My blogging acquaintance, Guy Kawasaki, is one of the original pioneers of Apple Computer. Today Guy runs a venture capital firm, which means he gambles his own (and other people’s) money on great new startup companies with modern ideas. How much he knows about the travel business is beyond me, but when his company funds a new venture, I pay attention.
On a recent blog entry Guy mentioned www.cfares.com The ‘c’ could stand for “cheap” or it could stand for visibility as in “seeing” fares, but however they chose the name the company’s business plan is great … and may be a big boon to us frequent Philippine air fare buyers.
I’ll pirate a little of Guy’s original post with my own comments added:
Reality Check: cFares
Garage is an investor in a discount travel company called cFares. First, here’s some background info about the travel business: A large portion of airfare expenditures flow through the GDS systems (ie: Sabre, Amadeus, and Galileo). “First generation online travel sites†such as Travelocity, Expedia, and Orbitz rely on available inventory within the GDS supply.
Newer “meta search†entrants such as Kayak and Sidestep go beyond ticket supplies in the GDS systems by also searching directly through the databases of airlines in order to get an expanded array of better prices and tickets. (Airlines do not put all their inventory in the GDS systems—they keep some for their own sites as a way of incenting consumers to come to them directly).
cFares.com also has access to the GDS systems and direct access to airline’s published inventories, but according to the company it stands apart from these other sites for three reasons:
cFares is the first and only online travel site with exclusive relationships that gives it access to the $20 billion of consolidator “net†airfares. Consolidators are travel wholesalers who commit to buy large blocks of inventory from the airlines at volume (also called “netâ€) discounts. They are restricted from selling directly to consumers and have historically only offered these fares to travel agents.
Now this part is really, really interesting. I worked very closely with a consolidator in Japan. It was really two companies, one bought the seats, in cash, from the airlines, on speculation …cash up front and a hope that they would resell at a profit.
The other half of the company was a travel agency which sold the seats. In their main office in Tokyo there was a room with the walls covered in whiteboards, guys constantly changing the prices and seats available to different locations, and a ‘barker’ hollering at the phone agents to “push” certain destinations and alerting them of price changes.
Also, while consolidators have inventory in one system (usually paper or a local computer), they have to access the GDS systems to determine whether a specific fare is actually available. As a result of these technical and business model impediments, consolidator “net†fares have not been brought online. cFares is the first online travel service that has developed technology to allow consumers to find and book these fares—often hundreds of dollars less than found elsewhere—directly and in real time.
I always knew there was a reason I advised folks not to buy blindly from online agents, but I never knew the “why” of the latest prices not being on line on their sites. Now you know.
cFares offers something called “dynamic rebates.†cFares’s proprietary technology allows airlines to know what is happening at the point of sale and lower their prices dynamically to win a specific customer—for example, when they have lots of empty seats on a specific flight. cFares customers get a custom-designed price in real-time and receive the savings from cFares in the form of a rebate to their credit card after they submit their flight confirmation number. cFares has a unique name-your-own-price service called cAgent.
Unlike other name-your-price services, which involve “buying blind,†cAgent provides total transparency so that consumers know the airline, itinerary, and price before they have to pay. Travelers can pick a specific flight and then set up a persistent search for a fare that they are willing to pay. cAgent will seek out that fare and can hold it for twenty-four hours before the customer has to pay. Since airfares typically fluctuate several times during the day, cAgent snags the fare on the downturn.
cFares’s business model is a combination of Costco and Walmart. Anyone can search the site to see what fares are available. People who sign up for free gold memberships can purchase any of cFares low, publicly available fares—this is comparable to the Walmart model.
However, in order to get direct access to cFares’s “net†wholesale airfares, one-of-a-kind deals, and cAgent, consumers must become Platinum members at a cost of $50/year. This is the Costco model where a membership-driven retailer brings consistently low wholesale prices directly to the consumer. With cFares this membership pays for itself in at most two trips.
Pretty interesting stuff I would say, and a darn good explanation of how things in “the business”actually work. Head over to www.chares.com and check things out yourself … and a big tip of the hat to Guy Kawasaki for bring this to our attention.
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