AI & An Airline Startup - Part One
Join airline entrepreneur Bob Branston as he launches Vestal Atlantic, a startup airline powered by advanced analytics
Nothing makes headlines like a groovy airline startup. Freddie Laker and Skytrain, Richard Branson and Virgin Atlantic, Stelios and easyJet. All three shook up British aviation. Beardy’s ad agency Rainey Kelly turned the story into a remarkable video:
A transatlantic busted flush & the eastbound apprentice
Skytrain is bust. So are all-premium disruptors Eos, Maxjet and Silverjet.
But they were transatlantic operators and the latest British carrier, Flypop, is trying its luck by heading east to India instead. Truth being stranger than fiction, a while back on The Apprentice (a comedy show masquerading as a business programme) some contestants suggested Jet Pop as a name for a new airline and put an explosion in the logo.
British Airways executives were shown pouring scorn on the name. Sponsoring mogul Lord Sugar said “the last thing you want your aeroplane to do is pop … it implies that it is going to blow up … terrible name for the airline”. Claude Littner, a judge, said “it was just outrageously absurd, it was doomed to failure.”
Check out the video here on the BBC site – only available in the UK I’m afraid.
So will Flypop be a success? Who will be right – Lord Sugar and British Airways or Flypop’s investors? We will have to wait and see. What we can say is that the 53 new airline startups established in 2021 alone are, along with Flypop, busy positioning themselves for the travel recovery expected post-COVID.
Are the startups using obsolete business models?
But unfortunately for their shareholders many of them assume low-cost is the only path to success and have revealed business plans relying on the decades-old best-practice and legacy technology.
Flypop CEO Nino Singh Judge said in Airways Magazine that he plans to be “ruthlessly low-cost selling ancillary that is to be profitable … our absolute product differentiator is the low-cost … which nobody has offered before …” (apart from Emirates, Qatar Airways and the rest – ed.) “… if you want to get there really cheap, you come to us.”
Birgir Jónsson of Icelandic startup Play said in an interview with Routes Online that he is “going into existing markets making sure we can win them on price”. The article also says that the CEO “admits that PLAY’s strategy is nothing new, echoing that of Icelandair and the defunct Icelandic LCC Wow Air.” I remember even developing and sharing metrics on how I predicted by when Air Berlin’s business model would expire (promised: I will reshare it on our blog next week! - Yes, they did go belly up).
Where is the creativity? Where is the innovation? These airlines are based around being consistently cheap. Ryanair and Southwest did it already but the market has moved on. Copying these airlines commercially in a more complex operating environment is unlikely to lead to the same success. Since longer routes tie planes up for more time, putting things right when ops go awry is tough. Play is even copying a failed airline. Speaking of . . . about Norse. . . nah, we’ll talk next time.
Ultimately it will be the passengers who have to deal with the hassle and worry of delays and cancellations. At Airline Revenue Economics we believe that when confronted with reality many of these frothy startups will find their bubbles firmly popped.
A new approach
If we were building an airline’s commercial department today we would take a different path. We would use different data sources to get our insights, build our plans using advanced computation methods and be focused on goals rather than stackable processes.
The first priority of an airline startup is safety. The second is capitalisation. For the rest of this story we will assume that these two fundamentals are met when sleek marketeered commercial strategist folks show up with their sold BPs to VCs out of their briefcases.
Beyond these two we see a need to answer four questions:
1. What problems do people buying tickets and travelling have?
2. Which data sources give us insights that allow us to solve these problems?
3. How can we get it right 99.999%* of the time?
4. Where can we automate everything to make it easy and in real time?
* 99.999% availability is a regulatory standard in telecoms, another industry characterised by high capitalisation, comprehensive regulation and intense competition – I think it is a good standard for us to follow for customer satisfaction in aviation and, if telecoms can do it, we should be able to as well.
Have the entrepreneurs behind the current crop of startups asked themselves these questions? I would hope so. Perhaps they think the problem consumers have is that tickets are expensive, so the solution is to enable cheap fares with a low-cost approach.
I think that there are better answers though, and that we can find them with the help of artificial intelligence. Airline startup management can use these methods to decide what their commercial platform or overall business goal should be.
Bob Branston & Vestal Atlantic
Oliver lives in Britain and I live in Canada. We have already seen a bit of the British startup scene and far too much British pop culture (surely not – ed) . . . I also worked for two airline startups and designed another recently.
So let me fly you across the Atlantic (FCOC*) to my home overlooking the skill hills north of Montreal and introduce you to Bob Branston, a successful entrepreneur putting together a team to launch a new airline which he is going to call Vestal Atlantic.
* First Class, of course.
Bob has four aircraft and contracts with three airports. He reckons that the incumbent flag carrier Air Canada is too tough a nut for him to crack. Not only is their network broad and deep, they also have an extensive network of loyal corporate and personal customers. British startups Eos and Silverjet failed in part because they were unable to capture contract and loyalty members from British Airways.
Ultra-low-cost Canada Jetlines and more conservative Air Transat on the other hand may be ripe for plucking. Air Transat is reliant on legacy processes and conventional revenue models, and will be slow to respond through any method more sophisticated than discounting.
Canada Jetlines relies heavily on price and its market share can be stolen if Vestal Atlantic bundles flights with more compelling products and services (see article). Jetlines does not appear to think along creating commercial stickiness and Bob thinks he can sell air and urban trips together so the passenger’s entire journey is taken care of in one transaction.
What does Bob do first?
Step 1: Bob defines his goal
Like all good goals, Bob chooses something specific, measurable, achievable and realistic – he wants to earn as much revenue as possible from four aircraft serving three airports over two years, while making its services indispensable from a digital assistant perspective (like . . . “where are you when I need you!?” . . .)
Step 2: Bob builds his team
Bob is accountable for safety and the overall smooth running of the new operation. He is assisted by people who understand:
1. The urban transportation domain
2. Digital media
3. Marketing & consumer behaviour
4. Commercial management
5. Data science
6. Platform architecture
7. IT integration
8. Accounting
9. Aeronautical engineering
10. Contracts & regulatory affairs
Notice that there are no revenue managers or network planners. They do not want to stifle creativity with existing frameworks of reference.
Step 3: Bob constructs a logical workflow
Thinking like a passenger will be one of the keys to the new airline’s success, thinks Bob. So he sets out every stage of the passenger journey, including:
1. Planning – a consumer thinks about where and when she might like to travel and what she might do instead if she decides to spend her money on something else.
2. Shopping – the buyer looks for specific flight and supporting options, like travel to and from airports
3. Buying – the traveller buys a ticket for travel plus ancillaries on Bob’s travel experience marketplace
4. Pre-flight – the passenger prepares to arrive (where, not depart from only) covering the necessary admin like visas and certificates, and planning things to do at the destination (and do cool loopy stuff - show me what you got. . . )
5. The journey itself – the flyer goes to and through the airport, boards the Vestal Atlantic plane, enjoys the flight, passes through immigration, collects bags and heads to her destination
6. After the flight the traveller enjoys her trip, achieves what she needs to and then the cycle repeats as she flies home, experiencing another journey
7. Post-trip – the consumer reflects on the trip, decides whether or not to recommend Vestal Atlantic to her friends and reflects on whether or not she would be happy to fly with that airline again.
Bob recognises that he needs to capture all the consumer’s emotions, intentions, interests and unique requirements at every stage of the passenger journey. Each time it’s different, and Bob knows how.
Notice how Bob does not consider the trip in isolation. He also wants to the opportunity cost of travel before shopping and analyse whether or not the passenger would like to buy another Vestal Atlantic ticket at the end of the trip. None of Bob’s competitors do this well today.
If Bob is able to capture a “lifetime” value from the consumer that will not only support his cashflow, it will also make it easier for Bob to capitalise Vestal Atlantic’s expansion.
But even all of that is not enough to guarantee a successful launch of Vestal Atlantic. What does Bob do next? What are his particularly well-defined steps?
Find out tomorrow? (Click here for part two)
ricardo DOT pilon AT millavia DOT com, author
oliver AT ransonpricing DOT com, editor
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