El Al Israel Airlines Ltd. (TASE: ELAL) will start holding flight ticket auctions on its website and the site of its low-cost brand Up. This capability was developed by the Israeli startup BidFlyer, whose system enables online bidding for vacant flight seats. The potential is huge: according to the International Air Transportation Association (IATA), the average plane occupancy rate worldwide is 79.7%, leaving over 20% of tickets unsold. The financial value of these empty seats is estimated at about $120 billion annually.
BidFlyer's concept is based on systems identifying flights with the potential of not being fully booked based on their destination or date. Seats expected to remain empty will auctioned on a daily basis. The initial discount will be 20-50% of the full price, with several alternative tickets and dates proposed for each flight destination. Each auction will be held for eight hours and include up to dozens of tickets for each flight. Each bidder will be able to buy up to three tickets, from a bid page displaying the full price and minimum bid. A client interested in bidding will be required to register. Like in other online auction systems, after bidding the client will receive a notification that will enable him to raise his bid. Payment is made only if the bid wins. Cancellation will be possible during the period defined by law, within 14 days of the deal and up to 7 days from the flight date.
El Al will launch the auctions after the October holidays and the Bid2Fly system will be first integrated as a pilot initially enabling to bid only for tourist class tickets. Travel agents will also be able to bid for their clients via the agents' site. El Al's Business Development and Strategy Director Nimrod Borovitz says that the system, "Presents the passengers with the opportunity to compete for the best price while simultaneously enabling the airline to generate new clientele."
BidFlyer was founded in 2014 by Asaf Gendler and Guy Kaplan. It has 10 employees and offices in Tel Aviv and Boston. So far, the company has raised a $1.2 million from venture capital funds Singulariteam and Innotech Capitals. BidFlyer is the first investment by Cockpit, an innovation and entrepreneurship center, founded by the corporate venture arm of El Al and managed by Henry Chen Weinstein.
BidFlyer's solution interfaces with airline systems and uses big data technology to identify surpluses on each flight. Gendler says, "This is a win-win situation. Airlines could increase occupancy while passengers get cheaper tickets. These are not last minute discounts because the flights could be auctioned one or even three months in advance. The concept is that airlines could know in advance that seats will remain vacant on a certain flight and thereby put them for auction."
BidFlyer is in talks with several European and Latin American airlines and has already signed an agreement with China's Hainan Airlines. How do you ensure that airlines do not make fictitious bids in order to inflate bid prices? "There will be no fictitious bids, and this is part of our agreements with airlines. Success is contingent on the process being entirely transparent."
Like other tourism ventures, BidFlyer is also the result of a personal experience, after Kaplan bought a pair of tickets from Tel Aviv to Berlin. He, like many others, thought that tickets sold at the last moment would be cheaper, but paid €1,500 for a ticket while most of the plane remained empty. This has led him to identify a joint opportunity for consumers and airlines for a discount sale of vacant seats. Gendler says that auctions are used in the aviation sector in a slightly different manner. Iberia airline employs a small-scale auction system and many airlines, including El Al itself, offer blind bidding to upgrade tickets to higher travel class; however, in this kind of auction, the client might pay more than the real cost of an upgrade.
Published by Globes [online], Israel business news - www.globes-online.com - on September 27, 2016
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