Launching rail product, eyeing corporate travel and expansion to Asia
Born and raised in Pamplona, Inaki Uriz knows better than to take part in the Running of the Bulls, the annual festival which was immortalized by Ernest Hemingway in his book “The Sun Also Rises”.
“I’d never risk my life; it isn’t worth it. There is a reason why so many people run, but very few repeat,” laughs Uriz, who instead took the risk of betting it all on Caravelo, an airline tech startup that has had as many twists and turns as a bull run, but thankfully, the business is now riding high on the rising tide of airline subscription models.
Inaki Uriz: “One benefit of subscriptions – through seasonality, wars, Covid – is revenue stability. It gave us confidence that the industry needs it.”
It now has 10 airline customers and a growing list of prospects, said Uriz. Indeed, Caravelo is going full throttle on subscriptions, sunsetting other parts of its business, and eyeing three growth vectors – expanding beyond low cost and the leisure segment to traditional airlines and corporate travel, adding other ancillary services such as ride hailing to the subscription mix and entering other verticals such as rail.
This year, it will bring subscriptions to high speed train operators in Europe and it sees opportunities for hotels and car rental.
A time of reckoning and refocusing
An engineer by training, Uriz, who now lives in Barcelona, first got into the airline tech world in 2015 when he started a business called changeyourflight.com. “It was my first attempt, I was very young, didn’t know a lot, it was fun. We raised a bit of money, we built a team and the tech, and had clients, but it didn’t explode.”
About five years into it, he decided to rethink. “We wanted to be much more impactful, what were airlines buying, what could we drop? What airlines really need is proper retailing of assets in a different way – how do we extract money out of that and also deliver good service.”
The decision was made to drop changeyourflight and start Caravelo, “a B2B SaaS platform for airlines and travel companies to retail better”.
“At first, it was spaghetti on the wall – solutions that were working included mystery destinations, standby tickets, upgrade programmes but only three things made money – upgrades, chatbots and subscriptions.”
Business was chugging along until it fell off the cliff with Covid. “It was devastating for us,” said Uriz. “ But it gave us another opportunity to take a hard look at the portfolio and asked, in the new world, what should we bet on?”
The answer – subscriptions, which he said, had product-market-fit. “Upgrades – a few people are doing it and it was not realistic that we could compete, chatbots are more projects, not scalable. We felt subscriptions, in the new world, was going to be massive.
“So we sunset all other projects, cancelled contracts and focused everything on subscriptions.”
This call was made sometime 2021. “It was a bold move, to give up revenues and contracts, but we felt we had to make the call. In 2019, subscriptions were only five percent of revenues,” recalled Uriz.
“What we saw during Covid was that while subscriptions revenues flatlined, it did not go down and revenues were constant for months and months. A couple of customers – Volaris which we launched in 2018, for example, saw revenues grow by 15-20%. It was a lifesaver. It wasn’t a huge amount but it was welcome and it gave us the “aha” moment.
“One benefit of subscriptions – through seasonality, wars, Covid – is revenue stability. It gave us confidence that the industry needs it.”
Expansion to Asia in the works, lessons learnt
With its 10 airline clients such as WizzAir, Alaska, Saudia and Avianca, subscriptions now form 95% of its revenues, with the rest coming from upgrades and old contracts. “We are gaining momentum and we would like to expand to Asia,” said Uriz.
In the region, AirAsia is the only airline that has a subscription model, Super+.
“We worked with them before but never managed to sign them up for the subscription,” said Uriz. “They have a special vision – with their superapp. They are not a standard airline but are betting on their app and their community of users so their use case and opportunity is different from other airlines. We can’t customize to that degree, and we wish them crazy success.”
Uriz said a lot of lessons were learnt during the past few years. “We have a clear understanding of expected behaviours and the key metrics for success – what’s the breakage, renewal rates, churn – well backed by data.”
Asked if there was a sweet spot in subscription propositions, he said, “It must make sense from both sides, it must be money making for airlines and clear value for consumers. So we measure both things. On average, we find subscription passengers are paying 30-35% less while the airlines make incremental revenues.
“It sounds counter-intuitive but it takes 30-40 minutes of data to explain this.”
Hitting the sweet spot in subscriptions
While his current client list is skewed more towards the low cost airlines, Uriz argues it’s a model that works for both and he’s making a play for the corporate travel market which tends to favour traditional airlines.
“Revenue management in airlines is pretty powerful, it’s in everything they do, right price, right moment – so a flat price is pretty radical and usually it’s the low cost challengers who take the radical approach.
“Not so long ago, if you were to tell an airline like Lufthansa they’d be charging for the seat, they’d say outrageous, it’d never work for this market, but look at it now. Traditional airlines are not here to innovate but to adopt.”
He concedes that subscriptions are not for everyone. “It’s not for my father, but for people who fly frequently, like corporates. Corporates tend to fly legacy airlines and I do see huge opportunities in the corporate market. We are gathering lots of data on this market and when ready, we will prove you can do this for the corporate market.”
Asked the challenges of offering subscription models at a time when airlines are making record profits with high ticket prices and healthy loads, Uriz said, “My personal bet is, it’s not going to last forever. The market will self-regulate, there will be more capacity and the market will stabilize. And when it goes back to where it’s always been, airlines will ask, what new things do I have?”
He said that subscriptions are a “clear and big first mover advantage” – the first airline to do it wins.
Caravelo offers three different product lines – flat subscriptions, all you can fly and a Club product. “You can choose the model, and configure it. For now, the one getting the most traction is flat subscriptions although all-you-can-fly is seeing increased traction.”
Different airlines opt for different models. “Alaska starts at six roundtrips a year and is targeting those who fly three or four times a year but maybe at this price, will fly a bit more. It’s not fun to go to Skyscanner and waste half an hour of my life to book a trip, from AI to B. Give me an airline I like, a price I like and you have my travel.”
Asked which airline has been boldest in its offerings, he cited Volaris, which was the first to offer subscriptions in 2018. “They play the long game, they make it attractive for consumers, are not obsessed by revenue management rules and limits and over-engineer the price. They’ve kept that mentality.”
Subscriptions are about customers’ lifetime value
As to whether the acceleration of AI and machine learning would make revenue management simpler and more powerful for airlines, hence reducing the need for a subscription alternative, he said, “Make no mistake. The goal we have is exactly the same as revenue management – it’s to maximise revenues. The difference is how we achieve our goals.
“Traditional revenue management is about maximizing every single transaction, subscriptions is about maximizing every customer’s lifetime value.”
He acknowledges that in the big scheme of things, the pool of customers paying subscriptions to fly is small “but you have to ask, why are we winning with this small segment of people”.
“It doesn’t matter how good your pricing is, you won’t generate hyper loyalty. With subscriptions, they fly you and you only. We also stimulate demand. About 25-50% of people tell us I was not going to fly but now you’ve made me travel – not because of AI-driven pricing but because of subscriptions.”
Last July, Caravelo raised 3.5m Euros, bringing the total raised since founding to 5m Euros. “It was our biggest round, we have been frugal, highly capital efficient. This may change going forward, we see a huge opportunity – there is no real competition out there.”
For Uriz, while Caravelo’s journey has definitely not been as risky as Running with The Bulls, it’s been difficult.
“It’s very difficult to bring innovation to this industry, the biggest challenge is the status quo and how slow things move. Maybe we don’t want an airline industry that’s innovative.
“We see subscriptions working in many industries, and people are jumping on it. I have lost track of the number of subscriptions I have personally. But it takes a lot of education, and to change ways of thinking. I think that’s the most frustrating part – decision making processes are very slow.”
