US View – February 2007

Farecast’s capital gains


Some heavyweight venture capital investors are making predictions about the viability and value proposition of Farecast, the Seattle start-up that uses data-mining technology to forecast the direction of ever-volatile air fares.


Investors injected another $12.1 million into Farecast, taking total venture capital funding to $20.6 million and enabling Farecast to expand its prediction capabilities.


And with the Series C financing round, led by Sutter Hill Ventures, comes a couple of new board members, Erik Blachford and Brad Gerstner. Their DNA is chock full of experience in the dog-eat-dog world of Internet and traditional travel selling.


Blachford, a former chief executive officer at Expedia, is one of the new investors in the latest financing round.


And Gerstner, vice-president of Farecast investor Par Capital Management, formerly headed up National Leisure Group, a powerhouse wholesaler of holiday packages and cruises.


So, while travel search engine Kayak boasts that its founders from Orbitz, Travelocity and Intuit make up a dream team with their combined experience, Farecast can now offer some spin of its own.


With former Priceline executive Hugh Crean leading Farecast’s operations, board meetings now have the input of former top managers of Priceline, Expedia and NLG.


Also on board is Oren Etzioni, a professor and the ‘brains’ of the outfit, who was co-founder of Netbot, one of the first comparison shopping engines.


Farecast, which is still in beta stage and introduced less than a year ago, may be doing some special things that could have considerable impact among airlines and online agencies.


In addition to advising consumers whether the air fare on the route they want will rise, fall or remain level, Farecast recently introduced Fare Guard.


The unique service enables a user to protect a low fare for up to seven days for a $9.95 fee.


Farecast believes it is introducing a new revenue stream because it holds that its predictions about fares are correct 70% to 75% of the time, so therefore it won’t be issuing too many cheques.


And, this new insurance policy for low fares enables Farecast to draw in new revenue and boost consumer trust in Farecast.com before following through with its core business model – passing consumers through to airline websites to complete their bookings.


Henry Harteveldt, travel analyst at Forrester Research, believes that Farecast could syndicate its service to airlines and online agencies.


“If Farecast catches on, any airline could act as a customer advocate,” Harteveldt says.


He adds that carriers could engender more trust from their customers as the airlines continue to try to attract more consumers to book directly at their websites.


“Their websites could be seen in a more favourable light by travellers.”


It remains to be seen whether cash-hungry airlines would really want potential customers to search fares on their websites, only to have a licensed Farecast product advise them to delay buying a ticket because the price is likely to decline in a couple of weeks.


But, a service such as this certainly would be a differentiator for airlines that are seeking to be more transparent and pro-consumer as they vie for travellers’ allegiances.


Harteveldt believes that Farecast’s air fare service may be just the beginning.


“Who’s to say it couldn’t run this kind of operation with hotels and rental cars too?” Harteveldt offers.


And, that might be exactly what Farecast is planning.


In fact, Farecast plans to use the new monies to expand into predicting the ebb and flow of international air fares and hotel rates this year.



AAA wipes smile from Travelocity


Travelocity’s smiley faces, which it uses to designate hotel ratings based on user-generated reviews, may be important to an increasing number of leisure travellers, but a lot of other customers, including many business travellers, still rely on professionals’ reviews.


Therefore, the American Automobile Association recently caused a bit of a stir when it decided to remove its well-respected Diamond Hotel Ratings from Sabre, Travelocity and the roughly 6,000 affiliate websites around the world powered by Travelocity’s World Choice Travel.


AAA started providing its Diamond Hotel Ratings to Sabre in 2002, pre-dating Travelocity’s purchase of World Choice Travel in 2003 for $50 million.


The latter move frayed the relationship between Sabre and AAA because the association didn’t want to see its Diamond ratings – which cover properties in the US, Canada, Mexico and the Caribbean – so widely distributed beyond the AAA’s own websites.


So, for now, until it finds a new review provider, Travelocity will have to rely on its smiley faces as well as on hotel reviews drafted by Travelocity itself.


And, it is hard to imagine that the Roaming Gnome [Travelocity’s marketing mascot] is smiling about this brouhaha.


With AAA’s Diamond Hotel Ratings bidding adieu in the Sabre system, Sabre revealed that it reached an agreement with a new vendor. Agents using the Sabre GDS and Travelocity will soon have access to hotel ratings from Northstar Travel Media.

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