by • April 11, 2012 • Business modelsComments (1)142

Those who suffer worst (re-segmenting the air travel market by niche)

You’re on a flight and the guy next to you spills his peanuts and then knocks over your wine with his head while he’s trying to retrieve the nuts from the floor.

You sigh and begin fantasising about disrupting the abysmal air travel industry with a pleasant experience. And then you give up because you don’t have a billion dollars and, even if you did, you really can’t imagine a worse industry to get into.

Let’s break down how SurfAir approached this same problem, because I think they’ve done an amazing job of re-framing the problem and designing a version 1.

First, why is starting a new, pleasant airline [in America] difficult?

  • The TSA
  • Security regulations
  • Price war to the bottom between airlines
  • No customer lock-in or switching costs[1]
  • Super high setup cost
  • The location of airports (commuting time)
  • The experience of airports (waiting time)

That basically gives us 3 categories which make airlines an unattractive business to enter: security regulations, airport logistics, and weak financial model.

So how do we get in and win?

Ignore competition, re-focus on customers, slip constraints, and simplify

If we look at what other airlines are doing, then of course we’re going to give up. Are we better at PR than Richard Branson? Better at logistics than Southwest? More cutthroat than Ryanair? I doubt it. You don’t have an edge along any traditional axis of competition.

So ignore them. Go back to your customers. Who has the very worst pain?

How about frequent short-haul travellers? They have the highest ratio of BS-to-flying of anyone. And they suffer it several times a week.

So we’ll solve that one problem for them: short haul flights. We don’t need to worry about long-haul stuff and we don’t need to be in every airport. After all, we know these travellers, and they tend to commute between the same few locations every week.

Steve Blank calls this “re-segmenting by a niche.” The needs of this particular type of customer are different from mainstream travellers and are poorly served by the mainstream solution. We’ll build a travel experience just for them.

We’ve still got all that airport BS. Can we avoid airports by using private airfields? Yes, but only if we carry fewer than 9 people per flight. Otherwise we need to go through full security. So let’s call that a perk, use small planes, and arrange them spaciously since we’ll only have 9 passengers. Airport & security problems solved.

By starting with small planes and few airports, we’ve significantly reduced the upfront cost, but our revenue model is still weak. We’re going to lose customers to the budget airlines unless we’re the cheapest.

Let’s make it a subscription. Higher lifetime value, better lock-in, ignore competition. If we fly somewhere, our subscribers will use us first every time.

The rest of the customer journey

Traditional airlines pick you up at security and drop you off at immigration. That’s their scope. But the user journey is bigger than that. It begins with flight search, an experience which was initially so bad that Expedia and Orbitz (and previously travel agents) run terrific businesses just covering that bit of the customer journey. At the other end, cabbies make a good living taking folks the last mile.

By default, we’ve covered the flight search & booking component. Once someone is a customer, they no longer search for flights. At least not in the traditional sense. We’ll make a phone app to make booking really easy, and users don’t need to worry about typing in their passport and credit card numbers every time.

On the other end, we actually lose a bit of infrastructure in that we won’t benefit from a line of cabs queued up at the exit to our private airfield. So we’ll need to call in cars to come pick our customers up. That’s doable, and it’s probably worth charging a bit more on the subscriptions so that we can offer the cars for free — they’ll be expensing the cab anyway and we may as well remove the paperwork for them.

Reviewing the model

For our customers, we’ve successfully removed all the bad parts about flying: security theatre, airport logistics, and the flight experience itself.

On our business model, we’ve added lock-in, increased lifetime value, and reduced startup costs. We’ve also avoided the price war to the bottom.

We’ve done this by zooming in on a very specific type of customer–frequent short haul business travellers–and then zoomed in still further to start with those who travel up and down the California coast. Are we going to put Virgin out of business? Nope. Does it matter. Nope. Will we build a very healthy business for ourselves? I’d wager so. Once we’ve proven the model in these 4 cities, will we be able to expand? Absolutely.

Will we be mocked by people outside our customer segment who can’t see beyond their own needs? Indeed. Does it matter? Not one bit. We get to choose our own customers. We’ve chosen those in the most pain, and we’re going to make them very, very happy.


[1] The reason airlines have gotten so clever with points and rewards is exactly because they hae no natural switching costs in their business model and thus need to tack them on artificially.

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One Response to Those who suffer worst (re-segmenting the air travel market by niche)

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