Flight Metasearch – Show me the Money!

With new flight metasearch engines from TripAdvisor and Travelzoo, and some great discussions about travel metasearch on UpTake and Dennis Schaal’s blog, there’s a consensus emerging that the future of travel metasearch is providing a user experience that simplifies a la carte pricing (baggage fees, drink fees, etc). These same people and many of my industry friends are convinced that flight metasearch’s revenue per visit is set to decline dramatically, as OTAs are not charging booking fees and thus cannot pass this revenue upstream in the form of lucrative CPC payments.

I thought a lot about flight metasearch monetization strategies when I was at SideStep, especially how to make money if OTAs were no longer the cash cow. I surmised that metasearch revenue must ultimately come from the entity at the end of the food chain – the airlines themselves. But the challenge is that major airlines feel entitled to the bookings originating from metasearch engines (as evidenced by the AA/Kayak dispute last year). Worse, airlines are not profitable, so getting them to write checks is no small feat.

My proposed solution is for flight metasearch engines to deliver airlines incremental revenue, not just fill seats.

To do this, they should provide an interface and merchandising capability for airlines to present value-added, revenue-enhancing a la carte options to the consumer at the time of multi-airline purchase decision. Instead of providing tools to decipher the a la carte items that I used to get for free (like Tripadvisor does), I want to see new options that give me value that I’ll gladly pay for: award accelerators, upgrades, empty next-seat priority, emergency row/bulkhead priority, zone 1 boarding, lounge access, etc. These items have extremely high gross margins, as they essentially cost the airline nothing, once the appropriate yield management and offer pricing systems are put into place.

For example, let’s look at discounted, one time access to an airline’s VIP lounge. A day pass generally costs $50, but I bet the marginal cost of each visitor is only $10. So, if the airline had an algorithm that looked at the number of flights at the time I’m departing, how long I’d be using the lounge (time between my flights), the number of tickets issued to lounge holders at those same times, the capacity of the lounge(s) I’d be using, and the historical delays given the weather that time of year, they could offer me a discounted pass – say $25. I win with a better flight experience and the airline wins with $15 of additional margin. If this offer popped up along with a ticket price on Kayak, I may even be tempted to switch airlines and pay a higher per ticket price. And if Kayak was successful in selling this product, as an airline, I could give them a very hefty revenue share and still walk away with a net profit.

An under-the-radar company Nor1 is apparently hitting the cover off the ball with their eStandby product, which sells contingent room upgrades, early checkouts for hotels and, soon, contingent upgrades for other types of travel suppliers. Hotels win because they get additional revenue (without cannibalizing other revenue streams), and the customer wins by getting extra value at an attractive price. I expect Nor1 to prosper (especially as long as occupancy rates remain low and there are a lot of contingent upgrades to sell and fulfill.)

It’ll be up to the metasearch engines to partner with forward-thinking airlines to offer similar types of upgrades and value-added amenities on a confirmed or contingent basis and tap into this lucrative revenue stream. I bet JetBlue or Virgin America will be first.

What value added amenities would you pay for, and how much?