In The Big Chair - Jeff Klee of AmTrav

Jeff Klee, co-founder and CEO

Jeff Klee and Craig Fichtelberg co-founded 1-800-Cheap-Air in 1989 while students at the University of Michigan. The company evolved into CheapAir.com a few years later, and in 2005, the pair created a separate company focused on the needs of business travelers, AmTrav. 

AmTrav says it develops all of its technology in-house, including its online booking tool, agent interfaces, reporting systems and customer support. Together with CheapAir.com, the two companies serve about about 400,000 travelers annually.

You’ve been fairly outspoken with your thoughts about the traditional flight distribution model, saying it’s “broken.” Explain more about what you mean.

I think it boils down to the fact that incentives are not properly aligned among the airlines, global distribution systems and agencies. There are tons of examples of that. Airlines pay more to a GDS for a one-stop $150 flight to Orlando than a nonstop $6,000 one to London. Much of the remuneration agencies receive comes from the GDS, not the airlines, and they have no incentive to care about what airlines care about - things like upselling and attaching ancillaries.

The direct commissions that airlines do pay to agencies bestow huge competitive advantages to the sellers who are among the least flexible and the least willing to modernize their workflows and displays. Because of high fees for low-value tickets, airlines don’t embrace the distribution systems, they try to circumvent them. And the status quo perpetuates because GDSs pay agencies to accept yesterday’s booking systems, rather than having agencies pay them to build better ones. It’s a mess.

In my idealistic vision of how things should be, the model gets flipped. Travel management companies would be compensated directly from the airlines commensurate with the value they deliver. If we picture a Next Generation Storefront display, that probably means not much for agencies selling the left end, but significant compensation for those who can push travelers more to the right. TMCs would pay GDSs like they pay any other service provider, and presumably they would only select ones who can make available all of the content that they need.

With a model like this, airlines would have every incentive to participate in the GDSs (since it would be free); GDSs would earn customers by innovating not bribing; and agencies would be incentivized to become true marketing arms for carriers, motivated to present buy-ups that customers might want, just like retailers in other industries.

I know getting from where we are today to my ideal would face a ton of obstacles and probably isn’t entirely realistic. But I’d love to see things move closer.

Do you agree, as some believe, that IATA’s New Distribution Capability (NDC) will be a critical part of the solution in the years to come?

I think the term NDC has been misused and misunderstood. Sometimes we seem to lose sight of the fact that the “N” in NDC stands for “New” and the “C” in NDC stands for “Capability.” The NDC label has been slapped on many airline initiatives that don’t deliver anything new or useful to travelers.

To the extent that the NDC standard is being used to really deliver new capabilities, I’m a big believer. The content gap between third-party channels and direct ones is real and urgent. Too many travelers can’t buy products that they would be interested in, which airlines would love to sell them, simply because their OBT [online booking tool] or agency can’t offer them.

But replacing a really old protocol in EDIFACT with a slightly less old one in XML doesn’t by itself fix anything. I get frustrated by the fact that we’ve spent seven years essentially writing a user manual without building the actual product.

To make the NDC standard useful in delivering new capabilities, a massive amount of work still has to be done by each airline, each GDS and each TMC. Many of the first NDC implementations are more or less lipstick on a pig, just using a richer message to communicate the same old things between the same old systems.

To do really big things, we need to rip out all the old plumbing and get to One Order, to which NDC is just a stepping stone. So I think for the short term there will be pockets of opportunities with certain progressive airlines who are finding ways to put new capabilities into the marketplace. But we’re still much further than I would like to be from realizing the full potential.

You’ve also been forthright in your criticism of travel management companies - why do you think innovation has been slow to come in your space?

There are a lot of reasons - resistance to change, over-reliance on third parties for technology, using a GDS as a hub where it should be a spoke - but I think the biggest reason is that necessity is the mother of invention and there hasn’t been enough necessity.

I’ve been saying for years that buyers simply aren’t going to keep accepting the status quo, but to this point I’ve been dead wrong about that. Generally speaking, corporate travel buyers have been remarkably patient and they’ve seemed OK with only small, incremental improvements.

I still think we’re going to reach a tipping point, but for now TMCs and airlines are all doing great so few feel the urgency to tackle the kind of fundamental change that is needed.

AmTrav is one of the TMCs that supports “open bookings.” But how far are we from the day when all companies stop worrying about how an employee makes a travel booking, as long as they have full visibility?

It’s a great question. We’re getting closer. It’s one of the things TMCs don’t like to talk about it, but the reality is that in order to get a lot of the great services TMCs provide around consulting, reporting, analytics and sourcing, companies have to force their travelers to make big sacrifices when it comes to the booking experience by booking through an OBT. In most cases, that means a worse experience than booking direct.

The good news for corporate travelers is that this is becoming a false choice. With tools like TripLink and Traxo and a number of lesser-known products, it is becoming increasingly possible to book directly with suppliers and still get your corporate discounts, still get your data aggregated and, in some cases, still get your booking serviced.

Furthermore, with Google Flights rumored to be contemplating metasearch for corporate bookings, and ARC working on an “omnichannel” approach, the alternatives will continue to get more compelling. 

If we talk again in five years, what do you think you’ll be saying about the state of corporate travel and TMCs?

The last question was the perfect lead in for this one. Five years from now I think a lot of TMCs will be out of the booking business altogether. I think TripLink will be bigger than Concur Travel and a very significant chunk of “managed” travel bookings (if that term still exists) will be made supplier-direct.

There will still be some all-in-one solutions (hopefully, including AmTrav), but many other TMCs will conclude that they can better serve their customers by focusing on what they do best and letting their clients book elsewhere.

I’m not predicting the demise of TMCs here. Quite the opposite. I think now a lot of TMCs have to pour a disproportionate amount of time and resources into something they are not that good at - handling bookings. Free from that burden, they’ll be able to devote all their attention to the things that they do really well, adding even more value to those services and unleashing new innovation.

These changes will be great for travelers, too. Not only will supplier-direct be a more viable option for business travelers who want it, but, thanks to NDC and other improvements, the booking tools that do remain will be light years ahead of where they are now.

If you could talk directly to a group of CEOs from the world’s biggest airlines, what are the two or three points you would definitely want to make?

I’d probably focus on just one big one: I’d try to pitch them on ditching their PSSs [passenger service systems] and hiring AmTrav to build them a new one from scratch. Never mind that we’re completely unqualified, it sure would be a cool project.

I know PSSs are complicated beasts and there is a lot more to them than meets my eye. But I can’t help but think that if an airline was building a system from a blank slate, it would look nothing like what we have today, at least from the standpoint of the reservations, inventory and pricing modules.

Why not get rid of all these crazy constructs like PNRs, tickets, tariffs, RBDs and seat assignments and merge them into a single “thing”? A One Order on steroids - so that airlines wouldn’t have to hire Google just to interpret the fares and rules that they create. So that they could sell at as many price points as they want, making offers on the fly in less than a second, without having to involve two, three or four other parties. So that they could price each seat on the plane differently, if they wanted, and let customers buy tickets the same way they buy concert tickets on StubHub. So that every crazy process or construct could be removed that only exists now because it’s the way things were done in the '80s. So that they really could rethink everything.

You also operate in the B2C space through your brand CheapAir.com. One differentiator of this OTA is that it accepts cryptocurrency as payment. Tell us about that strategy.

I wish I could tell you there was some master strategy behind it. The truth is, when we first started accepting Bitcoin in 2013 it was right before The Phocuswright Conference. We wanted to have something cool and different to announce but we realized our Plan A wasn’t going to be ready. So we looked through our development road map and said, “What can we build in a week that might generate some interest?”

Integrating Bitcoin was the choice. By pure luck, we went live just before the price of Bitcoin spiked dramatically. So suddenly Bitcoin was what everyone wanted to talk about and we caught a nice little wave.

We’ve been accepting Bitcoin and some other digital currencies ever since. It’s obviously an extremely narrow and niche customer segment, but they’re good people, loyal customers, and are really interesting to work with. We have a really strong relationship with the cryptocurrency community and I’ve met some amazing, passionate, brilliant people. It’s really been rewarding both personally and for the company.

Also on CheapAir, how do you approach your customer acquisition strategy given the depth of the pockets of some of the major OTAs in the industry?

Candidly... not very well. My biggest regret and failure without a doubt is that I didn’t listen to the constant advice of some of my own colleagues and invest more in marketing automation back when our consumer business was our main focus.

I have always been obsessed with product and bored by marketing. Since we launched CheapAir, we have literally spent about 99% of our development time on the product and at most 1% on acquisition and marketing infrastructure. That’s a terrible strategy, and I’m 100% to blame for it.

We’re lucky that we’ve been around so long that we’ve still managed to acquire a decent sized customer base to sustain us, but now that customer acquisition costs have gotten so high, we’re pretty ill-equipped to expand that base. This is a topic we’re spending a lot of time talking about these days.

Many are wary - even critical - of Google's ability to know more about the customer than the companies it sends leads to do. What's your view on that?

I’m not critical of Google, I’m in awe of them. I know how hard it is to make flight searches quick enough and relevant enough. But Google can search for anything, almost always in milliseconds, with such relevance that you often only have to type one or two letters for them to know exactly what you’re looking for.  We all take it for granted, but the level of technical achievement is absolutely mind-blowing.

...for now TMCs and airlines are all doing great so few feel the urgency to tackle the kind of fundamental change that is needed.

Jeff Klee - AmTrav

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I know some consumers are concerned by having so much data collected about them. I respect those concerns, and it does give me pause. But at the end of the day for me, it’s a worthwhile trade-off because Google is able to use all that information they collect about me to genuinely make my life much easier.

From a business standpoint, Google does raise the bar dramatically. I don’t think we can criticize them just for being exceptionally skilled and innovative. But I do think we should be wary, or at least mindful. Every product we build has to be considered in the context of what Google does. We have to ask ourselves all the time, what can we offer customers that they can’t already get from Google? If the answer isn’t compelling, we have a problem.

Do you think there's room for innovation in flight search and OTAs? Who's driving it if it isn't you?

There’s lots of room. Flight search is far from perfect. I think there are some obvious areas where improvement will come: the user interface and how voice can best play into it; post booking self-servicing; expanding product offerings and adding more transparency around them. But the best innovation is always the kind that the majority of us can’t even imagine - the ideas that quickly go from “I’ve never heard of that” to “I don’t know how I ever lived without this.”

Who’s going to drive this innovation? I suspect in many cases the usual suspects, but the most radical - and best - ideas always seem to come from someone new.

Have you ever reconsidered the branding around CheapAir - given the name is very focused on price?

Only about once a day for the last 10 years.

The brand name comes from the fact that, back in the '90s before the internet, our business was selling discount consolidator-type tickets through our phone number 1800-CHEAP-AIR. But even back then, the stickiest part of our offering - the thing that brought people back or exceeded expectations - was service, not price.

Our value proposition today isn’t about offering the cheapest fares, which frankly lots of OTAs do just as well. What’s unique about us is that we offer more information, more transparency, more buy-up options, so customers can find the best flight, not necessarily the lowest-priced one.

We consider ourselves to be more of a premium OTA; our customer service, with (usually) short hold times and U.S.-based advisors, is still core to who we are. So the name “CheapAir” is a legacy name that we’ve kind of been stuck with. We don’t think it fits and, although we’re pretty focused on the corporate side of our business, we’re also getting really serious about finding a more appropriate brand name for our consumer site.

I understand you created CheapAir in your college dorm room. Back then did you find the industry was receptive to working with startups in terms of inventory and content as it claims to be now?

Some were, some weren’t. When we tried to sign our first GDS contract, both Sabre and Worldspan told us flat out they weren’t interested. Apollo, owned by United at the time, was the only one willing to work with us.

It’s amazing how life works. We have a phenomenal partnership with Travelport today primarily because 30 years ago someone at United was willing to take a chance on a couple of college students who really had no clue what they were doing.

Being on the other side of it now, it’s always a dilemma. I frequently get pitches from startups who are interested in working with us for APIs or fulfillment or something else. I love talking to entrepreneurs, but there are practical limits to what we can take on. We have a lean development team and, like everyone, we always have way more on our plates than we have bandwidth for.

Working with startups takes time. They do need a lot of hand holding because this industry is far from intuitive. Frankly, we’ve been burned quite a few times in the past where we invested a lot of time into ideas that never went anywhere.

So now, although my inclination is to get excited by new ventures and want to be part of them, we’ve learned to be selective.

What advice do you have for young entrepreneurs today that have an interest in travel - what’s the secret to success?

I think there are a lot in the industry much more qualified than me to give advice on this topic and there’s a lot of great insight already out there. There is one point, though, that I think often gets lost among all the warnings and pitfalls that others frequently cite.

Yes, there are some very large players in our industry. And, yes, they are very tough to compete with.

But if you’ve got a really transformative idea and can assemble the right team and execute on it, and you are willing to work your ass off, I don’t think there is any moat that can’t be crossed. No one in the industry is bullet proof, or immune to disruption.

In recent years, companies like Airbnb, Hopper and TripActions have appeared, seemingly out of thin air, to become major players in areas that seemed to have no room for new entrants. I’m almost positive that five years from now, one of the industry’s leading companies will be another one that none of us today has ever heard of. Nothing’s easy, of course, but also nothing’s impossible.