Skift Take

This startup has the JetBlue Tech Ventures seal of approval, which means something in the travel space. But we're not sure why consumers would rather receive a gift card for airplane hours, than a gift card worth cash.

Many retailers this time of year prepare for the festive season, shipping gift cards to consumers who may, or may not, redeem them. It’s big business — worth well over $100 billion annually, one study reports — but not a major emphasis for most airlines.

Many do offer gift cards. But they’re not major players, and according to data from Wallet Hub, only one U.S. carrier — American Airlines — offers one of the 50 most popular cards among U.S. consumers, at No. 47, behind such brands such as Red Lobster, T.J. Maxx and Old Navy. Amazon is the market leader, the study reports, with Visa, Wal-Mart and American Express not far behind.

One start-up, however, wants to change that. It’s called Skyhour, and it works differently than the typical gift card. Rather than being worth a set cash amount at one retailer, Skyhour’s credits defray a set number of flight hours for the recipient. Each flight hour costs $60 and can be used on more than 350 airlines worldwide.

Skyhour borrows its model from the private jet industry, which charges by the hour (usually thousands of dollars), rather than by flight. A customer who receives $180 worth of Skyhour credits, for example, would receive enough to fly for three hours on a major airline. Skyhour measures how long a flight takes based on  the time between scheduled push back and arrival, so a flight from San Francisco to Los Angeles, which may take only 50 minutes in the air, may require 90 minutes worth of credits.

The company, which started about a year ago, would probably be just another start-up in a sea of them, except for one thing: JetBlue Tech Ventures, the airline’s funding arm, has invested in it, promising that “Skyhour has a vision to create the ultimate air travel currency that powers travel across platforms and industries.” Like any venture firm, JetBlue Tech Ventures will have many failures, but the fact that the airline has vetted and invested in Skyhour probably makes it more viable than most young companies.

It has already had some success, notably a deal with Honeyfund, a company that allows brides and grooms to set up registries for things they actually want, such as travel, rather than plates or silverware. Through the platform, wedding guests can give Skyhours to the couple, perhaps to defray the cost of a honeymoon.

How it Works

Despite talk of disruption, Skyhour’s model is simple. When a customer redeems hours, the company buys a revenue ticket using a direct connection to Sabre. Often, it costs Skyhour the same amount a regular traveler would pay.

“Everything happens the same way as if you are booking on an OTA or an airline,” co-founder and chief technology officer David Nogueira said in an interview. “It is immediate. There is no delay. The airline usually has no idea. Some airlines do, but most of the time the airline has no idea the ticket was purchased through us.”

On first glance, it would seem Skyhour would be setting itself up for significant losses, as unlike for private jets, price has little correlation with flight length. Because airline pricing is based on supply-and-demand, some long flights are cheap, and some short ones are expensive. But Skyhour has protected itself against customers seeking to redeem one hour for an expensive ticket. If it calculates it would lose money, it doesn’t show the option.

As a result, Nogueira said, the platform shows about 93 percent of possible flights. But he said it’s generally not a problem, as most of the consumers Skyhour hopes to attract book trips far in advance.

“We are for sure not a last-minute platform,” he said. “We are not a budget travel or a travel deal platform. There are a lot of startups out there in that space, and they are out there in that market.”

Is There a Niche?

Nogueira said the company is building a niche among people who want to give the gift of travel, but don’t want to send traditional airline gift cards. Many, he said, don’t want to limit the person who receive it to flying just one airline, like American.

“Essentially you are not giving the person the sky or the world,” he said. “You are just giving the person the American Airlines world. What we want is for someone to be able to dream to go anywhere. We don’t want to limit people.”

But if there are no deals, and Skyhour simply goes out and buys tickets for customers, the company’s value proposition may not make sense, travel industry analyst Henry Harteveldt said. He noted current gift options work fine, including credit-card gift cards that can be used everywhere, and are probably easier for customers to understand.

“Why would I do this as a opposed to buy somebody a gift card or simply the ticket on an airline?” he asked “I can certainly see how Skyhour makes it easy to give people the travel credit that they want, that they can spend on any airline, but if you are trying to give someone a travel credit, why give them jet hour credits as a opposed to a gift card or an Amex or Visa or a gift card potentially sold by a travel agency?”

Harteveldt also asked whether consumers understand the concept of jet hours. If they’re given a gift card worth money, they know how far the money can take them, even if it won’t defray the full ticket cost. But hours are trickier.

“Skyhour is a product with an unclear value proposition,” he said. “It is just full of awkward moments. Someone will say, ‘I want to go here.’ And you’ll say, ‘OK I am giving you three hours of airline travel time. OK, great. So you get me to the middle of the country or over an ocean? Then what I am supposed to do?'”

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Tags: airline innovation, jetblue technology ventures

Photo credit: Skyhour lets consumers buy gift cards worth one hour of flight time. JetBlue Tech Ventures is an investor. Skyhour

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