From a Claim Management Company to a wannabe Airlines’ Best Friend.

Ugo Weyl — CEO and co-founder @Koala

Let’s do it, NOW!

Everything started in January 2017. I remember that day as if it was yesterday, tears dripping down my face while I was saying goodbye to my best friend. Leaving Rio De Janeiro to fly back to Paris. I was waiting for my cab to pick me up when I received a notification letting me know my flight got cancelled.

This was an amazing news for me. 24h more with my friend and one more day of holidays. The news became even more amazing when I read about EC 261 Regulation. I figured out I was eligible to €600 compensation, which was a bigger amount than the actual ticket price. “How cool is that?” I remember telling myself.

The process of claiming compensation took about 3 months and was quite hard to pursue. I even remember my astonishment when the airline representative asked me to send my boarding pass in order to get my money back, which I obviously never had as my flight got canceled before I reach the airport.

Anyway, I ended up getting paid and started wondering how so few people could be aware of their rights. I also asked myself how many people must abandon their claims in the middle of the process because of the onerousness.

At the time I was finishing my 4th year of business studies in Paris. I decided to launch a start-up that would help passengers claim compensations to airlines when they are eligible. We started with nothing, my best friend and me, working all day from my living room (skipping most of the classes at the same time). We reached 10K clients within the first 6 months with 0 employee.

That was a very good start for us (which we did not even hope for).

The False Good Idea

Unfortunately, everything was not that bright. We quickly realised 2 major commercial issues that would be hard to fight on the long-term:

1. Very competitive market with a couple of big players already present. On top of that, there is almost no barrier to entry the market, enabling new competitors to be created almost every day. At the same time, it is almost impossible to differentiate ourselves from others in a meaningful way as we all use the same processes, and all face the same problems.

2. Another difficulty was cash management. We pay our staff on a monthly basis, we pay our digital marketing costs on a weekly basis (only acquisition channel we used) but we generate revenue in average 8 months later — when we manage to actually get the payment of the compensation from the airline.

To give you a quick overview with numbers:

· We managed to get an ROI of 4, meaning for €40 acquisition cost we could generate €160 of commission. That is €4000 for 100 claims and €16 000 potential revenue

· Out of 100 claims, 30 won’t be eligible because of extraordinary circumstances.

· Out of 100 claims, we will never receive all the required documents for 30 of them.

· Out of 100 claims, 10 will directly be paid to our client and we will never make a penny on those ones even though we did all the work.

This means that with a 100% success rate on the other claims, we will actually get paid for 30 of them. ROI is no longer 4 but becomes 1,2 (less sexy right?).

If you start discounting staff costs, legal costs etc. I let you imagine what happens next.

Market incoherence

Evolving on the “claim company” market empowered us to understand the insights of the different players.

We noticed 3 major issues in the way the market was working:

1. EC 261 regulation is very unfair to European airlines and cost them millions of €, cutting right into their margin (is a technical issue the airline’s fault when they followed all legal processes? Is a pilot strike airlines’ fault? Is a €250 compensation for 3 hours delay fair when your ticket cost €20?)
2. Airlines were the enemy, and we were the enemy of the airline. As the biggest player slogan shows (“Proud to be hated by airlines”), the strategy was clear. How could you possibly build a long-term, viable market, when your only source of revenue wishes you to die in atrocious pain.
3. Last but not least, claim companies take a 35% average commission on all compensation recovered — meaning the passenger will not get his full rights applied even though airlines did pay the full amount. To conclude, as a third party we would collect all the customer satisfaction from the passenger leaving him with a feeling of anger and high dissatisfaction toward the airline.

We then faced an important decision: do we want to scale that model?

In order to find the right answer, we came back to the basic reasons why we started in the first place. We believed the regulation was fair and passengers bereft facing airlines. Our actual vision was to help people get fairly and risk-freely compensated when eligible. We never wanted to start a war or financially harm airlines in the way some claim companies do.

To sum it up, by trying to solve a problem we created others, even bigger ones.

This is the reason why we decided to pivot and work on a solution which could fix the entire problem and not just from one perspective. We want to make airlines and passengers happy and grow in an ecosystem where everybody wins.

A Brighter Future for the whole ecosystem

As I love telling myself, if we are planning on colonising Mars and building fully automated cars, I am sure we can find a solution to fix this problem (Yes, I am a Musk fan, so what?).

This is why we created Koala.

Our vision has obviously changed and became: “We want to allow people to travel carefree and give airlines and travel agencies the possibility to focus on what really matters: passengers’ journey”.

If you read this and share our vision and drive to change the way things are being handled, we want to talk with you.

If you feel like helping, in any way possible, a group of young ambitious French entrepreneurs in achieving their goals, feel free to contact us.

I will leave you with one last thing:

“Airlines are businesses, businesses carry on because they make money. If we keep considering airlines as the enemy and make them pay unfair and expensive compensations, we will have to go back a couple of hundred years in the past and cross the Atlantic on a boat.”

U.W

Upcoming articles:

- 10 Tips to outsmart claim companies

- 10 Best Airline practises to increase their NPS

- 10 Feedbacks from travellers to Airlines and OTAs

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