Kiwi.com, an online travel agency in the Czech Republic forecasts that its gross transaction value this year will be about $700 million, with net revenue of between $100 and $110 million.
Next year, the Brno-based company will double those numbers, according to co-founder and CEO Oliver Dlouhy. But it remains to be seen if that kind of boast would become reality.
Kiwi is already profitable, Dlouhy said in an interview. It has scaled up to 1,400 employees — about 300 of whom are developers.
This company has served about 1.3 million customers since its founding in 2012. The startup has raised $1.5 million in funding.
Kiwi has found a niche as an online travel agency in a crowded market by making it easy to combine flight segments from about 200 low-cost carriers with flights on traditional airlines.
So-called virtual interlining works like this: Imagine piecing together a round-trip by booking tickets on various airline websites. You might be flying first on Ryanair, then easyJet to your destination, followed by Wizz Air, and finally easyJet again for the legs back home.
When no direct flights exist between small cities, virtual interlining can be valuable. Some airline alliances have interlining, where they let you connect on one ticket — with your luggage supposedly seamlessly passing through. But these tickets may be pricey.
The downside with virtual interlining is that, if you want to check luggage, you will have to check in and check your bags on each leg, Dlouhy countered that his company’s research suggested that about 70 percent of its users fly without checking bags.
Kiwi’s virtual interlining is different from the approach taken by some other startups, such as the hidden city fares that Skiplagged specializes in and which involves booking flight from a point of origin through a destination but discarding the second half of the ticket to stay in the layover city. Airlines hate hidden-city ticketing, but are fine with virtual interlining.
Kiwi’s early-stage success so far fits into a bigger picture. Several online travel agencies are still gaining early traction despite the enormous advantages that three global powerhouses, Expedia Inc., the Priceline Group, and Ctrip, have in digital marketing resources.
The upstarts operate in the shadow of the giants and tend to focus on niches that have been ignored by the conglomerates. Hopper targeted mobile-only flight (and now increasingly hotel) predictions. Traveloka zoomed in on Indonesia and other Southeast Asian markets that larger companies neglected. MisterFly rose in France by playing to an audience rooting for a homegrown team. Despegar built a base by focusing on underserved Brazil and Argentina and, with an Expedia investment and an IPO, is now looking to grow across Latin America.
Here’s the problem: Whenever a startup builds something that could be obviously mimicked by an established global player, investors get leery.
Does Kiwi fit the case? In the spring, Kiwi looked for top-tier venture capital firms to invest.
But it had no takers. In its early round, it gave away 60 percent of its equity for $1.6 million in investment from small Czech investors and a small venture firm, as Dlouhy noted on Tuesday on-stage in a panel at the Phocuswright Conference in Florida.
Originally called Skypicker, the company changed its name to Kiwi to open up the option to add hotels, which typically have higher commissions than flights. This is something that’s in the works, but obviously, outside investment could speed it up.
In recent months, Kiwi has been integrating Amadeus technology that will enable it to enrich its database of fares for more 750 million more flight combinations that are pre-calculated. By keeping a cache of fare data on hand, the system promises to offer consumers faster response times.
Another possible cause for investor skepticism is the potential size of the addressable market. Does Kiwi only appeal to backpackers who aren’t loyal to online travel brands or airlines, and who don’t spend much on tickets?
Dlouhy said that this is not the case. Unlike in the U.S., Europe and Asia continue to have a fractured airline market with countless budget carriers serving a patchwork of cities. So often the only way to fly to a destination is on budget airlines. This means the product is increasingly being used by leisure and business travelers with a variety of budgets.
Another worry: Will airlines continue to work with online travel agencies like Kiwi as they increasingly make noises about driving more customers to book directly on their own sites — or via metasearch brands that send customers directly to them.
Last month, U.S. carrier JetBlue stopped working with a dozen online travel agencies including Kiwi, SmartFares, Vayama, and others while continuing to work with metasearch players like Kayak, Google Flights, and Hipmunk that send consumers to their sites and apps.
Dlouhy said a few airlines don’t think the Kiwi model works for them. But his company has distribution deals with more than 100 airlines worldwide, which he says shows that it is pleasing many of them. And he said it is likely his company would move to a hybrid model of allowing airlines like JetBlue to post direct booking links alongside Kiwi’s standard model of servicing the order on behalf of customers.
Kiwi may have found a niche because public companies might have thought the potential market and revenue would be too small. The commercial opportunity appears to have been bigger than everyone thought.
Dlouhy claimed on stage that Kiwi marks up interlined tickets 10 to 15 percent and also receives incentives from airlines and distribution companies like Amadeus, compared with the proverbial 2 percent range for commissions on traditional airline tickets. The company’s budding business-to-business distribution may also provide similar margins.
But if the commercial opportunity is, in fact, big, the largest risk is that one of the online travel giants will sweep in to leverage its full potential.
Dlouhy said in an interview that interlining is a complex technical problem to solve as other technology companies, such as Air Black Box, have found in working to offer interlining for airline direct sales.
He also said that it takes a long time to learn best practices for providing a satisfying user experience for consumers with complex itineraries — an obstacle that new entrants would have to overcome.
Despite long odds against his company, Dlouhy argued that Kiwi’s early head start means it can maintain a hold on market share and grow even if other players enter and compete.