clock airplane
668 days ago
 

Why is there no HotelTonight for airline tickets?

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:

  1. There aren’t enough last-minute empty seats
  2. It would be tough to do, from both technical and business development perspectives
  3. There is likely to be only moderate value offered to the customer
  4. If it became successful, the airlines would kill it
  5. There is no trust by the consumer in a pricing model that offers a “discount”.
  6. It has been tried before, with moderate success, but not recently

why is there no hoteltonight for airplane tickets next flight tnooz

“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.

 
 
Timothy O'Neil-Dunne

About the Writer :: Timothy O'Neil-Dunne

Timothy O'Neil-Dunne is a contributing Node to Tnooz and managing partner at travel consultancy firm, T2Impact. He serves as the lead for the airline, aviation and airport practice. He is also a Co-founder of VaultPAD an accelerator devoted exclusively to travel and travel-related startup businesses.

Timothy was a founding management team member of the Expedia team where he headed the ground transportation and international portfolios, before founding T2Impact in 1998.

He has worked in aviation and travel distribution for more than 30 years, including time with Worldspan as head of technology where he managed international technology services from product to infrastructure.

He is also CTO and deputy CEO of Lute Technologies, a permanent advisor to the World Economic Forum and writes on the T2Impact Blog.

 

Comments

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

  1. Brian FlyToday

    Awesome article and a lot of great points made in the comments. Hotel and Airline industries are obviously very different. There are however converging issues, overlapping customer segments.

    Today, there is a HotelTonight redesigned for the airline industry: FlyToday.
    You can follow us on flytoday.eu

    Cheers,
    Brian

     
  2. Jonny Miller

    I crowdfunded and built an iphone app called ‘Alakazam’ last year which used Skyscanner’s API to find spontaneous last minute flights. The basic premise was to enter your budget and ‘shake to be spontaneous’ and it displayed all of destinations yo could fly to as darts on a map or as polaroid photos. It worked especially well in Europe where Ryanair and Easyjet often offer last minute £10 flights, which are often cheaper than train tickets to nearby cities!

    I sold the app a few months ago via Apptopia but the original project page is here http://www.pleasefund.us/projects/alakazam-iphone-app

     
  3. Timothy O'Neil-Dunne

    Robert

    Thanks as always for the deep thought on the subject.

    For hotels the points are clear. Its a basic supply demand and as you point out scale. There is a little irony on the concept of Hotels tonight – that if it is successful and still offers lower rates then it will die a swift death.

    To some extent the hotels are linked to airline seats but only in a little way. There are few markets where ground competes with air for the transportation component. So Cal to Vegas comes to mind. Airline seats could have a degree of a last minute market as there is usually places to stay available at the last minute. Indeed in Europe there are some markets where this can work but its rare and the possibilities are slim and inconsistent.

    So we agree its not a likely event. (So whoever registered Airtonight.com, seatsnow.com etc are going to be unhappy).

    Merry Christmas!

    Timothy

     
    • RobertKCole

      Timothy,

      Agree – those URLs don’t look like large, scaleable businesses…

      Of course they could always try the niche approach…

      For a certain sector of the socioeconomic spectrum. they could always try JetTonight.com of HeliNow,com to serve the ultra-wealthy who have the means, but lack the time or interest to acquire their own private jet or helicopter for spur-of-the-moment air travel…

      Folks like Kevin May ;)

      Happy Holidays.

       
      • Timothy O'Neil-Dunne

        This year I commissioned NORAD to track @kevinlukemay (they has some space capacity due to a slimmed down Santa trip). So far he has been spotted in Europe near white powdery stuff. Sadly no confirmed on ground sitings and his Webcam while turned on shows no activity.

        News at 10…

        Cheers

         
  4. RobertKCole

    As an independent hotel product historian and old person, I think its a lot simpler than that.

    The two industries are completely different in almost every aspect of their business, aside from the fact that both transact perishable inventory.

    Fragmentation – Airlines own and manage all their inventory. A single hotel may have three independent parties – a brand, a manager and an owner making business decisions for the hotel.

    Competition – Only a limited number of carriers fly non-stop between various origins and destinations. While more options exist for connecting flights, the numbers pale in comparison to the multitude of hotel options that vary by location, physical configuration and service level in addition to price.

    Pricing Control – Airline pricing decisions are made at the corporate level. Hotel pricing decisions are decentralized and made at the property level (or for some brands, the local cluster level.)

    Capacity – A single property can not easily add or reduce capacity, nor can it be easily moved to a more profitable locale. Airlines can much more easily schedule additional flights or change equipment to better match consumer demand.

    Trip Duration – Hotel Tonight has been successful by limiting its sales to a single night, an opportunity that provides hotels with an opportunity to extend the stay at full price (or through some form of discount or value-add incentive.) One night air trips dramatically fence market demand and booking outbound, one-way introduces too much risk of overpaying for the return leg.

    Discipline – Perhaps the most important aspect. Hotel revenue manager have less market data, training, and sophisticated technology at their disposal than their airline counterparts. In fairness to the Rev Mgrs, it’s harder to be disciplined if one of the trio of involved players demands certain pricing actions must be taken to fill rooms and there is not sufficient property/market-specific data to debate the directive.

    Absent discipline, in many cases, hotel pricing decisions (especially last minute ones) result in a “race to the bottom” mentality.

    I waited to write this comment until Friday evening. It is difficult to say why New York’s Hotel Indigo – Chealsea, an InterContinental family branded property would be selling a one-night stay through Hotel Tonight for $99 instead of the $399 Best Available Rate listed on the property and IHG web sites.

    However, the reason may be similar to the reason that a 4-star Times Square/Theater District hotel with a 95% guest rating is selling for $120 tonight on Hotwire.

    It just might be due to the 4-star Paramount openly selling rooms at $99/night through Hotels.com or for $84.15 on its own website… You be the judge. The other hotels, it they are aware of Paramount’s pricing may feel that they are being disciplined by not dropping their rates to match or beat it.

    It all comes down to a desperate attempt to shift share from competitors, even from the 2-star Comfort Inn Theater District at $149 or EconoLodge Times Square at $209… Many consumers have been successfully trained through a combination of advertising & positive reinforcement to seek out 4-star hotels at 2-star prices.

    This is not some isolated scenario – every night in New York you will see some bizarre hotel discounting. From personal experience, I recall having to extend a stay in Manhattan due to a snow storm that closed all three airports – I got a 3.5-star room that included breakfast for $105 on a night that was not only a certain sellout, but when competitors were jacking their prices to $700/night.

    Bottom Line: Airlines have centralized control, defined strategies and much better analytics. As a result, they can efficiently invoke pricing discipline on a micromanaged level. In many cases, hotel groups lack sufficient visibility into real-time property inventory by segment, pricing dynamics and/or competitive intelligence to provide adequate parental supervision.

    Worse yet, it may only take one overly enthusiastic hotel revenue manager to pull down the pricing of competitors across the market. And it does not need to be the same hotel leading every night – it often appears that chaos theory prevails. One stupid revenue manager may be all that is required to enable a hotel deal that swings loyalty of a consumer from a hotel brand to an intermediary website.

    Hotel Tonight, much like the forerunner of Hotels.com, has managed to develop a highly monetizable business model capitalizing on the tendencies for hotels to provide preferential or irrational pricing, ideally on an exclusive basis.

    As long as hotels are willing to provide deeply discounted last minute inventory, Hotel Tonight should be able to find consumers willing to grab those deals. The reason that it doesn’t work for airlines is because corporate structure enforces pricing discipline and the carriers intentionally choose not to play by the intermediary website rules.

     
    • Sean

      Robert,

      Thank you for the *amazing* comment! The real-time examples from NYC hotel pricing really brought your points home.

      That said, this entire discussion has felt, in my view, too focused on North America. And when I look globally, especially in Asia or Africa, I see possibilities for experimentation in mobile-based sales of last-minute air product.

      I take Timothy and Robert’s points that airlines may want to maintain control of their pricing and availability information.

      Yet my gut is telling me that some airline — perhaps in Asia, perhaps not belonging to an alliance — would be willing to experiment with a last-minute, mobile-first, air product.

      This means an opportunity for a startup to go to an airline and sell them the technology and the marketing savvy to make the sale.

      The novelty factor could help an airline build brand awareness. We’ve seen more brand and product experimentation in Asia than in the US. See how air passes and fixed-price classes are more common there.

      The Asian market has a higher mobile adoption rate among travelers than in North America, especially in e-commerce.

      In short, an airline in Asia or Africa might experiment with “last minute” mobile sales

      –given that long-haul is more common on many routes (meaning larger per-ticket value than in domestic
      US) so the payoff in added marginal revenue for the effort and risk would be more worthwhile

      –given that getting feeder traffic even more critical in Asia or Africa than in North American routings

      –given that it would still be such a new thing that only a tiny slice of the customer base would be at risk of being trained to expect discounts for life as a result of the experiment.

      Caveat: My comment here in no way speaks on behalf of Timothy or Tnooz.

      Happy holidays,
      Sean

       
      • Thomas C. Mueller

        Sean,

        You beat me to the adding the Africa / Asia points to an excellent post and comment thread, but I’ll add a few thoughts.

        I’m not well-versed in air travel norms in China and Africa, but from conversations with fellow MBA students and working professionals from those areas I know their markets are developing rapidly and airlines there haven’t necessarily adopted all the bad habits of their Western counterparts. Newer GDSs, from China’s homegrown TravelSky to open-source offerings aimed at emerging markets, could be built with features that support annual passes, seat trading, personal “bump” preference registration/automatic bump compensation negotiation, and the kinds of technological hooks that’d make mobile commerce and last-minute sales easier. The newer GDSs can help shape how people use air travel, and I hope they’re being built with flexibility in mind and not Western legacy GDS feature sets.

        A few airlines offered lifetime passes in the 1980s or 1990s. I’m not sure if those programs paid off, though I read about airlines buying back the passes, so I don’t think we’ll see that happen again. But why not an annual pass that gives you access to last-minute fares for a carrier or alliance? Annual pass revenue is paid up front – a nice cash injection – with the hope that most users wouldn’t utilize the passes enough to cause it to be a loss for the airline. This could even be something a credit card offers with their highest-tier cards, the kind that cost $495 a year, though we might not see this until the economy radically improves and airlines lose supplier power.

        Another minor point – last-minute junket travel to destinations like Macau would seem like a huge market. Do day-trippers visiting Macau and similar Asian gaming destinations book air travel weeks in advance like we do in the US? If you ever want to geek out on data, one thing the Chinese do very well is capture extremely detailed data, and the data on Macau visitors is very interesting – and freely available.

        I’m far more excited about air travel in India, Africa, and China than Western markets because of opportunities to innovate in developing countries. Hopefully the airlines, local customs, and GDS designers will come together to prevent innovation-stifling features from being designed into their GDSs.

        Happy holidays.


        Tom Mueller

         
        • Sean O'Neill

          Sean O'Neill

          Thanks for looking out for the opportunities in emerging markets. Happy holidays, to you, too!

           
  5. Bill

    When flying in Colombia in around 2000 to 2002 the price of a tickety when down the closer you got to the takeoff date.

     
  6. Timothy O'Neil-Dunne

    Thanks all for this. These are good points. I have to acknowledge the input of many of the Nodes and Editors in this piece. Frankly there is a lot of fear by the suppliers to doing this and its about the almighty yield. Protecting it is sacrosanct. Hotels are different at the moment. If its fashion week in NYC I am quite happy not to let ANYONE think there is a possible discount.

    At the end of the day we have to think of the long term bigger picture issues and diluting yield for short term gain is not something the mature airlines are particularly interested in at this moment in time.

    New airlines, hotels with low occupancy? Different questions

    Cheers

    Timothy

     
  7. BR

    Two more concerns for last minute flight sales:

    1) You may be able to convince an airline to severely discount your outbound flight that leaves in 3 hours, but what about the return leg you want that’s a week away? Much different calculation.

    2) The incremental cost of putting someone on a plane (fuel) I suspect is much higher on average than the incremental cost of putting someone in a hotel bed (cleaning the room when you leave).

     
  8. Roger

    Interesting subject and great analysis. You mentioned it a bit already, but I think the main barrier is the economics of “last minute flight deals” which have never really existed to any degree. The last thing the remaining airlines want to do is train their potential customers to gamble on last-minute fares, and stay home when they don’t come through.

    The research that shows that fares are cheapest between 4 and 6 weeks out makes perfect sense. And each airline will make more money by forcing price-sensitive travelers into a decision within that window. So for that reason, I think there is no incentive for airlines to offer low fares on the day, regardless of whether a website or some consumers wish they would.

     
  9. Max Starkov - HeBS Digital

    Timothy, Timely article.

    You would assume that once the gate closes and all empty airline seats become lost revenue opportunities, all airlines would be selling last-minute tickets at the airport. On the contrary!

    The closer to the time of your departure you get, the higher the airfare: 21-day advance purchase; then 14-day advance purchase; then 7-day advance purchase, and finally the highest airfare if you book less than 7 days prior to the actual flight or at the airport. Why? Because having last-minute discounted tickets at the airport would jeopardize the airlines’ other distribution channels. You would see big lines for last-minute tickets at the airport and hardly anybody would be purchasing tickets in advance.

    The airlines tried last-minute sales back in the 1970s and, after destroying their price and distribution integrity, dropped it. As a rule, no airline today is offering last-minute discounted tickets.

    What Is the Situation in Hospitality?

    Last-minute sales have been tried and failed repeatedly in the hospitality industry. Remember LastMinuteTravel.com? Where is this site today? At the height of the dot-com bubble this site even had a splashy multi-million Super Bowl commercial.

    For these last-minute discount sites to exist there must be a Market Equilibrium (Price-Quantity) between: The Demand Side (quantity of engaged last-minute deal buyers) and The Supply Side (quantity of fresh, intriguing last-minute deals).

    As travel demand improves, hoteliers will become increasingly reluctant to participate and provide the supply side of the equation with fresh, intriguing last-minute discounts. Online travel consumers, disappointed by the lack of fresh/intriguing last-minute discounts, will revert back to the traditional booking channels: hotel direct, voice, GDS and OTAs. As a result, both sides of the equation will suffer and shrink.

    In this sense HotelTonight.com and some OTAs are trying to re-create in the mobile space what other players in the field have tried to do repeatedly and failed. My prediction is that HotelTonight.com and similar last-minute discounters will not last long as these sites employ a business model that is against the hospitality industry’s best practices for channel management and rate parity, and will suffer as a result of supply and demand economics.

    You may also be interested in an article ” The Pitfalls of Last Minute sales in Hospitality” I published in HOTELS Magazine.

    http://www.hebsdigital.com/blog/the-pitfalls-of-last-minute-sales-in-hospitality/

     
  10. martin rusteberg

    4U, the LH low-cost arm is offering blind booking but seems to abandon it with its upcoming relaunch due to a lack of popularity…

    would this kind of proposition work based purely on standby tickets (though those seem to have disappeared as well) with the airlines then still having the opportunity to sell their high-margin last minute tickets ?

     
    • Sean O'Neill

      Sean O'Neill

      Hi Martin,
      Thanks for your comment.
      For what it’s worth, Air New Zealand has come up with a clever way to push three-weeks-and-less inventory with its Grabaseat offering

      http://grabaseat.co.nz/

      While most of the fares are for within a month’s time, there are some that are for flights within a week.

      Not standby, but getting there… And yes there are iPhone and Android apps.
      Sean

       
  11. Sean O'Neill

    Sean O'Neill

    Intriguing and provocative!

     
 
 

Newsletter Subscription

Please subscribe now to Tnooz’s FREE daily newsletter.

This lively package of news and information from Tnooz’s web site provides a convenient digest of what’s happening in technology that drives the global travel, tourism and hospitality market.

  • Cancel