
Airlines Are Backing Volantio (YC W09), a Startup That Could Fix Overbooking - abhiminator
https://www.bloomberg.com/news/articles/2018-02-27/airlines-are-backing-a-startup-that-could-fix-the-overbooking-problem
======
pilingual
I love seeing old YC companies continue to try to discover product market fit.
I remember this blog post which made me think they were toast because pg told
them: “But until you’ve got a major discovery to show, or some serious growth,
I can’t recommend you to investors”

[http://tomhoward.co/part-1-reality-check](http://tomhoward.co/part-1-reality-
check)

[https://news.ycombinator.com/item?id=3941754](https://news.ycombinator.com/item?id=3941754)

------
nanis
The title is a polite way of putting it. In reality, what they are backing is
a startup which claims that the data they gather will allow airlines to gobble
all consumer surplus by being able to offer compensation equal to the
reservation price of the customer: I.e., the compensation that leaves the
passenger indifferent between flying on this flight vs giving up their seat.

I am going to claim that the airlines backing this and the investors of the
startup have not studied Ultimatum Games[1]:

    
    
        One of the most debated results in experimental
        economics comes from studies of the so-called
        “ultimatum” game. In this game, one player (the
        “proposer”) goes first and offers a split of a pie
        of given size. The second player chooses whether to
        accept or reject. If the second player rejects, both
        get noting. If he accepts, they split the pie as was
        proposed. The ultimatum game has a unique subgame
        perfect equilibrium where the proposer gets
        (essentially) the whole pie. It also has many other
        Nash equilibria, where the proposer offers a more
        generous split, fearing an aggressive offer will be
        rejected.
    
        The experimental results are in stark contrast to
        the backward induction solution.
    
    

[1]:
[https://web.stanford.edu/~jdlevin/Econ%20286/Experimental.pd...](https://web.stanford.edu/~jdlevin/Econ%20286/Experimental.pdf)

~~~
Fenn
The game theory is indeed complex.

> offer compensation equal to the reservation price of the customer

It's a little more complex than this. It's highly feasible to offer
compensation higher than than the original purchase price of the ticket while
inducing passengers to move to a different flight, meaning they're effectively
being "paid to fly".

In many cases, customers are actually not on their preferred flight in the
first place, but merely the one that was cost-optimal at time of purchase.

Changes in market demand in the intervening 3-6 months can easily mean that
many passengers on an aircraft can be compensated above their original
purchase value to move to their preferred flight.

The above case is an idealised version, but the equilibria is complex and
difficult to intuit without experimentation (which is primarily what we're
working on).

More news as it happens :)

Sameless self-promotion (I'm cofounder/CTO): We're also hiring
([https://angel.co/volantio/jobs](https://angel.co/volantio/jobs) /
[https://www.workatastartup.com/directory/270](https://www.workatastartup.com/directory/270))

~~~
Bahamut
This reminds me of a flight I booked about 3/4 a year ago from SF to DC - I
had a suboptimal layover in Houston, which was rerouted to be a layover in
Chicago after the hurricane triggered changes to my routing. Unfortunately for
the airline, it then had to deal with a situation where they overbooked by 10
people.

I was offered a first class seat on a direct flight + $600 to switch, which I
happily accepted. In truth, I would’ve been happy with just any seat on that
direct flight.

~~~
nanis
> I would’ve been happy with just any seat on that direct flight.

And, the goal of the Volantio is to collect data on you so that the airline
never over-compensates you. That is, all the benefits from the rebooking
transaction accrues to the airline.

Imagine every time you went to buy a coffee, the coffee shop charged you
exactly how much you value the next cup of coffee.

------
wpietri
A good start, but I think this could be taken much farther.

If we look back 20+ years, we built up very strong rituals around scheduling
because we couldn't make the system work any other way. But in-person plans
have become much more dynamic as we become better connected. Air travel is
still very much in the old world there: we book far in advance, slotting
ourselves into fixed-schedule, fixed-capacity options, even though we are
often much more flexible.

For example, every August I go back for a big camping trip with extended
family. I could fly from a few different airports into a few different cities
over a few days. Since working remotely for a day or two isn't a problem, the
return's even more flexible. Why do I have to buy a specific down-to-the-
minute ticket now if I want a good price?

I'd be happy to commit now, and then let the airlines (or airlines negotiating
automatically with my booking agent) work out exactly when I'm going. They
could use much more data to maximize efficiency, giving us lower total prices.

~~~
Fenn
This. (Disclosure: I'm cofounder/CTO of Volantio). Airlines are very much
currently burdened with a legacy that was cemented in sometime in the 50's.

It may be worth mentioning that airlines are perhaps less-evil than is
apparent from the outside. Most of their baffling behaviour is (IMHO) largely
due to lack of capabilities rather than malevolence.

Ultimately, they're given a large multi-dimensional optimisation problem in a
marketplace with extreme illiquidity (eg: traditionally, seats can't be resold
effectively once purchased).

The complexity is, frankly, staggering - the seminal paper on the topic is
probably this: [http://www.demarcken.org/carl/papers/ITA-software-travel-
com...](http://www.demarcken.org/carl/papers/ITA-software-travel-
complexity/ITA-software-travel-complexity.html)

We are taking the (very small) initial steps in alleviating some of the issues
by introducing increased liquidity into the market, but the ultimate goal is
helping shift the industry into a more dynamic place (perhaps as described by
the parent comment).

~~~
tyingq
_" Airlines are very much currently burdened with a legacy that was cemented
in sometime in the 50's."_

Personally, I find this common observation off base. Most airlines have pushed
the legacy TPF layer into a sort of nosql data store. Both Sabre and Amadeus
have been able to pull the business logic out of TPF.

Any sort of lagging technical progress seems more related to either thin
margins, or the complexity you point out.

There's certainly room for innovation and improvement. I just hate the framing
of the problem being tied to "old systems". It is mostly not true. Varies per
airline, and res system, of course.

~~~
Fenn
Sorry, I possibly stated that poorly - what I meant was: The current state of
duopolistic airlines technology suppliers means that there may not be
sufficient motiviation to evolve the capabilities of the old systems.

Case in point: Regardless of whether Sabre/Amadeus have replaced their legacy
layer with some sort of nosql, I can absolutely guarantee you that many of
their primary APIs are literally screen-scraping terminal sessions and
returning the screen as XML.

~~~
tyingq
_" I can absolutely guarantee you that many of their primary APIs are
literally screen-scraping terminal sessions and returning the screen as XML"_

True, but TPF is scalable enough that it doesn't matter. The API is
responsive, flexible, and handles the traffic. The ugliness isn't limiting new
functionality, etc.

We spend very little time talking about the cruft at the bottom. The business
complexity is more important.

Things like fare classes, discount codes, availability, fare basis codes,
reaccommodation, and so forth. If it were all written in rust or Go +
microservices it wouldn't be any more straightforward.

Your product seems to confirm that. You aren't reducing that screen scraping
any. But you're adding value.

~~~
Fenn
Well said :)

------
jaclaz
>Volantio’s solution: Gather non-identifiable data about purchasing behaviors
to learn what type of consumer is more likely to accept what type of offer.

Call me a skeptic as much as you want, but the "non-identifiable data", must
_somehow_ end up being identifiable, or at least the passenger will be
personally tagged as "type A", "type B", Type C", etc. in order to propose
him/her the "best deal".

~~~
walshemj
Well would not passengers the game the system by displaying signaling to
maximise the best deal for them - just like there are ways of gaming the
upgrade system wear a suit if you have a PhD book with Dr instead of Mr or MS.

------
vannevar
There's a much simpler solution to the overbooking problem: eliminate the
fraud exemption that airlines currently enjoy, allowing them to sell the same
seat twice.

The downside is that, if airlines are unable to resell unused seats, more
flights will fly partially empty, reducing overall efficiency of the industry.
But if they offer standby "tickets" at steep discounts (instead of making
_every_ ticket a probabilistic standby seat), that problem would solve itself.

~~~
cybrjoe
Don't all airlines already sell standby tickets? I'm guessing the demand on
the average flight isn't enough to cover the chance someone won't show.

~~~
mseebach
I've never seen standby tickets on sale in a first order way. Usually, it's
when you're on a rebooked or connecting flight, they'll offer you standby on a
better (but sold out) option.

------
rdl
I'd often be perfectly happy to take earlier or later flights on the same day,
and potentially even change routing (OAK vs. SFO, or even something crazier
like MIA vs. FLL). Wouldn't even necessarily need to offer cash; frequent
flyer miles or upgrade to C or F or even lounge access while waiting would be
fine.

Rare other times, I'd probably want >$5-10k to change my flight (missing a
speaking slot at a conference or a customer meeting or something when booked
close).

Being able to surface customer preferences like this seems valuable. I've had
Alaska/Virgin call to offer compensation to change (or cancel) flights before,
either due to overbooking or downgauging, and I've had international flights
change and offer free rebook/cancel as a result, but nothing has really been
technically efficient or easy to use yet.

------
rahimnathwani
I'm surprised that airlines wouldn't/couldn't build this functionality
themselves.

Does anyone here have insight into the 'buy vs. build' decision that any of
these airlines went through in adopting this company's services?

~~~
leeoniya
i've always had the same question about Uber (re the convenience of using an
app to hail and pay)

~~~
a13n
The value of Uber isn't the app, it's the network of drivers/riders.

~~~
leeoniya
the value of Uber is convenience.

flailing your arms on a street corner hoping that some vacant taxi will notice
you is both silly and inefficient. at any one time there are tons of people
needing taxis and tons of empty taxis burning fuel unable to find fares. if
there was an app that allowed you to tap a button and have taxi arrive to pick
you up, it's likely Uber would not be where it is today.

~~~
kelnos
This is actually an interesting idea. What if the city of SF created an
Uber/Lyft-like app, and required that all registered taxis be listed on it and
have the driver app running and active on their phone while on duty? Obviously
taxis could still accept manual street-side hails and line up in hotel taxi
lines if/when they want to. But they otherwise could accept fares on the app,
and riders could still pay seamlessly through the app, and have the option to
rate drivers and submit feedback.

They wouldn't be able to charge the rock-bottom prices Uber and Lyft do in
order to gain market share, of course. But with Uber (and to a much smaller
extent Lyft) suffering some backlash wrt their business practices and tendency
to increase traffic congestion, such an app might have a chance at pulling at
least some market share back toward traditional taxis.

If I could order a taxi using an Uber/Lyft-like experience[0], and get decent
wait times, I wouldn't mind spending more in order to support a local
alternative, if that local alternative was actually showing signs that it
wanted to innovate and adopt a customer-first attitude.

[0] Yes, I know Uber had UberTAXI for a while, but in practice the wait times
were huge and most of the times I checked the option, it said there were no
taxis available at all. Obviously Uber had little incentive to make the taxi
part of their service attractive, and plenty of incentive to make it _un_
attractive, so I don't really blame the taxi services themselves for this
deficiency.

------
kwhitefoot
As far as I can tell overbooking is an almost exclusively US phenomenon. In
Europe I don't know of anyone who has been 'bumped' off a flight because it
was overbooked. Low cost airlines like Ryanair manage to fill flights without
overbooking. There is a lot to dislike about Mr O'Leary's company but I don't
think anyone worries that their ticket is not going to be honoured.

~~~
tysonzni
_Low cost airlines like Ryanair manage to fill flights without overbooking._

Presumably the reason why US airlines overbook is to maximize yield since
almost always some passengers don't show up. Any reason why non-US airlines
don't do the same? I suspect it has to do with ticket regulations but would
like to learn more.

~~~
URSpider94
European budget carriers have figured out how to lower the bar to a level
unknown in the US. One carry-on, zero checked luggage allowance, pay to pre-
assign a seat, pay for water on-board, pay 30 Eur if you don’t pre-print your
own boarding pass at home, scan, tag and check your own luggage. Almost all
tickets are 100% non-refundable - miss the flight, you’re going to pay for
another ticket. Prices are low enough that people are willing to suffer
through the experience, and keep the planes completely full. It’s more like a
Greyhound bus in the air.

------
FLUX-YOU
Just FYI, if you get asked to swap, there's no guarantee you get the same
plane type.

I opted to switch in exchange for $300, but the plane was an older 737, down
from a 787.

~~~
dawnerd
Is 300 dollars not worth the downgrade? That’s also a pretty small amount of
money to accept to switch. Holding out would get you more, or force someone
else to take it.

~~~
FLUX-YOU
Considering I don't fly much, not really. 787 vs. 737 is also worlds apart in
terms of comfort (both flights were first class).

The certificate they give you is valid for a year.

~~~
dawnerd
I won’t disagree about the comfort but man they got you. Should never accept a
certificate, especially that low for first class. Next time just hold out.
I’ve had it happen twice now and both times were close to 1k in certs.

~~~
FLUX-YOU
It wouldn't surprise me if Volantio or airlines automatically checked to see
how often someone flies and tries to lowball them.

~~~
kelnos
It depends. It seems like the goal here is to make the airlines money while
still making it seem to the passenger like they've gotten a decent deal. A
less frequent traveler who doesn't know that $300 is a low-ball offer might be
perfectly satisfied with that, even while a more frequent traveler would laugh
at such an offer.

There's no objective measure of the feeling of "getting a good deal". It's
entirely subjective and depends on what the customer values, as well as how
much information the customer has about similar transactions. Obviously if the
customer later gains new information that suggests they could have gotten a
much better deal, that's a negative, but part of figuring out that optimum
deal point is figuring out the likelihood of that, as well.

~~~
FLUX-YOU
Honestly it wasn't until I actually flew on a 787 that I realized the trade-
off. My only frame of reference was ~1998 economy-class flight quality.

------
heisenbit
Maybe I'm cynical here but any technology that allows safer overbooking will
be used to squeeze more bookings on a plane again increasing the risk of upset
passengers and PR disasters. Markets lead to exploring boundaries and the
boundary to overbooking is the willingness of the company to suffer the
consequences. That willingness is cultural and will not be changed by
technology.

------
ggm
The investment by non-US carriers intrigues me, because there is no
significant overbooking problem worldwide: its a mostly US phenomenon as I
understand it.

The rebooking-because-cancelled, thats a huge problem anywhere. So, I suspect
the JV partners are looking to benefits for unexpected surge loads and
overflow from late/dropped flights in a tight jet schedule.

~~~
mseebach
I think it's a media attention thing. Flights are overbooked all over the
world, and people get involuntary bumped. I just did a couple of searches for
"[lufthansa, british airways, qatar, emirates] overbooked", and it's not
exactly unheard of. It's a relatively rare event, though, but one that caught
US media attention due to the pretty gruesome removal of Dr Dao last year
(which wasn't even an overbooking incident).

There's also the factor of the uniquely dense and complex nature of the US
domestic network. More flights with more connections make for more uncertainty
in the system, to which overbooking is an answer.

~~~
ggm
_" Flights are overbooked all over the world"_ Yes, but overall at a far lower
intensity than in the US. I don't just mean 55/45 type things: I have flown
continuously internationally for the last 20 years, worldwide, about 5-10
trips per year, and the only economy I have been bumped in was the USA. The
data you gave about search matches in no way addresses the huge skew to events
in the USA.

Contrariwise, the UK is the only economy I have used trains in, which
routinely has major commuter train cancellations. The commonality here is a
lack of capital investment and oversight

 _uniquely dense and complex nature of the US domestic network. More flights
with more connections make for more uncertainty in the system, to which
overbooking is an answer_ Yes. this I think is true. the US has far more dense
flights, and has chosen overbooking as _an answer_ but in no sense is it _the
answer_ to this problem: It's the one we've got. The regulator could have
directed other approaches, but the cost consequences on airlines (who
routinely seem to use chapter-11 methods to walk away from historical debt)
would have been pretty bad. This answer maximises profit for airlines, at the
expense of flyer convenience.

------
atanasb
While this is a step in the right direction it just serves to show how far
behind airline companies are in terms of tech. Swapping out passengers on the
fly and handing out virtual miles in exchange is seen as "innovative
technology"?

Hopefully this will pave the way for technological disruption in the airline
business.

~~~
tyingq
That's a broad brush. Airlines aren't all at the same point in dealing with
overbooking.

It's also not a trivial issue given the slim margins and complexity. Consider
connecting flights, different fare types (refundable or not, advance purchase,
etc). Also, differing aircraft types, how many seats they have, and which
crews are qualified to fly them. Oh, and weather.

If you think the root cause is _" airline IT is incompetent"_, you're probably
off base. Google paid $700M for a crazy talented company (stuffed full of PhD
genius level talent) that did a good job of solving shopping, but failed
commercially at solving booking.

~~~
jptman
I'm not sure I'd call it "failed commercially at solving booking". Google
stopped their work on creating a booking system after the acquisition since
they were never interested in getting into booking.

~~~
tyingq
They had one small airline (Cape Air) using it for a long time, so I don't
quite get your point. It was built, but almost nobody bought it. Google did
squash it roughly 2 years after buying ITA, but it was pretty much dead
anyway.

~~~
jptman
I have to admit I don't know this stuff first hand, but based on what I heard,
it took quite a while for ITA to be fully "absorbed" into Google, during which
time they didn't change much. I also heard that their first customer was more
of a pilot or development partner. Also, from what I know about the airline
industry, they change very very slowly and it'd take a long time from the time
airlines are approached to the time things are actually in production,
especially for something this critical.

~~~
tyingq
That's fair. I'm not trying to portray ITA as a failure. Quite the opposite.
Trying to say even an elite group of genius talent can't turn the ship
quickly. That it's more about legacy thinking than it is about legacy tech.

Airlines and OTA companies could be 10x more innovative with the tech they
have now. TPF and other old tech is NOT the barrier.

------
elbasti
There's already a well-proven technique for price discovery: it's called a
_market_.

But because there's no real market for airplane tickets--the airlines
basically forbid secondary transactions--we're forced into a world of
centralized planning, and by an entity that's fairly incompetent at that.

This entire thing would be solved if plane tickets could be bought and sold in
some sort of marketplace. The airlines could even take a cut of every
transaction!

It's baffling to me that the overbooking problem is solved _at the airport_ ,
minutes before take-off.

Imagine instead a world where you could buy and sell plane tickets.

\- On purchase, I could set a reserve price for which I'd be willing to sell
my plane ticket, and have the price go up as the time of flight got near.

\- Late to the airport--perhaps I could trade tickets with someone on a later
flight that wants to leave sooner?

\- I have a flexible lifestyle. Standing order for tickets to the
beach|family|wherever at a low price, as long as I have 5 hour warning before
flight time. Gonna miss your flight? I'll buy it.

Let the airlines take a cut of every secondary transaction and let app
developers & market makers figure out the use-cases.

~~~
tysonzni
Interesting idea. However I suspect that in such a secondary market most
liquidity/volume would only exist last minute, making it less likely to
improve yield optimization (for airlines) or consumer choice (for passengers).

 _It 's baffling to me that the overbooking problem is solved at the airport,
minutes before take-off._

Think about how excess seats usually come about: a passenger doesn't show up
because of some unforeseen circumstance which occurs last minute. By the time
that passenger decides they can't make the flight, it might be too late to
generate sufficient demand for that ticket. Potential buyers of that ticket
have to be packed and ready to go. And where do we find those people? At the
airport.

The population of people who are super flexible in both destination and time
is probably not sizable enough to generate enough volume in a secondary
market.

