Airbnb has sold investors on a growth story based, in part, on adding flights and other products. But selling flights is extremely complicated.
Is Airbnb going to put some “air” into its business on the road to an initial public offering? Speculation has mounted since CEO Brian Chesky teased the project in late 2016.
The Information reported last week that Airbnb “held preliminary talks” to buy or integrate with Hopper, the mobile-only fare prediction and flight-booking app that secured a $61 million financing round in December 2016.
The differences between the buy versus partnership strategies highlight periodic tensions between Chesky and Airbnb CFO Laurence Tosi, who favored the tie-in with Skyscanner rather than seeking a flight-search acquisition, according to the report.
When contacted by Skift, representatives of Hopper and Ctrip’s Skyscanner didn’t deny the reports.
“As you know, travel is a pretty consolidated industry — it’s not unusual for us to meet with others who share some commonalities,” a Hopper spokesperson said. “That being said, we don’t have any plans to partner or sell the company.”
A Skyscanner spokesperson wouldn’t address the specifics. “We have a dedicated team whose role it is to engage with many travel businesses within the ecosystem,” they said. “Unfortunately, we are unable to comment on specific commercial conversations.”
The Information report also said the Expedia had been in the running to acquire Luxury Retreats, but Airbnb outmaneuvered Expedia when it bought the upscale accommodations company.
Will and How Would Airbnb Add Flights?
It has been a year since we took the industry’s pulse on the question of Airbnb adding flights. Here’s an update.
Kayak CEO Steve Hafner is open to doing a deal with Airbnb and has broached the subject with the startup.
When asked, Hafner said, “I have a tremendous amount of respect for Brian and Airbnb. We’ve consistently offered to help them enter the flight space. Brian or LT [CFO Laurence Tosi] can call me anytime to restart discussions.”
But other competitive factors might get in the way of his overture. Kayak’s sister brand, Booking.com, recently added flights powered by Kayak. A more important roadblock to a Kayak-Airbnb deal would be the fact that Booking has been competing aggressively in alternative lodging with Airbnb.
Two Likely Paths
If the report is true, it seems like Airbnb is exploring two paths toward adding flights.
One is the online travel agency model. Airbnb might be the merchant handling the sale of flights by buying an online travel agency. It could also establish an affiliate relationship with an online travel agency.
Airbnb might also aggregate flight results that refer customers elsewhere for booking, perhaps by partnering with a price-comparison search company like Skyscanner or Google Flights under a system presented as Airbnb flights powered by a partner.
If Airbnb adds flights, which route would the company take?
“I think they will go the online travel agency route,” said Chris Hemmeter, the managing director of Thayer Ventures, a fund that invests in travel startups. “I have been predicting for some time that the long-term play here is to build a new OTA in a whole new way.”
But Hafner hopes Airbnb take the metasearch — well, the Kayak — path. “I’m not surprised they considered and rejected Skyscanner and Hopper,” he said. “Their services are simply inferior to ours — especially Hopper, which lacks Delta content.”
Hopper responded by noting that it hopes to be able to sell Delta flights soon and that it sells tickets for customers worldwide.
For Airbnb, the online travel agency model quickly gets complicated in Europe.
Due to regulations, if it sold a flight and accommodation as a package in Europe, it would become responsible for providing alternative accommodations in case of any disruptions, notes Lars Denlew an industry expert and consultant who had been head of business development and distribution at Airberlin until its bankruptcy late last year.
Creating metasearch from scratch “is probably the best option for Airbnb,” according to Peter Kutis, the CEO of FinalPrice and former CEO of Russia-based OneTwoTrip, because the other options have greater obstacles.
The Generic Trap
The way Airbnb curates and markets lodging properties and tours and activities suggests that Chesky favors offering something that’s not generic.
But being distinctive in flight search is hard.
One option would be to curate in flights, too. “I think that, eventually, after experimenting, they will end up forming some sort of white-label partnership with one of the existing carriers,” said Oliver Dlouhy, CEO of the Czech-based metasearch company Kiwi.com.
The company should cut deals for direct distribution from several airlines, said Philipp Dietlin, general manager of e-commerce and distribution at Hong Kong Express Airways. “Airbnb should become an ‘airline super-connector’ by connecting directly into the inventory system of each airline.”
Dietlin said the company could take advantage of new technical standards that have just become available in the past couple of years from large airlines and travel companies, called the New Distribution Capability.
Another way for Airbnb to stand out from the crowd might be to bet on a superior user experience.
Airbnb has been broadly ahead of online travel players in adapting and innovating on a chat platform that leverages bots for efficiency.
Airbnb has also excelled at integrations with other messaging platforms, such as Apple’s iMessage.
The company could take the next step and add a slick conversational way of searching and booking flights within the chat interface — which would overlay data it pulls from a third-party.
Flight booking by chat might be a way to stand out.
But it would need data. The more you have vertical integration, such as with direct connections with suppliers, the more creative you can be with the user interface consumers use.
Yet integrations take time — and that could be a factor if adding flights would be a vital selling point for an initial public offering.
“The best and easiest way to get started is to take a data feed from a consolidator or ticket wholesaler, who would negotiate the airline deals and aggregate on behalf of Airbnb,” said Martin Cowley, a Sydney-based consultant and a former top executive in the Asia Pacific operations of travel distribution company Sabre.
“Using the traffic they already get and striking a deal with an existing online travel agency or metasearch to supply content is the best option for Airbnb,” said Brian Gross, vice president of digital innovation at Aeromexico.
A Third Way Via Google?
Google might be an option for Airbnb. In 2016, Google Capital pitched in about half-a-billion dollars of funding in the San Francisco-based startup’s latest round.
Google Capital has often backed companies that have later been said to offer exclusive — though sometimes incremental — commercial value to the flagship Google search company.
One option is ITA Software by Google, a unit that provides an airfare pricing and shopping system that many airlines and travel distributors use. Perhaps Airbnb could get a better-than-average deal on access.
In a separate move, if Airbnb struck deals with a couple of airlines or wholesalers for inventory in a few major markets — in a selective approach similar to its curated tours and activities — it might be able to list the airfares via Google search at rates that are more cost-effective than what competitors could get.
Airbnb could then use the incoming leads of flight bookers to upsell customers on lodging.
If the cost of search marketing for air travelers is cheaper than it is for hotel shoppers, and if it could convert some of the incoming flight shoppers into lodging bookers, Airbnb would have a more cost-effective funnel overall.
Like all companies, Airbnb wants to keep its digital marketing costs down. It has a search engine marketing program for hosts where it adds a single-digit percent fee per booking, which varies by circumstance. The company could use that income toward Google-related advertising expenses.
In this case, Airbnb would innovate in the business model behind flight search. Specifically, it could find a way to acquire and upsell customers that is cheaper — or, at least, competitive with — online travel giants like Expedia, Priceline, and Ctrip.
Airbnb could also “build in some intelligence in the search to offer an easy way to book the flights in connection with the dates of accommodation,” said Denlew. “Flying one or two days before or after your planned departure can, as we know, make a huge difference in cost, but shifting dates also impacts the availability of the best lodging,” he said.
In other words, the company could innovate in a search interface that simplifies how a consumer could see how the decisions for flight and lodging affect one another.
Buy an Agency?
One problem facing Airbnb in buying or becoming an affiliate of an online travel agency is that it may not like the industry’s standard commission structure for flights — which barely registers in the single digits and which doesn’t match with its own models for lodging and tours.
“Airbnb’s best approach is an acquisition of a mid- to large OTA [online travel agency] with a footprint beyond the U.S. because that would eliminate middlemen and enable a maximum commission potential,” said Chris Phillips, a consultant and former managing director of global distribution for Delta Air Lines.
“That would enable direct interaction with major suppliers to create bespoke content where appropriate,” Phillips added.
But buying an online travel company isn’t cheap. While Airbnb may have a few billion in cash to spend on an acquisition, the market capitalization of globally capable online travel agencies that are licensed to operate in many countries is high.
One possible exception is eDreams Odiego, a conglomerate in Europe, that one of our sources speculated a year ago might be a target in an acceptable price range of about $3 billion. It’s current market capitalization is $685 million.
One source expects that eDreams, which has been for sale since autumn, will announce a merger or acquisition within the next three weeks. We have not heard that Airbnb has been checking its books.
There’s one more reason why Airbnb is unlikely to take the online travel agency route: Airbnb has a relatively poor reputation for handling customer service for in lodging, although it is promising improvements.
Adding flights, which are prone to a wide variety of disruptions outside the control of a flight seller, could prove a nightmare for Airbnb’s brand reputation.
Regardless of the path it takes, many eyes will be watching Airbnb’s next moves closely.
Opinions are divided. Some say it should go big or go home.
“Airbnb had a great disruptive model for what it did best, and I don’t see how it can add any value to flight search unless it has a new, disruptive model,” said Brett Snyder, an industry commentator at The Cranky Flier. “Just doing it for the sake of selling air without some big differentiating factor seems like a waste of time that’s destined to fail.”
Others are more cautious. “Airbnb should suppress the temptation to fully disrupt the airline industry right from the very beginning,” said Dlouhy. “It’s simply way more complex than the accommodation, and the stakes are too high.”
Hemmeter has a middle view: “It makes sense to me that flights will find a way into their ecosystem. These guys are not about the rest on their historical successes.”
“And they have very large shoes to fill — their monster valuation!” he added.
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Photo credit: Airbnb CEO Brian Chesky spoke in December 2016 about the company's plans. In one slide, he had a flight icon image that hinted at the company's plans to enter the flight selling business. Airbnb