Q&A: Alex Mans of Flyr Labs on acquisitions, airline strategies

Flyr Labs has been on an interesting journey in recent years. Starting as a B2C company to help consumers find the best airfare, the company caught the attention of Amadeus and JetBlue Technology Ventures.

It then pivoted over three years ago to a B2B revenue management company for airlines.

More recently, Flyr Labs attracted $150 million in Series C funding and made a string of acquisitions in Faredirect, xCheck and, mostly recently, Bonanza.

PhocusWire talks to Alex Mans, CEO of Flyr Labs, on his vision for the company, acquisitions and the current climate for airlines and technology investment.

You acquired Faredirect and xCheck last year. Were they opportunistic or giving you something you needed?

We started as a revenue management solution, helping airlines provide better pricing automation and by doing that increase their revenues. We very quickly saw airlines adopt our technology specifically our forecasts and our data platform and reporting systems to also drive other processes across the airline, across marketing teams, across network planning or capacity planning.

As we started seeing the adoption of our technology in other areas of the organization, we realized we had an opportunity to work not only with a broader set of users across the airline but also to build out our teams and our expertize in those areas to help us do that. So, we acquired Faredirect to help us apply everything we’re doing in core fares and fare brand pricing to ancillaries.

Then as we started seeing marketing teams use our solution to optimize how and where they use their marketing dollars for best returns, we acquired xCheck mostly because they had an existing solution that helped airlines connect their revenue management system to their advertizing channels.

We also acquired Bonanza, a small acquisition but a very important one, a team out of Amsterdam with a lot of expertize in the offer management and distribution side.

Those are very targeted acquisitions that help us both support our customers in areas where we already saw them adopt our tech and also acquire the skill sets and expertize around which we can continue to grow.

You will see in the coming months that we will continue making acquisitions, somewhat similar to those, where we acquire small and midsize companies that help us better support airlines in areas they are already working with us on or they’re interested in working on and where we can more rapidly grow the team because a big effort for us is scaling up the team.

Are there gaps you’re looking to fill with acquisitions?

If you look at the vision for the company, we switched from being a revenue management system to doing that but becoming a revenue operating system looking at how you drive commercial decisions across the organization with a common set of technology and a common platform that is used across the airline without the traditional silos that span data and forecasting.

That expansion continues to go at a rapid pace. I expect we will make some acquisitions in areas such as offer and order management, areas such as distribution, data to some extent.

One thing we observe is that, while we ingest all of the airline’s commercial data and we map it, clean it and manage it in a very cohesive, normalized format, that was designed to feed our technology and our downstream systems, airlines are telling us that if we’ve consolidated this data in one place, and it’s all so well managed, can we feed it back to them and can we also ingest other data sources, not necessarily related to revenue management systems or forecasting but the airline would love to have in the same data warehouse?

So, data is a further area we are looking to expand or accelerate through potential acquisitions.

Then, separate from the revenue operating system and decision support that we are for airline commercial operations, we are closely looking at areas that are on the front end of the airline operation - how do we better influence and more impactfully influence what customers end up seeing on the airline’s dotcom, or how do we better package and price things the customer is seeing, how do we bring that retail experience in modern commerce to the airline.

If you’re deciding what to sell and how to price it, you’re in a great position to get that information out to where the customer is looking for it.

With all these expansion plans, how far does a $150 million Series C go towards fulfilling that vision and doing what you already do?

There’s two parts to that. Our core business is growing very quickly organically. The primary reason we raised Series C was because we started lining up so many new customers that wanted our technology to be deployed that we needed to scale up our capacity.

That means we were planning to scale up against revenue backlog which is one thing investors love. It’s one thing to be selling a business that has a vision and an estimate of a total addressable market, it’s another thing to be able to scale a business to be able to meet demand, that’s primarily what drove our Series C.

The reason airlines have been lining up in excess of our capacity is mostly because, even before Covid, whenever something dramatic happens in a singular market or whole network - whether that's a new competitor, a promotion campaign, a hurricane or Covid - traditional systems are unable to forecast what is going to happen.

Traditional systems always relied on algorithms that try and plot the year-over-year trend or the historical trend. The reason why those systems are so limited in what they can forecast is that they look at the data available on a single route and there’s only so many seats on a plane, those seats arrive over a long period of time so any one or two bookings arriving does not really change the forecast.

We apply deep neural networks, a form of artificial intelligence, that are really good at understanding how every route, every flight and every piece of data relates to each other. Once you start to correlate how much the Seattle to Boston route is similar to the Los Angeles to New York route on Tuesdays, once you understand a correlation, you’re no longer limited to those 150 seats, or 150 data points on that flight.

You can suddenly start using all data across the network and attribute it effectively to more accurately understand what’s going to happen.

So, because airlines didn’t have accurate forecasting, because they were basically managing their pricing through manually through rule control they were looking for automation.

We have a policy at the company where we do not deserve or expect to be paid anything until the day we have proven that we are incrementally driving revenue on top of whatever the legacy incumbent set up used to be.

So, with everything you’ve said, how far does $150M go? You need those kinds of sums to operate the way you do, so you’re going to be, if not already, looking for more?

It’s a fair assumption, I can’t say too much but our growth has continued since the Series C. If anything it has accelerated, so has our opportunity and our customer pipeline, so we certainly have opportunities to further capitalize the business and we absolutely will and I’m sure there will be some more on that in the next six months or so.

Flyr Labs received investment from both Amadeus and JetBlue in the early days, how has that helped you?

I moved to Silicon Valley about eight years ago and have always been a huge aviation geek. I wanted to set up a company on the intersection of aviation and AI. Initially the company we started forecast the price of airline tickets and helped consumers optimize when to buy their ticket - this was before Hopper and the like.

So, we built the technology and the products and Amadeus invested in that cycle of what we were doing. About three-and-a-half years ago, as we pivoted supporting airlines instead of consumers, Amadeus exited the business.

JetbBlue invested when it first started JetBlue Technology Ventures. It has been a strong partner ever since the early days and was actually the airline that helped us get exposed to the back office operations that are driving revenue management and pricing. That was really helpful in making the switch to being a B2B organization.

You often talk about changing the way the industry earns revenue, can you explain more?

It’s part of a broader trend. If you look at airlines, you already see low-cost carriers' reliance on ancillary transactions or purchases or fare brands has already started increasing over the past 10 years.

Now, over the past three to four years, you have seen that trend adopted by hybrid and full-service carriers, everything has been itemized or atomized.

The challenge is that with traditional revenue management and forecasting, everyone has always been focused on how do we forecast and price the fare within the construct of ATPCO filed fares and booking classes to legacy systems very focused on trying to treat a pricing problem as an inventory allocation problem.

So, instead of asking what is the right price they‘ve been asking what letter do I put the seats in. Not only is it incompatible in a world where you want to do dynamic pricing on your fare, it is incompatible in a world where you want to do dynamic packaging of all these ancillary products and bundles.

As we’ve built a business we’ve made sure we are just as easily able to price and forecast the fare or any other product or ancillary or combine those to make sure we optimize for total revenue.

That’s the future of this industry because to one customer you might be able to sell a cheap fare and $50 of ancillaries but, to another you might be able to sell $120 fare and only $5 of ancillary, because it’s a very different type of customer and understanding the difference and being able to assemble effectively the offer for total revenue management, is where things are headed.

I think you can draw that line further into the future with non-airline products such as hotels, rental cars and activities as you’re starting to see these airlines with products such as JetBlue vacations and Delta vacations that are much generate much higher margins.

What’s it like out there when you’re talking to airline partners? What are their priorities?

Everyone is currently in the process of digitization. If you look at many airlines it means upgrading the PSS, making sure you upgrade your reservation systems. With many airlines it means finding ways to disconnect or unconstrain their merchandizing layer, their retailing layer from the legacy technology. They're asking how they can enable the dotcom to serve more customers in a better total revenue focused manner.

A lot digital transformation is going on and I would say a lot of that is still targeted at the underpinning foundations. How do we shore up the foundations to unconstrain us from the legacy constraints that has held us back and behind other industries? That investment is ongoing.

If you look at how we fit in there, data is really important, many of our partners, look at us as a way to accelerate their digital transformation journey. We can give them better data management, forecast and better decision support right away.

That has really helped us because airlines are trying to reconcile the extreme amount of money and time it takes to underpin the foundation, with needing solutions now. We’ve been able to give them those solutions today, that acceleration while in back end they work on these upgrades.

I would say that the industry will spend another two to three years from today on continuing to invest in that foundation to upgrade their reservations systems and the like.

Alex Cruz, the former CEO of BA criticized airlines for being naive digitally in terms of consumer expectations but also in continuing to focus on the PSS and those core systems, are they naive in their mindset ?

Historically the powering of the dotcom, the distribution system, whether NDC or GDS as well as the bottom layer, - the foundation, the PSS infrastructure layer, those have typically been controlled or provided by the same legacy vendor. That’s always been a challenge and also part of the strength of these particular companies. They’ve controlled the exit and the entry.

What’s now happening is airlines are realizing that you are able to disconnect the two. Historically, they would not be open to upgrade one side without upgrading the other or thought they were tied at the hip.

In reality that’s not true, airlines are starting to realize this now and technology and standards like NDC are helping because the NDC standard does not care if it is getting a recommended price or offer from a system like ours or a more legacy system.

So, the one thing that is changing is airlines recognizing they can disconnect the offer, order and pricing and total revenue optimization from the underpinning organization. That’s a really key change that will shake up a lot of the vendor landscape over the next couple of years.

Do airlines have the appetite to invest?

I think so. It’s up to the technology providers, including startups to make it extremely easy to adopt these technologies and extremely risk free commercially. If you look at the startup ecosystem, the biggest challenge for startups with travel has been the sales cycles associated with selling into an airline or other large travel organization. Many startups don’t have time to wait 12 months for negotiating and contract compliance and another 12 months for the bill to be paid.

We’re fortunate in that we can tell the airline we won’t charge them and have the cash on hand to do that but we have seen those cycles reduce. Typically we go from a first conversation to the system up and running in less than six months. That is in part our commercials and in part the industry’s willingness to look at things through a different lens.

People in the industry used to talk about needing to build a set of data before being able to get anything meaningful out of it, does that mean airlines need to start from scratch?

The argument I often hear is that historical data is no longer relevant. That is 100% true if you continue to rely on traditional forecasting methods that are trying to draw the line from recent history into the future, like I mentioned earlier, continuing to look at a single route and its performance in time and trying to forecast the future.

In reality, you can use even recent data, because the one thing it does tell you is correlation. It tells you how different flights and markets and routes and data points correlate to each other and that allows you to become much more sensitive to what's happening in the market and adjust your expectation even if there is very little signal on a single flight.

I might not see any change in bookings on the flight or the market I’m forecasting but because I understand how this market relates to the rest of the network, and I’m seeing changes occurring in the rest of the network, I can adjust my expectations.

Going back to Cruz' comments about airlines and Google having more data than airlines themselves, what’s your view?

I go to Google Flights when I fly from A to B because it’s fast and comprehensive. They’ve done an incredible job at building that and it goes back to the ITA days and there are incredible teams at Google that continue to work on improving the experience.

The thing to remember is that Google makes its money from advertizing, there is nothing preventing an airline from cutting off Google. It is trying to find the balance between having all the right inventory while keeping the suppliers happy. Advertising is a great way to do that.

That’s why Google adopted the meta model where they really are a metasearch engine where they monetize by driving high quality traffic back to the airline. So in my view it’s not so much a question of whether you buy on Google or on the airline because I think, from an experience perspective, they could enable the same but it’s a cost of acquisition difference because the airline has to fork out a fee to get that customer.

Airlines need to invest a lot more in extracting revenue or optimizing total revenue from a customer regardless of whether they came from Google, their own website or a GDS. You’ll start seeing a lot more engagement with customers post booking about extending their experience whether it's lounge access, seat selection, adding a car or hotel or with a branded credit card.

Google is a very effective acquisition channel for airlines and has a cost associated with it but I believe airlines can offset that incremental cost by the fact that customers they are getting are generally high quality.

What are Flyr Labs priorities for this year?

The bigger vision for the business is to build a revenue operating system for airlines.

Our main objective for this year is to continue expanding our core business which is mostly our revenue management system as we also expand decision support across the airline’s commercial organization so by end of this year we’re truly a revenue operating system for airlines.

In parallel we’re spinning up partnerships that help us explore how we can help other transportation verticals because in reality whether you’re going from point A to B in a plane, or car, or train, there is a lot of similarity.

We're spinning up skunkworks, that are independent from our core business in order to not distract us, that are going to work with some key big name brands in those other transportation verticals to map our technology for them.

Over the next two to five years, we’re building a revenue operating system for transportation.

The third piece is helping airlines make that transition in disconnecting of the backend infrastructure from the front-end experience of the customers.