An airline can essentially create a new ancillary on Monday, decide how to price it and bundle it on Tuesday and, in practical terms, have it online and selling by the weekend. Success is all about speed and flexibility, says Air Black Box’s David Vis.
For most airlines, ancillaries – e.g., the extra fees for checked baggage, food ordering, priority boarding, etc. – can comprise 25 percent of revenues. And for long-haul, low-cost carriers (LCCs), ancillaries can encompass 40 percent of total sales, notes David Vis, a co-founder and director of growth for Air Black Box, a provider of cross-merchandise management software for airlines.
As fuel costs continue to rise and the margins on bookings remains as thin as ever for airlines, being able to better sell ancillaries is already a matter of matter of survival for most carriers.
That’s part of the promise Air Black Box is making to its airline clients, which is largely focused on serving growing Asian LCCs such as the Philippine-based Cebu Airlines, Singapore’s Scoot, Thailand’s Nok, South Korea’s Jeju Air, as well as North American brands such as Atlanta’s World Airways and Canada’s Flair Airways, which is based in Edmonton, Alberta.
777 Partners' Acquisition And An American Expansion
“The differentiation point very simply is that with Air Black Box, we provide a platform that allows airlines to do managed interlining,” says Vis, who recalling the pain points the company wanted to address during formative discussions in the Seattle kitchen of the company’s co-founder and Timothy O'Neil-Dunne in 2011.
In March, 777 Partners, a Miami-based investment firm, acquired Air Black Box for an undisclosed sum. In 2016, Air Black Box received funding from Japan’s ANA and Cebu Pacific, which followed a previous investment from Scoot and Nok.
Clearly, 777 Partners believes it can expand Air Black Box’s business in North America and has helped align it with companies its invested in over the past several months. Around the time of the Air Black Box acquisition, 777 Partners made an investment in Flair. And in October 2018, the firm announced it was relaunching World Airways with a fleet of Boeing 787 Dreamliners four years after the Atlanta carrier ceased operations.
“Having a common investor between us and Air Black Box allows us to find products that we can dynamically price as well as develop cross product sales for items that are not normally associated with airlines,” Flair CEO Jim Scott told Kambr Media in an interview during the Aviation Festival Americas in May. “There’s a sense that airlines have 'maxed out' in terms of ancillaries. Now we have to look at the retail that's ‘non-airline,’ but still has a clear value proposition for the passenger. So Air Black Box is our secret weapon to improve our ancillary revenue even higher than it is right now.”
As for Vis, he’s brought decades of experience in online travel from the first days of Amadeus’ online travel service, to working for several major airlines, creating major destination portals like LasVegas.com and more recently, the front-end for the Value Alliance in Asia, which bills itself as “the world’s largest low-cost carrier alliance.”
Kambr Media: What is Air Black Box and how would you describe its mission?
David Vis: It’s these simple questions that are often the most difficult to answer.
Perhaps the best way to approach this is to say where we are now: Air Black Box, simply put, is a platform that allows any airline to easily cooperate and sell products with any another airline — or several airlines — connecting inventory and providing the tools to sell a viable itinerary, plus seats, meals, baggage, and any other ancillaries the airlines care to sell. And this occurs all under the airline’s brand. Because we work with airlines, we call this “managed interlining.” Managed interlining is different from what you get on many travel sites that assemble itineraries from various airlines, which is usually referred to as “virtual interlining” — which is actually interesting because “virtual” means “pretend” or “illusory.” Which is accurate.
So with managed interlining you get most of the benefits of a traditional interlining product because the trip is protected by participating airlines. They’re aware of the sale and because they’re cooperating in this managed interline process, they’ll cover the passenger if things go wrong.
And things can go wrong. Maybe the first flight is delayed. Maybe the second flight is cancelled and moved to the next day. Maybe the bags have missed the flight and are marooned at a connecting airport. Maybe long lines at the airport cause the passenger to arrive at the boarding gate after it’s closed, and that, as most travelers will tell you, is a terrible feeling.
Traditional flag carriers have long offered interline service and code-sharing, but it took lots of work and lots of money to get there. Low-cost carriers don’t have the resources to do this and frankly, it’s not necessarily part of their business objective. But Air Black Box can make these connections relatively quickly and at a far, far lower cost. We’re talking weeks — maybe several months at most — not years. So now low-cost carriers and full-service carriers can have a clever idea and they can act on it quickly and cost-effectively. They’re no longer constrained by their infrastructure because we can connect to any PSS. We’re working with LCCs who can now serve as a feeder airline for an FSC, and vice versa (FSCs that want a feeder partner).
How has that mission evolved up to the acquisition by 777 Partners?
We’re customer-driven and we have a unique product; this is the value 777 Partners identified. We were self-funded before and our limited resources meant we struggled to deliver and innovate and sell at the same time. With 777 Partners on our side, we don’t struggle anymore. We can support our existing clients and have the resources needed to not only seek out new customers, but to deliver product on many fronts at the same time. This may seem like a given for an established company, but it’s all new to us.
Our mission hasn’t changed, we build when the customer asks for it and we dedicate some of our efforts to creating entirely new solutions to problems that have dogged the industry for decades.
How do you expect Air Black Box’s value proposition to evolve following that deal?
About seven years ago we were working with a top-rated airport in Asia — Changi — that wanted to provide several of its LCCs with a tool that connected their inventory transiting through that airport. Some of us had already been working on a solution that connected LCCs to each other, so it was a good fit. We built it and it worked.
But we didn’t get a lot of traction after that for organizational reasons and shifting business goals, not technical reasons. And it was then that we began talking to a group of Asian LCCs that wanted to form an alliance. They were each champions in their home markets but didn’t see much growth beyond that unless they could expand through partnerships. And as a partnership, those airlines spanned a huge geographic area.
How did that partnership develop?
Turns out they could actually stand toe-to-toe with the big guys. So not only was the Value Alliance born out of that, but the alliance has actually credited Air Black Box with making the alliance possible. There was no platform in the marketplace that allowed them to connect and cooperate with the degree of integration that we provided. So today you can fly from the remotest corner of Asia to the other remotest corner, all on a protected, managed interline ticket, and you can buy seats, meals, bags and other ancillaries for the whole trip. There are alliances that have been in business for decades that still can’t do that.
And the same basic platform is used for the Value Alliance and on each of the individually branded airline sites.
And the whole thing is paid for with one credit card transaction for the customer, all with the right amount of taxes applied in the right places and in any number of currencies. As an aside… when you buy an itinerary on a service that’s assembling itineraries without consent of the airlines, each leg is viewed as a separate journey. There’s a different tax structure for flights that are part of structured, managed interline because the product is sold as a transit ticket. With services that assemble individual tickets, a higher tax rate is applied because passengers pay a departure tax for each airport. Travelers are paying an additional, unwarranted tax. So yes, the overall ticket price might be cheaper than an FSC offering, but on one example I did out of the UK to the US, that extra amount added up to about $70 — that was for a round trip.
We’ve since added additional services like the ability to flag and sell distressed inventory, and things that would appear simple but aren’t, like selling a direct flight in one direction and multiple legs on the return or allowing one alliance airline to sell an itinerary on its partners only. It’s never simple.
What’s your sense of the state of investment in travel technology aimed at the airline sector? There appears to be more and more investment activity in the space — what do you think is driving it?
I can’t really speak to that in detail, though I would agree in general terms. Not so long ago the airline industry as a whole was struggling and mostly losing lots of money. That’s changed. Now that airlines are making money again, we’re seeing is a general push to upgrade and improve — to make up for lost time.
There has been a lot of debate about whether ancillaries have gone as far as they can go – what do you think? What else could be added? How does Air Black Box help solve the issues surrounding the management of ancillaries?
Well, for the airlines we talk to, the issue hasn’t been so much creating ancillaries, it’s been how to sell them and bundle them and separate them price them. Our platform handles ancillaries quite easily. It’s what it was designed to sell. So an airline can essentially create a new ancillary on Monday, decide how to price it and bundle it on Tuesday and, in practical terms, have it online and selling by the weekend — maybe a little longer if you want it in several languages. We’re all about speed and flexibility.
It's funny, but it sometimes seems that we spend more time and effort convincing people that it works than it takes to implement.
To your point: Ancillaries aren’t a nice-to-have option for LCCs; they’re obligatory. Without ancillary sales they die, simple as that. This capability is what gets Air Black Box to the table.
Is it fair to say that the commercial aspects of an airline have grown more complex than they used to be?
Yes, I would agree with that statement. This is why we see such a drive to simplify — ONE Order, blockchain, NDC, a simpler way to handle thru-bags, etc. And part of the complexity is being driven by diverse sales channels popping up all over the place and the increasingly diverse travel products travelers are asking for.
Airlines used to sell their own tickets and they had deals with travel agencies for the same. Now you have meta sites and online travel agencies that are sometimes — even often — selling airline products without the airline having any relationship with the seller or the airline it’s sharing an itinerary with. And this can be dangerous, because the traveler thinks differently. They've bought a ticket on Airline X and they show up with certain expectations. When find that they have to pay for the boarding card, or pay for the bag, or they’ve paid for the bag but the airline has no knowledge of the transaction and asks to be paid again, and then they have to shuffle to and from one line to the next and end up missing a flight with no refund and they have no recourse, the blame can fall on Airline X which is, in fact, completely blameless.
It’s quite difficult to explain all this to a passenger who, for example, suddenly finds themselves at a transfer airport and being denied onward travel. You can imagine how that feels.
So now airlines not only operate within an extremely competitive, complex and regulated marketplace, but diverse distribution models are throwing them ever-new complexities. Our goal has always been to provide airlines with the tools they need to adapt. We can’t do everything, but we’ve got managed interlining and ancillary sales nailed.