Airline Link Technology Company wants to enter China, can't get around the big mountain of OTA

Written by: TravelDaily Li Jia Yong
2019-07-12

[Global Travel News] In early June, the news of the flight virtual joint technology company Kiwi.com was acquired by private equity giant General Atlantic . Shi Jingkui, general manager of Kiwi.com China, commented in the circle of friends: "The next growth is in China."

The 2,600-person company is headquartered in Brno, Czech Republic. Kiwi.com has previously said that it has only received about $1.7 million in equity investments from angel investors and small venture capital firms, and the total bookings in 2018 have exceeded $1 billion.

In September last year, the airline company Air Black Box (hereinafter referred to as "ABB") was also acquired by private equity fund 777 Partners, and is now replenishing personnel and deepening the business line.

In the traditional mode, if intermodal transport is required between different airlines, it is necessary to sign an intermodal agreement, such as coordination time, baggage transportation, revenue sharing, etc. This cycle can often last for several years. The emergence of "Virtual Interlining" technology enables the airline to book a connecting flight with the right transit time and reasonable price without the need to sign an intermodal agreement.

In addition to startups such as Kiwi.com and ABB, similar flight splicing combinations include OTAs such as Ctrip. Players in this field are generally starting short, each trying different modes. In the words of Shi Jingkui, it is: "We are still children of long body, but we have not yet reached the time to raise our fists."

Three main joint modes

In a white paper jointly released by PhocusWire and Kiwi.com last year, virtual inter-networks were divided into three main modes, based on the differences in technology systems, the types of products ordered, and who was responsible for these bookings.

The first model is represented by Kiwi.com . They access data through the API interface of the cooperative airline, calculate and match flights with technology and display them to passengers. In the background, the airline can only see the reservation information of its own segment instead of the entire link. The airline is not responsible for the flight changes. Kiwi.com purchases insurance for passengers, rebooks alternative flights and accommodation.

The second model is represented by ABB . Their partners are currently members of the Value Alliance, a low-cost airline (hereinafter referred to as LCC). ABB helps the cooperative airlines to cross-sell air tickets and auxiliary products. Mildred Cheong, CEO of ABB Asia Pacific, said that the main focus of the next two years will be on the airlines of the Value Alliance, but also in cooperation with two or three full service aviation (hereinafter referred to as FSC).

Mildred believes that unlike the virtual connections on the market, ABB is doing Real Interlining. ABB allows the airline to access its own Air Connection Platform, which allows consumers to search for and purchase joint-time tickets and auxiliary products on the airline's official website and the value-added official website that ABB has helped to create. In the background, the company can see the entire link information and is directly responsible for flight changes.

The third model is represented by the European airline Easyjet's Worldwide , whose "autonomous connection" technology is supported by the Icelandic travel search company Dohop. In the background, Dohop technically joins different segments. Usually, the consumer's itinerary needs to be transferred through more than a dozen airports covered by Easyjet, and then connected to the next flight of EasyJet or Cooperative Airline. The flight changes are underwritten by the airline.

It can be found that Kiwi.com's model is more scalable and flexible, and the airlines are not responsible for flight changes when the segments are from different airlines. In theory, Kiwi.com's approach is more attractive to Airways. However, because of the need to personally insure passengers, Kiwi.com needs to invest a lot of manpower and resources in after-sales service and operations.

Mildred put forward his own opinion: "When the flight changes, if it is not directly underwritten by the airline company, is the underwriting method guaranteed for the passengers? How to guarantee the quality of service? Sometimes the passengers do not know the splicing principle of the virtual joint, and blame the problem on the airline So that the impression of the airline brand in the hearts of passengers is greatly reduced, how to solve these problems virtual joints?"

LCC prefers the joint technology, but it is difficult to develop it yourself.

For long-haul routes, business people tend to choose FSC direct flights to destinations, free travellers are price-sensitive, and are willing to take the LCC's own stitching itinerary. In addition, joining the same aviation alliance is more advantageous for the signing of the intermodal agreement between the airlines, but the members of the aviation alliance are mostly FSC, and the LCC has signed fewer intermodal agreements.

PhocusWire's white paper mentions that the virtual way of connecting can improve the passenger load and revenue of the airline, and increase the diversity and initiative of distribution. Domestic LCCs such as Spring Airlines, the official website has shown the choice of connections between their flights. However, civil aviation practitioner Zeng Fan (pseudonym) believes that the main purpose of the airline is to sell its own flights, and it is difficult to have the motivation to promote the connection with other airlines.

"Airline companies are big companies, long-term decision-making chains, slow decision-making, OTA or independent startups to do this new model may be more reliable." Zeng Fan said.

Kiwi.com, ABB started from the service LCC, and most of the current favored joint technology is still LCC, but FSC has gradually begun to pay attention to this technology.

For LCC, the auxiliary product is a big source of income. Mildred is proud of his real-time technology. In addition to ticketing, ABB can also cross-sell auxiliary products between different airlines, such as luggage, meals, seats, Wi-Fi and more.

For example, the flight segments in the joint route are provided by the A and B airlines. If passengers purchase the joint route from the official website of the A flight company, they can purchase the meals and luggage of the B flight company on the official website of the A flight company. If the passenger purchases a baggage service with a limit of 20KG, but the baggage limit of a certain segment is only 10KG, the system will automatically handle all baggage allowances to 20KG.

"This system is quite complicated. It also needs to consider the policies and tax rates of different countries and the sales rules of different airlines in different countries. We have already considered these in the early stage when we set up the system. The system can support the ticket and the auxiliary camp. The sale of the product. It is quite certain that we are the first company in the world to do this,” Mildred said.

Plan to enter China

In the conversation, ABB has the awareness to enter the Chinese market, but the specific cooperation model is still under consideration. In contrast, Kiwi.com has launched its China expansion plan since last year and is hiring talent.

Oliver Dlouhy, CEO and founder of Kiwi.com, said last year that Kiwi.com plans to launch a function for Chinese travelers. Passengers provide information on travel dates, departures, city stays, stays, etc., and the system automatically matches passengers. Combine and calculate the most cost-effective ticket. But the above is more similar to Kiwi.com's recently launched C-side product No Mad.

“Kiwi.com is mainly engaged in B2B distribution with OTA in China. For a long time, our core will be B2B.” Shi Jingkui said.

Kiwi.com has reached a cooperation with Tongcheng Yilong and Spring Airlines. Shi Jingkui said that cooperation can not only enable Chinese consumers to gradually understand virtual joint products, but also integrate Chinese data with European data by accessing more API interfaces. To provide consumers with more combinations of links.

Oliver recognizes that Kiwi.com must build strong market influence in the Chinese market, but understands that it is not easy for European companies to enter the Chinese market alone.

Earlier, Kiwi.com had plans to establish a joint venture with an OTA in China, but according to Oliver's interview in early June, the plan has not yet been finalized, and Kiwi.com is likely to need to operate alone.

"To expand the Chinese market, it is necessary to comply with China's national conditions and to localize products." Shi Jingkui believes that localization involves many aspects such as language and payment methods. Kiwi.com has solved the problem of content translation, but Kiwi.com's B2B business personnel are all Europeans. The communication costs caused by language barriers and jet lag are extremely high. The biggest challenge now is to build a capable local team as soon as possible. .

It is understood that Kiwi.com has a call center in Dalian, but mainly provides B2C after-sales service for passengers in Japan and South Korea.

Can virtual joints really solve the pain point?

In early May, Ctrip announced a strategic agreement with Daxing Airport, including the assistance of Daxing Airport in air-to-air and air-ground transport. According to Shi Jingkui's understanding, Ctrip, a similar joint product, has been started since.

Among Chinese startups, iGola partnered with Amadeus in 2017 to create “iGolaFare” functionality using Amadeus' virtual inter-ticket technology, which is similar to Kiwi.com. In general, the virtual link is more prosperous in Europe. Shi Jingkui believes that the European countries are small in size, with a large proportion of international flights and convenient visas, which provides a “soil” for enterprises to innovate in this area.

According to Shi Jingkui, some foreign companies that are much larger than Kiwi.com are actually exploring this field, but it seems that each company has its own "capacity circle" and genes. At present, it seems that it is not doing well, and some even Use Kiwi.com products directly.

However, some insiders have raised such doubts: Can virtual joint technology solve the market's pain points, is it cheaper, or is the combination more reasonable and diverse?

Shi Jingkui admits that the price is the king, is the driving force for development, and Kiwi.com is fighting for a lower price combination. “Kiwi.com not only wants lower prices, but also focuses on how to put the aircraft together with all kinds of vehicles to make passengers go further and the price is better.”

Zeng Fan examines the value of this model from the demand. "There is code sharing between the airline divisions. The aviation alliance also has multiple modes to solve complex problems. In the overall demand, it is not much to meet the 'need to transit' and 'the airline and the passengers can't solve it themselves', and it also determines the virtual joint. The value-added space of Cheng may also be limited."

Zeng Fan gave an example. The Airbus A380, which is based on the super hub mode, is about to be discontinued. It is also because with the development of technology, more and more airlines have the ability to achieve point-to-point direct flights, direct flights increase, and passenger demand for transit flights may be To compress.

How many advantages does a startup have in the face of an OTA like Ctrip? Zeng Fan sees it this way. "If you want to do it, Ctrip has an advantage. But Ctrip has more fat meat to eat, and it won't easily lick the bones."

“The most difficult part of Kiwi.com is the clear profit model. Maintaining profitability, cash, and smooth business operations are important support for future development.” Shi Jingkui is full of confidence in Kiwi.com's further development in China.

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