Air Canada Solicits Bank Partners for $1.6 Billion Loyalty Program

Ben Nelms  / Bloomberg

An Air Canada aircraft at Vancouver International Airport on November 13, 2013.
Ben Nelms / Bloomberg

Skift Take: Air Canada is looking for a credit card partner to tap into revenue that the airline has long left on the table. Banks are tripping over themselves trying to get in on the new loyalty opportunity.

— Dennis Schaal

Air Canada said it’s seeking a credit-card partner as it prepares its own frequent-flier program after years of relying on Aimia Inc.’s Aeroplan.

The Montreal-based airline “will be inviting key financial institutions to participate’’ in a request for proposals, Chief Executive Officer Calin Rovinescu said in a statement Tuesday. The co-branded credit card will “yield significant value for us,’’ he later told investors at a presentation in Toronto.

Canada’s biggest airline is looking to capture more benefits from a program expected to have a net present value of at least C$2 billion ($1.6 billion) over 15 years. Aeroplan was once part of Canada’s most popular credit card, Canadian Imperial Bank of Commerce’s Aerogold Visa. The two-decade partnership ended in 2013 when Toronto-Dominion Bank took over as the primary financial partner, though CIBC can still offer Aeroplan cards under a 10-year deal.

Air Canada’s contract with Aimia runs until June 2020. The carrier has used the Aeroplan loyalty program, which offers consumers rewards including points toward Air Canada flights, for more than 30 years. Aeroplan is owned and operated by Aimia.

“International travel is the most popular reward a credit card loyalty program can offer,’’ Rovinescu said at the investor presentation. “This makes us therefore a highly desirable partner as Canada’s largest carrier with the most expansive global network and three powerful hubs.’’

Interesting Offer

Canada’s biggest banks are likely to be “extremely interested,” said Steve Allmen, president and co-founder of Loyalty & Co., a Toronto-based consultancy to the industry.

“I believe all five banks are going to look at it, but whether all five banks respond is another story,’’ Allmen said in a telephone interview, citing the possibility that existing contracts might disqualify one or more banks. For example, Royal Bank of Canada, the country’s second-largest lender, already has a Mastercard relationship with Air Canada rival WestJet Airlines Ltd.

Allen also anticipates a focus on a lender with a stronger Quebec presence such as Desjardins Group or Montreal-based National Bank of Canada. Some U.S. banks may be interested in a co-branding agreement, he said. And Air Canada may not have to choose just one.

“If Air Canada can do it right, they can actually launch with multiple partners,” Allmen said. “They don’t have to be with one partner.”

Earnings Outlook

Royal Bank of Canada, Bank of Nova Scotia and National Bank declined to comment Tuesday on whether they would be interested in responding to Air Canada’s request for proposals. Representatives for three other large Canadian lenders didn’t immediately return messages seeking comment.

Among other goals unveiled ahead of the investor meeting, Air Canada said it’s targeting earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent to represent 17 percent to 20 percent of operating revenue from 2018 until 2020.

Air Canada is also looking to achieve annual return on invested capital of 13 percent to 16 percent during the same period, cumulative free cash flow of C$2 billion to C$3 billion, and adjusted net debt of 1.2 times EBITDAR by the end of 2020. That last ratio would be “investment-grade” worthy, Chief Financial Officer Mike Rousseau said Tuesday at the investor presentation.

Air Canada’s Ebitdar to revenue margin trails that of its U.S. rivals by about 300 basis points, and most of the gap “is primarily due to the absence of a loyalty program,’’ Rousseau said.

 

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This article was written by Frederic Tomesco and Doug Alexander from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Montage Resorts’ New Luxury Brand Goes Urban and Local

Montage Hotels and Resorts

The lobby of the Pendry San Diego. Montage Hotels and Resorts

Skift Take: We’ve heard many of these talking points before by hotel brands seeking to do exactly this. Consumers will respond if the product is good, not if it’s “young” and “local.”

— Laura Powell

Another year, another new luxury hotel brand. Montage Hotels & Resorts, an ultra-luxury hotel brand established in 2002, has given birth to Pendry Hotels. The newer brand, initially conceived in 2014, saw the opening of its first two properties earlier this year.

In February, the Pendry San Diego, located in that city’s Gaslamp Quarter, opened for business. The following month, the Sagamore Pendry Baltimore made its debut in the gentrifying Fell’s Point neighborhood. Slated to open next are California properties in La Quinta in 2019 (which will share a site with other properties under the Montage International umbrella) and West Hollywood in 2020.

Given that Montage only has a handful of resorts located in high-end destinations (plus a hotel in Beverly Hills, CA), why was there a need to create an entirely new brand?

According to Michael Fuerstman, Pendry Hotels creative director and co-founder (along with his father Alan, the founder and CEO of Montage), it was necessary to “bridge the gap between the lifestyle and luxury hotel spaces.” Pendry is more design-driven and fashion-forward than its parent. It’s also positioned at a slightly lower price point (nearing $300 a night in San Diego and up to $400 in Baltimore versus $600 a night for an average Montage room) and designed for a slightly younger (30 and 40-something) clientele. Additionally, Pendry may end up becoming more of an urban brand. According to Fuerstman, “We are looking at cities, both top-tier and also at pioneering neighborhoods in secondary and tertiary markets.”

Pendry, whose motto is “Know Thyself,” is aiming to give each property a distinct local flavor. For example, the Sagamore Pendry Baltimore, an adaptive reuse of a 100-year-old recreation hall, is imbued with “a local understanding of the history, culture, politics and context” of the city.

Working with Fuerstman and Baltimore-based Sagamore Development, co-owned by Kevin Plank of Under Armour fame, interior designer Patrick Sutton seasoned the property with historical footnotes and nods to the city’s culture and quirks. For example, reflecting the city’s maritime heritage, rooms are designed to feel like ship cabins. The nautically-toned rooms lean masculine in design, with plenty of brass and wood touches. Minibars are filled with local treats, like Baltimore micro-brews and Old Bay potato chips, while the entrance hall sports laser-cut lyrics to The Star-Spangled Banner, which was written in Baltimore during the War of 1812.

Bruce Baltin is managing director for the Los Angeles office of CBRE Hotels, a leading international commercial real estate services firm. Further explaining the logic behind the addition of the Pendry brand, Baltin, as quoted in the San Diego Tribune, says,  “There are only a certain number of sites where you can put a Montage hotel. It requires high average room rates, so they’re expensive to build and operate, and you can’t get those rates everywhere.” Both Baltimore and San Diego are areas “where a Pendry works, but a Montage cannot.”

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Theme Park Developers Plan $840 Million Project on Mexico’s Caribbean Coast

newelly54  / Flickr

Developers in Mexico have announced plans to build an $840 million theme park north of Playa del Carmen. The popular resort city is pictured here. newelly54 / Flickr

Skift Take: Tourists already flock to Mexico’s Riviera Maya for beaches and other natural sites. Will there be enough demand for wave pools, rides, and shopping to justify a nearly $1 billion theme park development?

— Hannah Sampson

Developers in Mexico have announced plans for an $840 million theme park on the country’s Caribbean coast just north of the resort city of Playa del Carmen.

The park will be named “Amikoo,” the Mayan pronunciation of “amigo,” or friend.

Many of its attractions will include cartoon characters representing figures adapted from Mexican culture.

Rides will include the “Pirates of Bacalar,” referring to a coastal lagoon to the south where pirates once lurked.

Located along the turquoise-hued coast, the park will have a wave pool, virtual tours of the sea and air, hotels and a shopping mall.

Developers said Monday that the first phase of the park is to be completed by late 2018.

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Pop-Up Flight Check-Ins at Hotels to Be Tested by Virgin Australia and Amadeus

Skift

Passengers and employees at an American Airlines check-in area at Philadelphia International Airport. Amadeus is deploying a solution to enable remote check-in for flyers in Australia and New Zealand. Skift

Skift Take: Innovations powered by cloud computing are on the way to streamline the flight check-in process, but will take some time to become available globally.

— Andrew Sheivachman

Airline passengers will be able to avoid the pre-flight ritual of lugging heavy bags to the airport and around the departure terminal as the world’s first pop-up check-in system enters service.

Devised by Amadeus IT Group SA, the technology will facilitate check-in for groups of travelers at hotels, schools, conference centers and sports stadiums, the world’s biggest flight-bookings provider said in a statement Tuesday. Bags are taken onward to the airport by truck for the usual security screening.

Virgin Australia Holdings Ltd. will pioneer the service after a successful trial at Sydney’s main cruise terminal, where it allows passengers to enjoy the time before their flight unencumbered by luggage, according to local logistics specialist OACIS, which has partnered with Amadeus.

The system, which utilizes cloud-based technology to remotely access an airline’s passenger-processing system, is likely to rolled out across Virgin airports in Australia and New Zealand over the next 12 to 18 months.

One obvious candidate for expanding the service is Miami, the world’s busiest port for cruise-ship departures, OACIS Chief Executive Officer Matt Lee said in a phone interview. “They’re keen on seeing how we go down here in Australia,” Lee said. “The challenge for us will be just the pace at which we can move here, get established, and then consider where else we’d like to go.”

The beauty of the system, the executive said, is that it could be deployed almost anywhere, given its simplicity and lack of permanent facilities. “We could be there from 6 a.m. until 11 a.m. and then just close shop and go. We’ve got that flexibility.”

The UK government’s current consultation on aviation, launched in July, will explore the scope for alleviating airport pinch points through an expansion of luggage portering and in-town check-in. It cited the example of the Hong Kong Airport Express, which lets travelers drop luggage at the station two days before flying and collect it at journey’s end.

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Expedia CEO Thinks the Company Is Too U.S.-Focused Unlike Its Biggest Rival

Expedia Inc. chose finance chief Mark Okerstrom to be its new chief executive officer, quickly filling the job with a well-known internal candidate after Dara Khosrowshahi unexpectedly quit to join Uber Technologies Inc. Pictured is the Expedia mobile app on a smartphone.

Skift Take: Just like what the old CEO has been saying since 2015 when Expedia went on a mostly U.S. acquisition spree, the new CEO thinks the company has to get more global. We’ve got some ideas how. Stay tuned.

— Dennis Schaal

Travel booking giant Expedia Inc. has websites in more than 35 languages, makes at least 40 percent of its revenue outside the U.S. and has offices in 30 different countries. Still, that’s not global enough for new Chief Executive Officer Mark Okerstrom.

Okerstrom, who took over at the end of August when Dara Khosrowshahi left to lead Uber Technologies Inc., wants to make Expedia a household name for European and Asian travelers looking for hotels in their own regions. Historically, Expedia has gotten the bulk of

its revenue from Americans using the site to book domestic and foreign travel.

“We have to do a better job being a global player — and not just global in terms of having more countries in our investor relations presentation,” Okerstrom said in an interview. “We are significantly under-indexed in every major market with the exception of the U.S.”

Okerstrom’s comments come as his company’s arch-rival, Priceline Group Inc., is turning up the heat for Expedia’s domestic business by spending heavily on ads for its Booking.com travel site, which already dominates Europe. Chinese travel giant Ctrip.com International Ltd. has also been asserting itself internationally, agreeing to buy Scottish flight booking site Skyscanner last year for $1.7 billion.

Okerstrom called out Europe as a key market. “Europe is highly interesting to us,” he said. “We’ve got a huge opportunity to become much more locally relevant for the European customer.”

Staking out more of a presence outside the U.S. isn’t the only challenge Okerstrom, 44, is facing.

Expedia’s HomeAway unit is in a race with Airbnb Inc. and Priceline to capture as much of the fast-growing home rental market as possible. Right now Expedia is primarily focused on upgrading HomeAway’s technology and getting more of its properties on Expedia’s main booking sites. The next step is pushing into urban markets, where Airbnb has a sizeable lead, Okerstrom said.

Okerstrom joined Expedia in 2006, shortly after Khosrowshahi became CEO and the company spun out from IAC/InterActiveCorp. A Canadian by birth and lawyer by training, he worked his way up the ranks and was named chief financial officer by 2011. He was closely involved with Expedia’s acquisition spree over the last few years, including the purchases of Orbitz.com and HomeAway.

Khosrowshahi had already pivoted Expedia to focusing on integrating those acquisitions rather than hunting for more mega-deals. Okerstrom said he’ll continue on that path. “My focus will be very much operational,” he said. Still, acquisitions could play a role in the renewed push into global markets, Okerstrom said.

Okerstrom also must address new threats confronting the 20-year-old online travel market, which has largely kept the same business model even as other sectors of the internet, like online search, e-commerce and social media, radically changed.

One big challenge is Google, which has expanded more into travel services and gets about $14 billion in revenue from the sector each year Skift Research estimates. That’s more than Expedia and Priceline.

“We’re kind of playing both sides with them, keeping a wary eye on what they’re doing but also working closely with them to work on areas of mutual interest,” Okerstrom said of Alphabet Inc.’s Google.

Much of Google’s travel revenue comes from Expedia and Priceline, which spend billions on Google search ads every year. Okerstrom expects Google to keep building new advertising products, but doesn’t think the search giant wants to hire the amount of people needed to sign up hotels and deal with customer complaints, he said.

Perhaps an even bigger issue is whether Expedia and its peers can move forward in a world where the majority of travel isn’t booked on desktop websites at all. Okerstrom expects voice assistants like Microsoft Corp.’s Cortana and Amazon.com Inc.’s Alexa will be a key part of how people book travel in the future. Instead of seeing that as a threat, Okerstrom said he thinks it’s an opportunity.

Rather than rely on Google for the majority of online ads, Expedia can strike deals to be the source of all travel information and booking capabilities with any of the players working on voice assistants, he said. Expedia has already had discussions with Microsoft and Amazon, Okerstrom said.

“The gatekeepers are more fragmented,” he said. “That creates a unique opportunity for us to be the place where ultimately all travel answers can be provided.”

 

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De Niro Calls for Rebuilding Currently Uninhabitable Barbuda

Bebeto Matthews  / Associated Press

Antigua and Barbuda’s Governor General Sir William Rodney, left, and actor Robert De Niro shake hands after they addressed a high-level meeting on Hurricane Irma at the United Nations headquarters, September 18, 2017.

Bebeto Matthews / Associated Press

Skift Take: Barbuda needs to be rebuilt. But, however well-meant De Niro’s sentiments are, there are lots of other countries that need rebuilding, too, whether they are tourism-oriented like Barbuda or not.

— Dennis Schaal

Two-time Oscar-winning actor Robert De Niro came to the United Nations on Monday to appeal to all countries and organizations to help rebuild the devastated Caribbean island of Barbuda and ensure that “paradise is not lost.”

De Niro spoke at a hastily called meeting on Hurricane Irma, the most powerful Atlantic Ocean hurricane on record. The meeting of top U.N. officials and government leaders from several hard-hit Caribbean countries came ahead of the annual global gathering of the world’s leaders at the U.N. General Assembly which opens Tuesday.

Irma wreaked havoc in the Caribbean, including damaging or destroying an estimated 90 percent of the structures on the small island of Barbuda, which is home to about 1,400 people and the site of a resort co-owned by the actor.

De Niro recalled Barbuda as an “unspoiled beauty, a paradise found” on his first visit years ago. Now, he said, “we have a humanitarian crisis, an entire island destroyed.”

“We must act together to help the most vulnerable,” De Niro said. “The recovery process will be a long, hard road. Barbudans must be a part of it, their homes repaired stronger, rebuilt stronger, new homes stronger. The immediate needs — power, water, food, medical care, animals sheltered — must be met.”

De Niro and James Packer, son of the late Australian media mogul Kerry Packer, bought the K Club Resort last year and renamed it the Paradise Found Nobu Resort.

De Niro spoke of all the “warm and friendly” people he has gotten to know on Barbuda who were “looking forward to a new resort and jobs and future for them and their children.” He did not say how the hurricane affected the resort.

The governor general of Antigua and Barbuda, Rodney Williams, told the meeting that when Irma thundered through, “immediately Barbuda was rendered uninhabitable.”

“Its ferocity forever changed the landscape of Barbuda, and as the sun rose the next day the destruction was horrific,” he said.

He noted that the entire population has been moved to nearby Antigua. “For the first time in over 300 years, there is today not a single human being living on Barbuda.”

Williams said the preliminary estimate for rebuilding Barbuda is $300 million, which represents more than 20 percent of the country’s GDP.

“Barbuda is not a lost cause,” Williams said. “We can re-establish the island, better and more secure as a productive tourism center and as a safe homeland with which its inhabitants are desperate to reunite.”

But he said Antigua can’t rebuild Barbuda alone and he echoed De Niro in urging governments, international financial institutions and development agencies “to help us in this virtuous and vital cause.”

This article was written by Edith M. Lederer from The Associated Press and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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U.S. Business Travelers Embrace Technology but Also Fear Its Impact

Teresa Crawford  / Associated Press

Travelers wait in a security line at O’Hare International Airport Friday, Jan. 22, 2016 in Chicago. U.S. business travelers are optimistic about technology making their trips easier. Teresa Crawford / Associated Press

Skift Take: U.S. business travelers want the technology tools to make their trips easier. The rest of the world, however, doesn’t necessarily see technology as the solution to service problems.

— Andrew Sheivachman

Business travelers want better technology to help them manage their trips. But not all are sold on the transformative capabilities of the new advancements that will likely shape the travel industry going forward.

U.S. business travelers are among the most optimistic about artificial intelligence and big data making their trips better, according to the latest data from Egencia’s Business Travel and Technology Survey.

In the U.S., 55 percent of those surveyed believe artificial intelligence will improve their travel experience. But — in an unusual question for a travel management company to ask travelers — about a third of respondents said they foresee an apocalypse caused by artificial intelligence and virtual reality.

Most U.S. travelers (76 percent) also wanted more cross-device integration at a greater rate than any other country polled.

Travelers outside of the U.S., in general, indicated serious skepticism of the ability of technology to make their trips better.

“It’s true: business travelers in [Europe, the Middle East, and Africa] and [the Asia-Pacific region] are overall less optimistic about emerging technologies such as AI and VR in business travel when compared to those in the U.S., but they still want increased accessibility across mobile devices,” said Michael Gulmann, chief product officer for Egencia, the business travel arm of the Expedia group. “While they may be a bit more pessimistic in the use of emerging technologies, it’s clear that business travelers outside the U.S. also crave a seamless experience. We can see that in the data when people say they want to more efficiently manage their travel using multiple devices.”

Gulmann said the difference in opinion might have something to do with the way U.S. companies are investing.

“In the U.S., we already have tech giants like Facebook, Amazon, and Google investing billions in AI. According to McKinsey’s State of Machine Learning and AI study, 66 percent of all AI investments in 2016 were from U.S.-based companies,” he said. “Chances are that Americans have been exposed to these new technologies earlier and more often in their everyday lives.”

Travelers from Norway and Sweden were least likely to think AI would improve their travel experience, followed by UK and German travelers. Overall, Egencia’s research indicates that people want reliable service no matter which channel they prefer to use. It just so happens that European travelers perhaps want more of a human element to their travel service experience.

“At the end of the day, business travelers simply want things to work… and inflight Wi-Fi,” said Gulmann. Tools such as priority boarding, airport lounge access, and expedited screening at airports to improve productivity and satisfaction were also important to 20 percent of those who responded.

“If they can get things done with technology, great, but if not, then they take comfort in hitting [zero on their phone] enough times to reach a real-life person who can talk them through their issue,” Gulmann said.

Still, the option of talking to a human was not universally embraced, he said: “Results from our study indicate that 50 percent of global respondents would avoid human interaction on the road unless they are having a problem.”

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JetBlue CEO Blasts Big U.S. Airlines for Wielding ‘Anti-Consumer Power’

Sharon Steinmann  / AL.com via Associated Press

JetBlue Airways CEO Robin Hayes says other U.S. carriers engage in anti-competitive behavior. Pictured is a JetBlue Airbus A321. Sharon Steinmann / AL.com via Associated Press

Skift Take: These are fighting words from JetBlue CEO Robin Hayes, who does not like the tight control the largest U.S. airlines have over domestic and international markets.

— Brian Sumers

JetBlue Airways CEO Robin Hayes on Monday criticized United, American and Delta airlines for opposing the three-largest Gulf carriers as they expand in the United States, calling the situation “…the perfect illustration of how we see mega-carriers trying to use their muscle and deep pockets to limit competition.”

“The Big 3 act like it’s the end of the world,” Hayes told the Aero Club of Washington, according to a transcript of his remarks. “Make no mistake, this battle is
not about the U.S. airline industry against airlines from the Middle East. We believe it’s three mega-U.S. airlines who favor protectionism over competition.”

Hayes’ remarks came during a broader speech in which he argued United, American, Delta, and Southwest airlines hold a “startling concentration of power” over the nation’s skies.

The four control about 80 percent of domestic market share — enough, Hayes said, to make it tough for JetBlue to expand into congested airports, such as Los Angeles and Atlanta. JetBlue is the sixth-largest U.S. airline, well behind the Big Four and slightly smaller than Alaska Airlines.

“It’s clearly a competitive landscape that is not hospitable to new models, new entrants, or smaller carriers,” Hayes said.

Open Skies Debate

The Open Skies debate is important for JetBlue, which supports the rights of Etihad Airways, Qatar Airways and Emirates to fly whatever U.S. routes they want. In part, that’s good business for JetBlue, since it makes significant revenue shuttling Emirates’ customers from New York and Boston to smaller U.S. cities.

But in his remarks, Hayes said he defends Open Skies agreements because they’re important to the U.S. economy. The same types of agreements that allow the Gulf carriers to fly into the United States would permit JetBlue to fly anywhere in Europe if it wanted to try transatlantic routes. JetBlue is deciding whether to add new jets capable of flying from the East Coast to Western Europe.

“There’s just been so much paranoia and so many myths flying about – frankly, it’s ridiculous,” Hayes said. We’re going to keep fighting, though, because if the Big 3 are
ultimately successful, not only will they have cut off a major flow of foreign tourists to the U.S., but they will have invited other nations to retaliate against the U.S., not only in the Middle East, but around the globe and around JetBlue’s growing international network.”

In a statement, the Partnership for Open & Fair Skies, a trade group funded by American, Delta and United, along with some employee unions, including one representing JetBlue pilots, said it continues to oppose Gulf carriers because they take what the group believes are illegal government subsidies. The Gulf airlines have denied the subsidies are illegal.

“Perhaps if JetBlue did not financially benefit from Emirates’ billions of dollars in illegal subsidies, it would acknowledge that fair trade requires that all parties abide by the rules of international trade agreements,” the trade group said.

Domestic issue, too

It’s not only Open Skies that concerns JetBlue.

Hayes said the largest four U.S. airlines increasingly act like bullies — especially in markets they control. In some cases, JetBlue cannot get gates at big airports.

“Carriers like JetBlue cannot grow as we wish in key markets due to the strength of the consolidated carriers and their tight reins on airport facilities,” he said.

Access has always been an issue for new entrants, but Hayes’ comments come as JetBlue has re-entered the Atlanta market at an airport controlled by Delta. JetBlue has found the market inhospitable.

In Atlanta, JetBlue has complained the airport has not helped it find the gates it needs to run an efficient operation for its current and future flights to New York, Boston, Orlando and Fort Lauderdale, according to reporting from the Atlanta Journal-Constitution. Early this year, the newspaper reported JetBlue wrote to the FAA saying, “it appears that actions have been taken behind the scenes, at this late hour, to try to restrict competition at ATL.”

In his speech, Hayes said the airline has not been pleased with its experience in Atlanta. “It’s hard to believe that at an airport with 193 gates, we were told we could only have one gate – and we have to share it,” he said.

Joint Ventures

Hayes also asked whether regulators should keep granting long-term antirust immunity to U.S. airlines, who use it to legally collude with international partners.

The biggest joint ventures are across the Atlantic, where United works with Lufthansa Group and Air Canada; American is tied to British Airways, Iberia and Finnair, and Delta partners with Virgin Atlantic and Air France-KLM. But others exist too, such as United’s tie-ups with Air New Zealand and Japan’s ANA, and Delta’s forthcoming joint venture with Korean Air Lines.

“When the Big 3, along with many of their international alliance partners, are granted immunity from U.S. antitrust laws, they are given a permission slip to do what otherwise would be illegal — collude and coordinate on pricing, scheduling and marketing decisions,” Hayes said. [It’s] all based on glorious-sounding promises of how delightful and inexpensive travel will be for consumers.”

Hayes said JetBlue does not oppose joint ventures, but asked the government to approve them for shorter periods, rather than indefinitely. Last year, the government finally changed its policy for one deal, approving a proposed Delta-Aeromexico joint venture for only five years.

Hayes said hoped the U.S. Department of Transportation will follow that short-term template in the future.

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SAS Strives to Fulfill Passenger Dreams and Its Own With Experiences Program for Elite Flyers

SAS

SAS frequent flyers visit the airline’s catering kitchen near Tokyo Narita Airport during a recent trip led by the airline’s head chef, Peter Lawrance. Lawrance is the foreground center, with a beard. SAS

Skift Take: We’re not surprised SAS frequent flyers love to take trips with the airline’s head chef, though we’re impressed the airline found 20 takers willing to spend $5,000 a piece (plus 100,000 points) for a five-day trip to Japan.

— Brian Sumers

Peter Lawrance, head chef of Scandinavian airline SAS, often says he has one of the world’s best jobs. And unlike some people, who say it but may not mean it, Lawrance is probably right. His airline wants to improve its food — it is betting premium customers at 35,000 feet will embrace the farm-to-table movement as on the ground — and SAS gives him an ample budget to make it happen.

Lawrance’s Instagram feed is filled colorful photographs of his travels. One month, he’s trying soy sauces in Hong Kong, judging how temperatures affect fermentation. In another, he’s near Washington Dulles Airport, tasting pasteurized cheeses he hopes European palates will find palatable. In yet another, he’s in Boston, watching a chef prepare sausage stuffed roulades for that day’s flight to Copenhagen.

Sometimes, he’s is even Japan, visiting the dairy farm that produces milk SAS uses for cheese, butter and ice cream.

A little more than a year ago, one of the airline’s senior executives accompanied Lawrance to Japan as the chef sought inspiration for new menus that would focus on Japanese ingredients. Afterward, the executive had a question: Would Lawrance allow some loyal SAS flyers to accompany him on a similar trip?

Lawrance was skeptical since SAS planned to invite big-spenders who might travel 250 days annually. “Why would they want to spend their little free time on another trip?” he wondered. But he and his colleagues discussed how to make it about more than just accompanying Lawrance on a business trip. “We needed to offer them something that was so far out there and so far different,” he said.

They devised a plan. From June 6 through 11, Lawrence would take 20 super travelers on a culinary-themed tour of Japan. They would go to aviation-related spots, such as the SAS flight kitchen serving Tokyo’s Narita airport, but also would visit a sumo wrestling training camp and a distillery Lawrance says produces the word’s best whiskey.

They would take the bullet train to Kyoto, where they would eat a traditional dinner and watch geishas perform. For other meals, they’d eat street food and at one of highest-ranking restaurants in Japan.

“It was all about what I would do when I’m there when I am by myself, and how I get my inspiration for new meals for SAS,” Lawrance said.

The sold-out trip was among the first in a new program called SAS Dreams. With about one journey per month, SAS is offering its most loyal customers — such as top tier Pandion members, a group so exclusive the airline’s CEO picks members each year — a chance to participate in activities generally off-limits to regular travelers.

In October, a group will meet in the English countryside, where frequent flyers will drive classic cars on what the airline calls a “three-day castle-to-castle tour.” Also in October, a group will visit France for a three-day tour of the Champagne region with Richard Juhlin, a champagne expert. Other upcoming trips include a visit to the South by Southwest festival in Austin, Texas, and a culinary tour of Hong Kong and Macau with Lawrance.

The trips aren’t cheap, but they’re not money makers, either. Lawrance’s Japan tour cost roughly $5,000, plus 100,000 frequent flyer points, and just about broke even, said Cecilie Svegaarden, head of SAS Dreams.

But the program serves two purposes. One is to reward customers who may have enough money to do what they want, but appreciate access the packaged trips provide. And second, over time, Svegaarden said SAS hopes the Dreams program will help position the airline less as a transportation provider and more as a travel company. SAS may sell its tours to everyone, not just loyalty program members.

“What we see is that it’s the leisure market that is really growing,” Svegaarden said. “That’s not just here. It’s global. That means we need we need to be stronger. Air tickets are just one small part of the whole journey. We want to our customers to use SAS for more than the airfare. We want to be a lifestyle.”

staying close to customers

The first part of the SAS Dreams strategy — rewarding loyal customers with special experiences — is not new, though SAS might take it further than other airlines.

In recent years, airlines, hotels and credit card companies have altered loyalty programs to reward top-tier customers with experiences, rather than just upgrades or travel discounts. Many travelers — especially younger ones — tell marketers they prefer experiences, like backstage concert access, over traditional airline or hotel-related perks.

While it’s not a fresh concept, offering access and experiences works, said Tom O’Toole, clinical professor of marketing at Northwestern University’s Kellogg School of Management and former chief marketing officer at United Airlines.

“It’s very difficult to find effective ways to engage with very high-value travelers because the practical reality is these individuals have all the points they could ever want, they have all the miles they could ever want,” he said. “They get the special services and perks, and frankly they can afford to buy whatever they want.”

O’Toole also said the trips make sense because loyal customers like and respect airlines more than customers who only fly once or twice per year. The highest-level frequent flyers often fly so much they’re often obsessed with what executives such as Lawrance must accomplish to plan the menu to Beijing. They want access to people who make decisions abut the flying experience.

“Even very high-halue travelers are fasciated and engaged by behind-the-scenes experiences and insights at airlines and hotels,’ O’Toole said.

Many SAS trips have no obvious airline connection, and some occur in cities where it does not fly. But a senior member of the airline’s management team joins every group, and travelers ask about SAS operations and strategy.

“Our passengers and clients really enjoy sitting next to someone in general management,” Svegaarden said. “These clients have so much insight and such a big interest in the airline, so for them to sit and have dinner and ask these questions and get them answered, they really appreciate that.”

Ultimately, O’Toole said, that connection might persuade a customer to stick with SAS for a long trip, even if Lufthansa has a better schedule, product or price.

Is it scalable?

For SAS, the Dreams program is about more than rewarding customers. While it may never produce big profits, Svegaarden said it can help change the airline’s positioning.

“There’s not much revenue on these trips, obviously,” she said. “For SAS, which flies 29 million passengers every year, this is a tiny group. But this has something to do with the perception of the airline as well. For us, SAS Dreams is great storytelling. Everyone has dreams. Everyone has their bucket list. This might change our customers’ perception of SAS.”

And while SAS Dreams initially served high-value travelers, the airline has opened it to other frequent flyers, too. It’s also betting it can increase revenues by offering pre-planned trips to corporate customers.

Svegaarden said the program might work as a standalone business because SAS has a reputation in Scandinavia for quality. Yes, luxury-focused travel companies can probably create similar trips, but SAS is betting it has an edge because it knows its customers better, and they tend to like the airline.

Another advantage is that the Dreams program tends to get better airfare deals than the average tour company.

“They feel like they are a part of a community when they are traveling with SAS,” Svegaarden said of typical Dreams customers. “It means something special to them. For safety and security, they trust the airline. They also trust us to fulfill their dreams and give them other experiences.”

Still, it’s not clear whether the product is scalable or even needs to be, Northwestern’s O’Toole said. Many brands only launch these programs to reward their most profitable customers and to keep them from defecting.

Even if that’s all the SAS program does, he said, it can be a success.

“The challenge is how do you scale the program enough to have a meaningful business impact,” he said. “If the primary objective is creating greater engagement and loyalty from a highly select group of extremely high-value customers, then perhaps you can accomplish your objective without scaling a lot.”

Here’s the itinerary from Lawrance’s trip to Japan.

Ryan Wolkov

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Author: Ryan Wolkov

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Tour Operator Context Nets $5 Million in Funding for Its Daunting Task of Scaling

Context Travel

The Sagrada Família. the emblematic Barcelona church of the late Catalan architect Antoni Gaudí, is the kind of engineering and cultural work that Context Travel tries to unravel for its guests. Context Travel

Skift Take: Context is a scholarly tour business betting that digital marketing will let it replicate its model profitably worldwide. Other experiential tour businesses will watch with a skeptical — but hopeful — eye.

— Sean O’Neill

Lots of small travel companies get relatively small amounts of fundings. By that measure, news that Context Travel, a provider of walking tours and activities based in Philadelphia, took in a $5 million in investment from a private equity firm isn’t that remarkable.

But the deal becomes more notable when it is seen as being representative of something a bit larger: Many travel companies are wrestling with how to meet the demand for a curated selection of experience-heavy travel at scale.

It is easy for travel industry types to quote surveys suggesting that more people — especially luxury travelers and millennials — prefer experiential travel over checklist or package tourism. There’s a similarity to how to these middle- and upper-income people tend to prefer travelover buying physical goods.

It’s also easy to point to a growing demand for educational experiences, from the doubling of museums in the past couple of decades to the explosion of niche, skill-oriented workshops like cooking classes.

But it is harder for travel companies to figure out how to build a business addressing this perceived market with significant volumes.

Context Travel, which is a tour operator and not an aggregator, has faced a similar challenge of getting much bigger with its selective approach to tours, which emphasize very small groups “for the intellectually curious traveler.” It’s a problem that several of its tour operator rivals also face.

Context’s differentiation is in hiring scholars, professionals, journalists, chefs, and other specialist professionals to lead its tours, which are typically limited in size to no more than six people.

If you broaden the category from more than just afternoon walking tours to educationally themed package tours, this is a significant sector that includes names like Abercrombie & Kent, ACE Cultural Tours, Cazenove+Loyd and Martin Randall, National Geographic / Lindblad Expeditions, Remote Lands, and Smithsonian Journeys, among many others.

Founded in 2003, Context Travel only grossed about $8 million last year, an amount the company will need to ramp up for Active Partners, a London-based firm, to earn a multiple on its investment one day.

Just Add Cash?

Active Partners has experience in finding so-called product-market fits for consumer brands, and then adding the jet fuel in equity to help replicate the model in a broader market quickly.

Over a decade, Active Partners helped the clothing maker Rapha become a market leader for high-end bicycling gear via direct-to-consumer sales, and Evans cycles to become a popular brand among cycling enthusiasts. In the past few years, the firm has similarly helped rapidly spread the opening of Leon and Honest Burger franchises in London.

But can travel follow the same model? Nick Evans and Alex Gilmore of Active Partners hope so. They will join Context co-founder Paul Bennett on the company’s board.

Active Partners said that its thesis is that “Context has primarily drawn customers from the U.S. traveling to Europe, but we are building a team that can rapidly scale the number of cities in which Context operates and attract new customers from around the world.”

How viable is the strategy? Airbnb, for one, is investing large amounts of money in its Trips product,  which was launched late last year,  and aims to cash in on a growing interest in “authentic” tours and activities.

Airbnb’s gains appear to be meager, to date. Skift looked in depth at Airbnb’s experiences product, talking to operators/hosts who participate in Trips.

One issue: Airbnb has had to be high-touch in its involvement, and it has probably not been making a profit. — One expert estimated at the time that Airbnb only made about $10,000 in the Bay Area since launching Trips in November 2016.

Bennett, who cofounded Context Travel with his wife Lani Bevacqua, said that the competitive set broadly breaks down into two groups.

“We have local tour suppliers in each market who are competitors,” said Bennett. These include large companies like City Wonders as well as myriad small, mom and pop operators all over the world. This group is local or, at most, have five to six regional destinations.”

“The other group are global aggregators like Viator or franchises like Urban Adventures. These guys have large budgets and compete well on paid and organic search and digital marketing. They’re also global. While we have an advantage regarding quality control — we own the product — and differentiation, we still go head-to-head on customer acquisition.”

CEO IS MIA

At the beginning of the year, Context had 15 full-time staff. It added four people, including a sales director. With the funding, the plan is to add about 10 more positions in technology and marketing. The company has a presence in 42 destinations, up from 13 destinations in 2011. It has about 1,500 English-speaking tour guides who lead about 700 tours.

Context plans on hiring a new CEO based in Philadelphia or New York City to execute the business plan and help take the company to the next level, with the co-founders stepping into a more consultative role.

Scaling involves challenges on both the demand and supply sides of the equation.

On the demand side, the company will need to invest in digital marketing — an effort that it has largely avoided until this year.

It has work cut out for it. A year ago, on a trip to Rio de Janeiro during the Summer Olympics, this reporter took several Context tours with friends, and the tour guides said that there had been few customers coming in during the past year.

Most of its business appears to come in Italy and France, with travelers giving the company high satisfaction ratings but only associating it with that specific country as opposed to being a multi-destination brand.

Active Partners is betting that issues like that are a function of poor marketing and that shoppers are out there and can be reached cost-effectively. “This was the first year we ever paid for customer acquisition online and more sophisticated and automated email marketing, and we grew 50 percent in our sales,” said Bennett.

That suggests that, at least for a couple of years, the company has some “low-hanging fruit” that it could claim through applying best practices in marketing. Yet is there an upper limit to growth?

On the supply side, Context needs to produce tour guides, which it calls “docents,” that meet its quality standards. On a recent look of tour availability in Japan in November, there is a dovetailing in the availability of tours in places like Kyoto and Tokyo that have higher-than-usual numbers of English-speaking masters and Ph.D. students than elsewhere in Japan.

Bennett pushes back on the idea that there’s much of a supply problem. “No, we can’t mint Ph.D’s, per se, but the real problem is taking knowledgable specialists and turning them into people who can make points conversationally and vividly to people who are on vacation.”

 

Ryan Wolkov

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Author: Ryan Wolkov

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