Qantas, BA back startup to fix overbookings while pleasing passengers

Volantio, the US startup that helped United Airlines manage its overbookings in the wake of the Dr Dao scandal last summer, is telling investors it's cracked a seemingly impossible code: generate more money for airlines while improving customer satisfaction.

Eight months into its product lifespan, the company - which helps airlines preventatively rejigger inventory by offering buyouts to flexible passengers – closed a $US2.6 million funding round in February.

The monetary sum is less impressive than the venture capitalists contributing to it: On board are three of the world's biggest aviation investors, which rarely join hands: Qantas Ventures, British Airways parent International Airlines Group (IAG) and JetBlue Technology Ventures (JTV).

One reason they all bit: to avoid the type of public relations nightmare that smacked United last year, when the carrier forcibly removed a doctor from an oversold aircraft, leaving him with a concussion and a broken nose.

Volantio's technology could have preemptively sorted passengers onto different flights so the airline wouldn't been positioned to oversell in the first place. As of now, airlines are handling re-bookings manually.

But Volantio's applications are far more varied-and consumer-friendly-than just that. Airlines are interested in the platform because it offers a variety of solutions for everyday pain points.

"With Volantio, we see real opportunities to support our customers while helping JetBlue manage irregular operations better," says Bonny Simi, president of JetBlue's venture capital arm.

JetBlue itself has a strict policy against overbooking, ruling out Volantio's main use case – but the carrier can leverage the technology to mitigate such other crises as sudden aircraft swaps or cancellations due to weather. It's helpful in most situations that ask passengers to make changes or compromises.

An $US8 billion opportunity

Based on the fact that most airlines operate at roughly 85 per cent capacity, Barodawala estimates that the top 150 airlines globally stand to create up to $US8 billion in additional revenue by using Volantio to shift inventory and fill more seats.

His calculation is based on the cumulative revenue these 150 airlines produce on an annual basis (about $US550 billion) and the 15 per cent they're leaving on the table. It accounts for both cost savings and new revenue generation.

Getting airlines to 100 per cent capacity is a tall order. But to get as close as possible, Barodawala needs to maximise his appeal to consumers. With his new funding, he plans to invest in machine learning and artificial intelligence capabilities.

"Every passenger is different, and every passenger values different things," he says. "You're typically given one offer at the gate if your flight is oversold – usually a voucher for a couple hundred dollars. But that voucher might be worth nothing to you," he explains.

Volantio's solution: Gather non-identifiable data about purchasing behaviours to learn what type of consumer is more likely to accept what type of offer. "Maybe people who fly from one type of city to another value cabin upgrades more than they value a voucher," he posits.

People who plan quick return trips might be motivated by additional frequent flier miles. "We want to tailor so that each customer doesn't get the same offer; they get the right offer."

If Volantio can pull off this type of automation, JTV's Simi says it would mark stupendous change. "I'm not surprised he's getting such excellent early traction," she says of Barodawala. "He's really onto something big."

The overbooking crisis

In December 2017, the most recent month for which statistics are available, 5,324 domestic flights were canceled in the United States. In the final quarter of the year, the country's 12 biggest airlines reported that nearly 75,000 passengers were denied boarding onto the planes they'd hoped would take them from Point A to Point B.

And that was a good track record. Over the past two years, the typical quarter has seen upward of 100,000 travellers turned away from their flights, according to figures by the Department of Transportation.
Overbookings may be on a downward trajectory, but that's a lot of angry customers.

United Airlines CEO Oscar Munoz says he felt "ashamed" when hearing about the violent removal of a passenger from an overbooked flight and promised the situation will never happen again.

With Volantio's support, airlines can flip that narrative without compromising on their profits. They can resell any released seats at a sky-high price, which maximises revenue while rebalancing passenger loads and eliminating drama at the gate.

'Triple win'

Operations are streamlined, with fewer gate agents doubling as a front line of customer support. And passengers get rewarded for flexibility well before they leave for the airport, if – and only if – they're up for it. It's what Volantio's chief executive officer, Azim Barodawala, calls a "triple win."

Overbookings aren't the only type of disruption that can shatter your best-laid travel plans. Airlines are frequently forced to swap larger jets for smaller ones; weather delays and cancellations regularly wreak havoc on schedules; and mechanical issues often leave passengers stranded at the gate.

JTV's Simi suggests one common scenario in particular: hundreds of passengers displaced after a major storm. Flights are booked solid for days. How do you get more of them to their destinations faster, without empty seats to fill?

Every regularly scheduled passenger that accepts a voucher or mileage bonus to delay travel could open a seat for someone who's already been delayed. (Simi says JetBlue has no immediate plan to roll out Volantio's technology but is considering this use case for future deployment.)

Barodawala would agree that Volantio's potential is just as big for consumers as it is for airlines. As a frequent flyer himself – he clocked 291,000 miles in 2017 – he knows that the pain points associated with air travel begin with the shopping experience.

Volantio helps, he says, because "flexible passengers receive a benefit for changing their travel plans, and last-minute travellers are able to access flights that otherwise would have been full."

Plus, the whole process happens quickly, a few days ahead of departure, and entirely via mobile notifications; no call centres or waits in line are required.

Where you'll see it

So far, Volantio has launched with Qantas, Iberia, Volaris, and Alaska Airlines. More are coming soon: "We're hoping to have nine to 12 airlines using our platform by the end of the year, and we have a pretty strong pathway to reach that goal," says Barodawala, referencing strong interest among major US and international carriers.

Volantio's investors will also help deploy the technology far and wide. JTV, for instance, is now developing technology not just for JetBlue, but for partner airlines around the world. "Every major airline in the world is looking at us for access to innovative technology," she says.

A core group of five to six airlines will soon be named as JTV's initial partners, and Simi believes that "Volantio will benefit from all of those airlines almost immediately."

Also notable: IAG is actively identifying opportunities for Volantio across its portfolio of airlines, which, in addition to Iberia, include British Airways, Aer Lingus, and Vueling.

Early feedback

A spokesperson for United, the first carrier to adopt the technology as part of a pilot program last summer, tells Bloomberg that its test phase has concluded and feedback is under review. The airline says it's simultaneously "reviewing results from that test, along with other opportunities."

Iberia, meanwhile, has decided to double down on Volantio's platform.

After a trial run, parent company IAG participated in Volantio's latest fundraising round, saying that "the majority [of our customers] considered it positively as it gives them an even broader set of choices and opportunities" and that the company is "in the process of testing for more opportunities across the Group."