Power in Numbers
In 2004, five middle-aged techies in Dallas set out to crack a system that has frustrated and mystified even the savviest consumers and number crunchers.
Working 12- to 16-hour days for more than a year, they fought through code that had been extinct since the 1980s and endless mounds of paperwork, paying a million dollars for the privilege of mere access to the database they were picking apart. Small epiphanies kept them pushing to the next page of code; an endless string of technological knots made clear why no team before or since has duplicated their feat.
Finally, FareCompare C.E.O. Rick Seaney and his partners quietly lifted the curtain from the single database containing the world's airfares, making available comprehensive, real-time access to the 160 million new ticket prices reported each day. If this sounds like a modest payoff, consider that not even the airlines have the software to monitor global prices in real time like Seaney's can. When time is of the essence-whether for travelers hunting for deals or airlines reacting to competitors' prices-FareCompare has a monopoly on insider information in the airline industry. Their work resulted in a series of surprises, the most recent being the ire of the airlines and the intense interest of hedge funds.
In the beginning, FareCompare, then XXI Technologies, used this advantage to consult for airlines and travel companies. After 15 years of mining data for oil companies, Seaney and his chief technology officer, Graeme Wallace, were working on a project for Hotels.com that introduced them to the bizarrely complex world of airfares. They took the same fare database that the airlines and all major travel sites subscribe to and created software that can run enormous price queries faster than anyone else. When Expedia bought Hotels.com, it scrapped the software that XXI developed. But the programmers believed their product was unique and decided to strike out on their own. Now FareCompare posts new fares an average of five hours before they're published on any other site, including Expedia.
In March 2006, XXI switched its focus and its name (XXI is still its holding company), becoming a consumer site that promises travelers with flexible departure dates that it will pinpoint the best-priced flight possible. But FareCompare's most recent incarnation has been its most unexpected. It's not just offering a reliable way to save money on air travel, as the average consumer may think. FareCompare has also become a provider of alerts and trend reports to airline-industry analysts hungry to understand the pricing moves of the companies they watch; its information is coveted by investment banks and hedge funds; and it's a thorn in the side of the airlines themselves.
Unlike nearly any other industry, airlines sell products that can shift hundreds of dollars in price within minutes. Discount travel sites have become the consumer's guide to navigating this fare zoo, and travel is the biggest online market there is, grossing $81 billion last year alone.
This has been the busiest summer for domestic travel since 2000, with planes packed to 90 percent capacity. Seats are scarce, and prices are high. FareCompare helps ameliorate that, to an extent. Though the company can't guarantee travelers that a flight they book one day won't go on sale the next, in addition to giving customers the best currently available price, FareCompare's route-specific maps of fare history dating back three years also give them a sense of what they're paying for.
"At some point, you just have to say, 'I think this is a reasonable fare.' And perhaps that's what's good about the historical fare data, to [be able to] say, 'You know what? This never gets below $99,'" says independent travel-industry analyst Jared Blank.
Analysts have gotten in on the FareCompare buzz because historical data drives pricing in the season-dependent airline industry. The site's complete record of fares indicates whether a company has set a particularly pricey November or an uncharacteristically cheap January-and that can tell the savvy airline-industry watcher more than whether it's a good time to take flight. This spring one excited analyst emailed Seaney an unsolicited illustration of how FareCompare's historical price index closely correlates with and can help predict the main airline-stock indicator, the Revenue per Available Seat Mile (RASM).
A sort of train spotter for airfares, Seaney obsessively monitors each day's prices like breaking news and has been doing so long enough that he has a sense of what a particular airline's next move might be. Observe his office after an airline makes a major price move or holds an analyst call: The phone will be ringing off the hook with analysts who want his opinion. Morgan Stanley, Merrill Lynch, Bear Sterns-almost every major investment bank has analysts who subscribe to Seaney's email updates, which highlight pricing trends weeks before the airlines include these figures in their monthly or quarterly reports. Bypassing the traditional time frame for receiving pricing information, analysts can get up-to-the-minute pictures of companies' performances.
"If fares are dropping on a given route, there may be sales issues about what percentage of seats are being sold," Blank says. "[Analysts] may be able to say, 'Here's an area where a new entrant has come in on this route, and fares have dropped because of it.' So it may give them some directional information on how airlines are doing on given routes."
Some firms have asked for exclusives on his information, but Seaney is still deciding whether to capitalize on the unexpected investor interest.
"We've been told that the people who really want this data would be hedge funds and people who have large investments in the airlines," Seaney said. "To be honest, we had no idea that there were even airline analysts. Our idea was to be the airline gurus. All kinds of crazy things happen when you have tons of data."
FareCompare's capacity to handle information that airlines would rather keep proprietary has led to some spotlight-stealing moments. Last November, Delta launched a massive fare sale, discounting all flights an average of $281. Airlines can only make fare changes three times per day, and Delta chose to file the sale at 8 p.m. so competitors would have to wait until 10 a.m. the next morning to respond. But FareCompare, which is able to display new fares less than 10 minutes after they are filed, alerted analysts and travelers to the lowered rates through email about two hours after Delta's filing, pre-empting a costly ad campaign meant to launch the sale. Analysts flooded the airline with calls hours before the discounted rates were even announced, while travelers called wanting to book flights displayed on FareCompare that weren't yet loaded into Delta's reservation system.
"We did get an angry phone call from a high-level person at Delta," Seaney said. "They're not used to someone that they can't manage through a contract having their data. I talk to people at the airlines all the time, and none of them are overly excited about it."
FareCompare's revenue is in the six figures but is likely to reach into tens of millions in a few months-astounding growth for a year-and-a-half-old internet startup. Seaney says that won't stop him from personally answering ten thousand customer emails per year or spending an hour with anyone curious enough to try to grasp the complex world of air-travel pricing.
Last June, an elderly man who lives a few blocks from FareCompare's Dallas headquarters walked over, looking to buy a ticket. Seaney helped him make his purchase online.
"We only have one customer [using us as] a personal travel agency," Seaney said, "He comes every four months."
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