Overcoming the hurdles to build a successful travel startup
Jonny Blackler, Krista Wymenga · March 2022
From regulations and accreditation to payments and support, starting a travel business might seem overwhelming. Travel sellers need to untangle the complexity of long processes, countless intermediaries, confusing acronyms, and seemingly impenetrable industry bodies. And all of that is compounded with the massive impact the pandemic has had on the travel industry.
Is now a good time to start a business? How do you navigate the regulatory requirements? How do you make money selling flights when margins are so thin?
Krista Wymenga (Head of Demand Marketing, Duffel) moderated a panel discussion to dig into these challenges and explore opportunities for 2022. The panel featured Steve Domin (CEO and Co-founder, Duffel) Tim Rogers, (Head of Product, Duffel), and Sam Argyle (Managing Director, Alternative Airlines).
Watch the webinar or read the highlights below to learn more about why now is the right time to start selling flights, how to navigate industry regulations, what you can do to differentiate yourself as a travel seller, and how to take payments and make money.
Is now the right time to start a travel business?
Crunchbase points out that fintech pioneers Stripe and Square were both founded during a time of crisis in their industry. While venture capital (VC) investment in travel startups fell in 2020, it was projected to bounce back to $44 billion by the end of 2021, and we’ve seen some investments and purchases - Hopper raising $175M, TravelPerk $115M, FlyNowPayLater $75M, and Comtravo bought by TripActions for an estimated $68M - showing appetite and opportunity. Plus, there is potential growth in demand for travel with 47% projected for 2022.
Steve believes now is an excellent time to start a travel business. Here are 3 reasons why:
Rebound in consumer demand
It will take a while as travel has dropped off greatly, but it will bounce back and then more - there is a lot of optimism in the industry.
Generational shift in how travel is booked
There’s still a massive proportion of trips that are booked offline which inevitably will shift to online and mobile over time.
Change in consumer expectations
Travellers want new kinds of experiences which will lead to the rise of new players to serve them.
History has shown how crises provide entrepreneurs with the opportunity to think differently about their business models and review their customer propositions, so now is actually a good time to start a travel business. The biggest difference for 2022 is the access to technology that travel sellers have now.
In terms of expectations for 2022, the last two years have showed it's a really dangerous game to predict absolutely anything. But Sam did share a couple of predictions or trends Alternative Airlines is seeing:
Travel sellers need to continue to differentiate themselves probably more than ever before.
Fintech will continue to be a really important part of the travel industry for travel sellers, customers, and internal businesses stakeholders.
The leisure sector will continue to recover fastest, spurred on by revenge travel where customers who haven’t travelled in a couple of years are looking to treat themselves to bigger trips with premium add-ons and upgrades.
How do you navigate airline industry regulations?
There are four main areas to consider to become an authorised flight seller:
Duffel is still learning - getting started with flights is not easy. When Duffel started, the team continuously ran into hurdles and had no clue about the requirements and processes involved to start selling flights. Getting Javier Gallego on-board as Head of Agency Operations helped immensely. He is an industry veteran and worked as Global Managing Director at IATA for all things distribution and settlement so he really helped shape the strategy and support on accreditation, payments and local licensing.
Alternative Airlines was started by Sam’s father in 2007 so a lot of the important agreements were already in place when Sam joined in 2015. Maintaining and building relationships with airlines and IATA continues to be extremely important for success, and perseverance is key to building those relationships in the air travel industry.
Outside of growing airline relationships, Alternative Airlines also explored local licensing opportunities. Currently, Alternative Airlines sells tickets globally, but it manages sales through its IATA accreditation in the UK. Local licensing is complex and therefore is a major pain point for the business. Because of this challenge, Alternative Airlines has delayed expansion of issuing new tickets into new countries. Their strong, existing airline partnerships have allowed for continued global growth, but local licensing will continue to be a consideration moving forward.
Hard work doesn't end once you've set a business and achieved initial accreditation – it’s an ongoing process to manage. The industry needs innovation, but the barriers to starting a travel business are often really quite high. There's the accreditation, the local licences, the airline relationships, but more than that there are a bunch of other things we haven't even mentioned, like the amount airline industry knowledge and jargon you have to be able to deal with to even do the basic job of selling flights - and it's not easy to understand or get to grips with.
Duffel launched managed content as part of the product to solve that problem so that if you've got an amazing idea for a travel business with a better customer experience or better service or something that no one has imagined before, Duffel makes it so that all these things - like accreditation and the setup - don't have to be the barrier to doing that. You can start building your idea and get something working really quickly.
How can you differentiate as a travel seller on flights?
Customer experience is an opportunity for differentiation. The last few years have served almost as a “what not to do” for the industry. Although travel companies reacted quite quickly, there’s still more work that could be done around automation in particular, which improves the user experience and also gives more room for differentiation.
A “what not to do” is thinking that price is the thing that you're going to compete on. It just ends up being a race to the bottom. The market is incredibly competitive and margins can be quite limited as it is, unless you're very creative, so if you're saying my way of winning is going to be “being the cheapest”, not only is it probably going to be impossible, there's always going to be someone who's willing to cut further. You're probably not going to be building something very sustainable, so the key is to look for ways of differentiating outside of that.
Price is very short term and it's very hard to generate real customer loyalty in the sector by doing that. Instead, pick things you're good at and double down on that. Alternative Airlines only sells flights - they want to be the very best in the business of flights - so pick something you're good at and become the best at it rather than being a middle-ground for everything.
How can you manage payments and make money?
Margins are razor thin and payments processing is complex, so it can be hard to understand how you can really make money on flights.
There are really two perspectives you have to think from. The first is “how am I going to pay airlines”, because unsurprisingly, they want to get paid when you sell a flight to a customer, and secondly, “how are you going to get the money from the customers”. Both of those things are much harder than you might expect. Paying airlines could be a whole other webinar so he focused on customer payments.
There are so many payment providers out there and it's pretty difficult to know how to choose between them. When you're picking a provider as a new travel business, there are 4 things to consider:
Choice - what payment methods will you offer
For travel booked online, it is most commonly card payment
Cost - how much it costs to collect payment from your customers and how much that's going to eat into your margins.
Some providers can be much more expensive than others. Depending on the provider you end up with, you could end up paying 5-10% in the absolute worst cases which is a lot to lose if you're on fairly relatively thin margins anyway.
Control - do you have the flexibility to run the business and build the business model in the way that you want
You may want the ability to add your own markups or bundle extras or sell on mobile devices and on the web and you don't want your payment provider to be holding you back
Cash flow - can you meet your payment terms with the airline or the other travel supplier that you're buying from.
Most of the time in the airline space, you're going to need to pay the airline up front, so you want to keep that processing time and payments you're collecting from your customers as short as possible to make sure that you can bridge the gap between the two.
And on top of those four things, you also need to make sure that the provider that you go with is willing to accept a travel business. The reality is that many aren't so keen on travel because it is seen as a high risk industry and most advisors are not necessarily well set up to deal with that risk or to help you to mitigate it as a seller.
In speaking with businesses and working through the challenges ourselves, Duffel found there wasn’t a good solution available and so Duffel Payments was created to meet the needs of new travel sellers.
Payment offering is seen as a key differentiator for Alternative Airlines. Providing flexible payment options with a good customer experience is essential. Alternative Airlines does it by offering regional payments, ‘Buy Now Pay Later’ and even cryptocurrencies. Payments is super hard and the team dedicates a massive amount of time and effort in the business to improving the experience, understanding payment data, and analysing and offering really personalised experiences.
In switching gears to how to make money on flights, ancillaries is one way to drive margin, but you need to get the balance right in offering the right type of ancillaries for the customer but not overloading the booking experience with too much. The whole point of the site is to book a flight very easily and conveniently wherever you are, so it's a real trade off between the two.
Ancillaries can be broken down into 2 areas:
Enhancing the flight booking experience
Paid opportunities such as bags, seats, priority boarding, etc.
Reducing the risk for customers
Offer products that give customers flexibility over the flight purchase and reassurance in the event circumstances change
The key takeaway on making money on flights is that customer experience is really the driver - it can't be just about driving revenue. Revenue will come as a result of offering some kind of differentiated experience for the customer, whether it's getting them local payment methods, providing an excellent way of booking, servicing experiences, or offering the right ancillaries at the time of booking.
Questions & Summary
We covered a variety of questions that included topics such as: