Kiwi.com — Gifted networker challenges market
The world is growing closer together — and alliances in air travel are playing a key role. When two airlines join forces to expand their route network, they sign an interline agreement. This makes it possible for one airline to accept tickets from a joint partner and check passenger bags through to the final destination.
Launched in 2012 under the name Skypicker, the Kiwi.com startup strayed from industry statutes to connect airlines without interline agreements. After arrival, the platform’s customers have to claim their baggage before checking in again for the connecting flight. But with at least one leg of the journey operated by an (ultra) low-cost carrier, the unbeatable ticket price makes up for the inconvenience. Kiwi-com calls this “virtual interlining” and is now in the process of questioning the legality of sector guidelines. Rocking the airline industry’s boat has paid off. The profitable enterprise based in the Czech Republic sold tickets worth more than €600 million last year and is currently valued at an estimated US$400–500 million.
Price-conscious customers are happy to change planes if it means saving more than €100 on flights within Europe. Low-cost carriers are the lifeblood of virtual interlining. Kiwi.com profits from the ongoing success of online booking platforms as well as from the smart shopping, saver mentality of travelers supported by blogs like HolidayPirates and Holidayguru. It’s business as usual for the platform economy. While the airline industry negotiates singlehandedly and has to rely on conventional IT infrastructure, Kiwi.com combines direct connections from different airlines, third-party platforms, and indirectly purchased flight allotments.
Kiwi.com earns a standard commission for each booked flight. But the high margin magic lies in the Kiwi.com flight guarantee that protects passengers against the risk of changing planes. And customers pay extra for this. If a passenger misses a connection, Kiwi.com pays for another flight — along with a meal voucher and an overnight stay if necessary. Since insurance claims only occur in a fraction of cases, the company earns good money with its flight insurance offer.
Company founder and CEO Oliver Dlouhý managed to get Kiwi.com into the top-five European online flight booking sites almost straight out of the gate. Meanwhile he has recruited an experienced team made up of former airline industry specialists, strategists and e-commerce experts. Interestingly, more than 1000 of the current 1600 employees working in 24/7 call centers handle flight insurance.
In light of the platform’s impressive growth, its venture capital injections to date seem unusually low. According to inside information, Kiwi.com raised around €1 million from private investors. None of the shareholders are institutional funds or strategic investors. The company is currently looking for a large investor that could potentially become a majority shareholder. According to the industry rumor mill, online travel giant Priceline is especially interested. If this deal materializes, the niche market of virtual interlining could soon appear on the global stage.
Virtual interlining undermines existing, hard-fought interlining agreements and sometimes breaks from the conventional hub & spoke system. If flight legs are suddenly joined together without restrictions, the Czech company could theoretically implement “virtual hubs” everywhere and redirect streams of passengers. Throngs of price-conscious travelers are already jumping on board: Kiwi.com frequently emerges with unbeatable prices in popular meta-search portals like Skyscanner and Kayak. For example, the start-up launched a Frankfurt to Singapore flight via Athens with Ryanair and Scoot for a low €300. By comparison, a direct flight with Lufthansa sells for €800 to €1000.
But the trend shouldn’t simply be regarded as a threat. If it is implemented in the right way, point-to-point carriers could enhance their route networks with virtual interlining and boost ticket sales. Britain’s easyJet is one of the first to try this is with their Worldwide by easyJet program offered in cooperation with Kiwi.com competitor Dohop.
Where to learn more about Travel & Mobility Tech
For more information check out the new INDUSTRY DEEP-DIVE Travelandmobility.tech. The platform provides unconventional, data-driven market intelligence and insights on emerging trends, startups and VC deals in the context of travel & mobility. If you want to stay up-to-date with the sector’s trends sign up for our exclusive Travel & Mobility Tech Newsletter right here.
