Venture capitalists are turning their sights on airline distribution. Duffel's backing by VC firms Index and Benchmark brings hope to the sector. New ideas and technologies may help create more efficient and user-friendly ways for travel agencies to access airline data to sell tickets and other products.
A little-known software company that helps airlines sell their tickets has quietly amassed more venture capital funding than all other next-generation airline distribution startups that aim to route around traditional travel distribution go-betweens.
Duffel said Monday it had raised $30 million in a Series B round of investment. That brought the London-based startup’s funding total to $56 million
The size of Duffel’s funding haul is less notable than that Index Ventures led the Series B. Index has seen several of his portfolio companies list on public markets in the past couple of years, such as digital-payments processor Adyen and digital storage provider Dropbox.
Duffel’s Series B is also notable for coming merely a few months after Benchmark Capital, which famously invested early in Uber in 2011, participated in a Series A round. Duffel, founded in 2017, graduated last year from the Y Combinator startup accelerator, which has produced many startups, including Airbnb, Hipmunk, and Airhelp.
Duffel also catches notice for having signed up several airlines, including major ones like American Airlines, British Airways, Iberia, and Lufthansa, and mid-size and budget carriers like Aegean Airlines and Vueling.
A Wave of Upstart Players
For years, American, Lufthansa, and other airlines have innovated in how they sell their fares on their sites and mobile apps. But they’ve struggled to build the digital pipes, so to speak, to let agencies and other e-commerce companies sell tickets in similar ways. They’ve been looking at young companies to help them.
Duffel is one of several upstart companies looking to bring current technology, processes, and commercial models to the tradition-bound business of distributing airfares. These companies enable travel agencies to plug in directly to airlines’s reservation systems so that they can access real-time airfares and seat availability to make bookings and sell extras like the right to check a bag.
Duffel joins other next-gen distribution companies including Flyiin, Kyte, PKFare, Sqiva, and Verteil in attempting to reinvent how airlines sell tickets through third parties. The blockchain effort Winding Tree has also tackled some parts of the problem with airlines like Lufthansa.
Surprising Venture Capital Interest
Venture capital’s interest in airline distribution is surprising because the hidebound sector hasn’t produced winners at the scale and speed that investors like.
Other companies have pioneered the space. In 2015, Ctrip acquired early player Travelfusion for $160 million, while Sabre has spent the past year attempting to acquire Farelogix for about $360 million. This year, Etraveli acquired Tripstack for an undisclosed sum.
Venture capitalists may not understand that technology seems to be less of a factor holding back airline sales innovation than commercial disputes.
For years, airlines have paid a relatively fixed booking fee for volume sold with contracts based on quantity rather than per ticket. More recently, under so-called private channels, airlines have tested new models to reward tech companies that support the upselling of ancillaries and higher-priced tickets.
Early on, Travelfusion charged airlines a fee per booking. Others have copied that model. But it hasn’t appealed much to airlines. If Duffel can hit on a better model, that might be as important as any coding it does.
The Duffel Difference
Duffel has only 18 airlines signed up, and only two travel management companies testing it. So it will be a hard slog to get to, say, 200 carriers and the half-dozen largest travel management agencies, experts said.
Duffel’s co-founders said they could get to profitability with more modest targets.
On the demand side, Duffel is targeting “new digital and mobile travel agencies” who are more receptive to doing things in new ways, though it is also working with traditional travel management companies.
Examples of the new agencies it has in mind as a category include multi-day tour planners Tourlane (which has raised $81 million to date) and TourRadar which has raised about $61 million. Companies that could boost sales by adding air travel to their product include music ticketing companies like Festicket, which has raised $30 million.
Duffel’s co-founders are betting that to get to the first phase of sustainable business, they don’t need to sign hundreds of carriers. E-commerce companies like, say, a concert ticketing service, merely need some airlines with geographic coverage on major routes to be usable.
New Ways to Sell
In modest and targeted ways, the next-gen airline distribution companies nibble away at the market share of the four established distribution middlemen tech companies, Amadeus, Sabre, Travelport, and Travelsky.
The air sector has been undergoing a channel shock. To simplify, airlines have been building application programming interfaces, or APIs, to make it easier for outside developers to plug in. The data feeds can be used instead of ones based on an older programming language called Edifact, a common but complex and limited way to communicate — limiting the number of travel agencies that can present airline fares in the branded ways they want.
For their part, the established travel distribution companies have been attempting to work with the carriers on innovations. But haggling over commercial terms and who pays for the tech investment hampers progress.
To woo airlines, Duffel has taken part in so-called “implementers forums” and hackathons run by the International Air Transport Association. They’ve learned how to make the best use of the so-called new distribution capability promoted by the trade group.
All of these companies have taken different approaches and have varied priorities. But they all broadly aim to circumvent existing players and processes in distribution.
The various startups vary on a few points, experts said. Most of all, they differ in how deeply they integrate with the airline data feeds. Some do a savvier job at coping with the complexities associated with each airline. Some are better, too, at managing the differences across all of the carriers.
The companies also differ in their skill of simplifying what travel management companies and other resellers access, see, and use. They vary, too, in their level of industry experience and understanding.
Amadeus, Sabre, Travelport, and Travelsky will likely shrug off the new upstarts. They will likely see Duffel and other players as merely the continuation of a trend of so-called disintermediation that has mostly focused on short-haul leisure tickets.
Airlines have used companies like Travelfusion and Farelogix to shift some of those volumes into their direct website and direct connection data feeds for travel agencies in their home countries. But the global distribution systems have held onto their most lucrative business, which is long-haul business travel, as John King, head of European technology at BofA Merrill Lynch Global Research wrote in a report to investors earlier this month.
The travel tech giants also tout the mammoth expenditures they’ve made to offer computing power that can deliver a fast response for airlines and agencies who face surges in computing demand. Another sticking point is integration with travel agency back-office systems, a significant hurdle that Duffel has no real fix for yet. But Domin said the first agencies it has integrated with had modern, non-legacy back-office systems and the connections were relatively painless.
Photo credit: Passengers at a boarding gate at Frankfurt airport in a photo take in 2017. Lufthansa is one of the airlines distributing airfares via Duffel, a new travel technology distribution service. Duffel, a company that helps airlines sell their tickets, has quietly amassed more venture capital funding than all other next-generation airline distribution startups. Gregor Schlaeger / Lufthansa