compensation, and of those, only about 2% to 4% received the money they deserve.
AirHelp has made a Vine to illustrate its core premise:
Q&A with CEO Henrik Zillmer:
Tell us how you founded the company, why and what made you decide to jump in and create the business.
We started AirHelp in January 2013, in beta, because we found ourselves being delayed time and again without any information about what our rights were.
When we found out that we were actually entitled to compensation, we tried to claim it — only to find that it was a very time consuming and cumbersome process.
We decided to do some research and found that around 26 million passengers are entitled to compensation each year with less than 1% ever getting it.
With a background in Tech we set out to improve a broken process, armed with a deep understanding of the law and a vision of automating the process. We wanted to make it as easy as possible for flight passengers to assert their rights.
Size of the team, names of founders, management roles and key personnel?
Founders Henrik Zillmer CEO, Nicolas Michaelsen CMO, Greg Roodt CTO. Key personnel: Morten Lund, of Tradeshift and Skype fame, is chairman and investor; Poul Oddershede is CFO. Total employees: 12
$300,000, including Y-Combinator investment. The demo day pitch is here.
Kulveer Taggar is leading the syndicate, taking his $200,000 allocation. Taggar is a Y Combinator founder who sold his first company (Automatic) for $5 million.
Estimation of market size?
Every year, 26 million passengers are entitled to compensation from the airlines, but only 0,06% get the compensation because they don’t know their rights and the airlines don’t inform them.
Avgerage compensation per passenger is $600, which makes it a $16 billion annual market across the EU and US.
Laws favor consumer more in the EU than in the US.
Yet in the US there is an opportunity, too. Many passengers aren’t aware that they could claim a much greater compensation if they refuse to give up the seat that they paid for under particular circumstances.
More than 600,000 passengers are bumped from domestic flights in the US annually. Only 10% of those will contest a bumping. $643 is the average weighted compensation.
The potential compensation if bumped on US domestic flights:
- 200% of the one-way ticket price, capped at $650 if delayed by more than 1 hour
- 400% of the one-way ticket price, capped at $1300 if delayed by more than 2 hours
When a flight is oversold, the cabin crew will ask if there are any passengers willing to give up their seat in exchange for vouchers or miles.
The problem is that passengers don’t know that they could be entitled up to $1,300, so they accept the $50 meal voucher, etc. But when you accept this, you waive your right to pursue further compensation!
In no way is this an automated process. That’s where we can help.
We’ve recognized and closely analyzed our competitors.
There are some competitors out there in Europe, who have existed for 2 to 7 years. These local companies provide similar services but they’re not using apps. That validates our business model.
Most of them are started by lawyers in transportation and consumer rights. To our knowledge, no competitor has applied information technology to automate and mass scale the business model like we have.
A few other companies bear a striking resemblance with us. We just see this as validation of the fact that we are doing something right.
That said, we’re spending our time on the product and our customers.
Revenue model and strategy for profitability?
We deduct 25% of the compensation amount (including the value added tax) if a claim is successful. If not, our service is free.
We have developed a proprietary backend system that has automated most parts of the claim process. This means we can handle large volume of claims without increased variable costs.
What problem does the business solve?
The only thing the passenger has to do is tell us their flight information, and we take care of the rest: paperwork, etc.
Most passengers are not aware that they could be entitled to compensation if their flight was delayed cancelled or overbooked.
Less than 2% will ever file for compensation and less than 1% will get it. We make a time consuming process fast and easy.
How did the initial idea evolve and were there changes/any pivots along the way in the early stages?
We started out with just a simple landing page in order to validate our assumption that this was a product that people really wanted. We tried to keep it as lean as possible and iterate quickly.
Our assumption was quickly validated, and we created the 5-step submission funnel and data-based back end.
The main objective when starting AirHelp was that we would keep the user experience as simple and intuitive as possible, but at the same time make something that was heavily backed by data and legally rigorous.
Why should people or companies use the business?
Because we can get you hundreds of dollars in compensation without you having to do anything besides sit back and relax.
The same goes for corporations, online/offline travel agents, etc. who can offer AirHelp as an add-on value while making a commission on every claim.
What is the strategy for raising awareness and the customer/user acquisition?
Most of our growth has been through referrals and word of mouth, we are also very active on the various social media channels where disgruntled passengers usually go to air out their frustrations.
Where do you see the company in three years time and what specific challenges do you anticipate having to overcome?
AirHelp will be active worldwide. We will have 2 to 3 additional products/services that we will be offering customers directly or through online travel agents.
We will be automatically monitoring customer flights and notifying them if entitled to compensation.
What is wrong with the travel, tourism and hospitality industry that requires another startup to help it out?
The airline industry is full of dinosaurs unable to offer better customer care through innovation and tech. Something from the outside has to disrupt it.
What other technology company would you consider yourselves most closely aligned to in terms of culture and style… and why?
71lbs.com is doing what we do but for delayed shipping via UPS and FedEx.
Similar model is getfixed.me who challenges your parking fines and also takes a cut of the potential saving.
Let’s get into the weeds for a moment, and then zoom back up to the big picture:
AirHelp’s premise is not unique. It has several offline and online rivals.
Most notably, Refund.me launched around a year before it (as Tnooz reported at the time), providing largely the same service. It now undercuts AirHelp on price, charging 15% (instead of 25%).
To stand out from its rivals, AirHelp has developed a user on-boarding experience that is superior. Try filing a claim through Refund.me, for instance, and you may agree with us that AirHelp is easier, faster, and more intuitive to use.
Yet having a better product isn’t enough. It’s relatively simple to launch a copycat of its simpler UX, so marketing will matter. Can AirHelp become known as *the* brand for this type of service?
The winner here will need to make a lot of noise, through partnerships, news media appearances, and non-traditional campaigns. Then it will have enough of a “defensible moat”.
To solidify its “moat,” it may need to expand AirHelp’s scope to become an all-around travel consumer guardian angel, helping avenge all sorts of injustices.
Having a broader portfolio of services would protect AirHelp against being too dependent on Regulation 261.
A revision to Regulation 261 hasn’t been decided yet and was rejected in the parliament when it was voted on a couple of months ago. But after the upcoming European Union election, things may change.
One fresh service that AirHelp could target: helping customers get their fees and taxes when they cancel a plane ticket — something that rarely happens today.
The order in which taxes are assessed is inconsistent, for instance. There is said to be an undercollection of these taxes, because of shoddy bookkeeping.
Ditto for Passenger Facility Charges in the US, which have very specific accounting rules — not all of which are correctly implemented by the global distribution systems.
It’s hard to judge if AirHelp is a venture back-able business or not.
It could make some good money by automating something consumers can achieve on their own for free. Users might pay for the convenience. By being efficient, it could have — to use a back-of-the-envelope guess — 15% margins.
But can it scale? It’ll need more than (hypothetical) 15% margins to interest investors.
Bagging a half million ought to be relatively easy for AirHelp, given its Y Combinator credentials. But then it may get stuck.
In the words of Gideon Lewis-Kraus’s gripping account of a seed funding round (“No Exit“):
“It’s pretty easy to get enough money to get in over your head and pretty hard to get enough money to stay afloat.”
A year from now, will AirHelp be pulled in two directions — B2B or B2C?
Option 1. Perfect a consumer product that will have a sexy appeal to one of the five largest tech companies, such as Google, and pray one of those companies acquires it and integrates your work into its existing product, like Google Now.
(Think how Apple bought transit app and Y-Combinator grad Embark to integrate into its maps.)
Option 2. Or else go the B2B route, which is much more likely to bring quick, steady income from clients. The trouble is, a B2B play could mean AirHelp’s disappearance from the radar of the five largest tech companies as a consumer-facing tool.
In other words, there may be two paths:
One promises glory, with a payoff of being listed as a FastCompany entrepreneurial star and getting to eat canapes at rooftop parties with Brian Chesky until you quickly sell out and become a Yahoo project manager.
The other way is less risky: to morph into a B2B service, which may necessitate dropping the B2C play with any seriousness (witness TripIt‘s recent languishing as a consumer brand). This latter route likely ends with the founders working for a company like Concur.
Either of those outcomes are better than disappearing off the radar completely. It’s not clear where the founders’ temperaments might lead them.
And perhaps it’s a false choice. Maybe the company will become a household name among consumers like peer-to-peer marketplace Airbnb. It recently brought on a staffer in Hong Kong due to high interest from Asian partners. Maybe it’ll go global.
Sean O’Neill is Editor-in-Chief of Tnooz.
Before joining us, Sean was the future of travel columnist at BBC Travel, senior editor of BudgetTravel.com, and an associate editor at Kiplinger’s. He now lives in New Jersey, after having worked in London for four years. He's on Twitter and is excited for #Rio2016.