Farely aims to uncover how much does it cost to airlines to fly you around

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As I have just come back from a trip to Istanbul, my memory is still fresh with all the bargaining going on at the city's bazaars. The key to getting the best deal is to try to guess how much does the product or service to the other side and then offer a price that is just above.

Whereas most air travelers have limited bargaining power, or at the very best have indirect tools to get the best price (like Hubskip or business class seat auctions like those organized by Austrian Airlines), some large corporate travel buyers are in a position to negotiate prices with airlines.

For many other players in the airline industry that face complex pricing negotiations, for example airports trying to get carriers to open new routes (just ask European regional airports negotiating with Ryanair!), getting to know how far can they go at the negotiation table is also important...

Wouldn't it be great to have some sort of benchmark when trying to bargain?

This is precisely what Farely has set to do: provide a reliable airline cost estimate that can be used as a reference by the many players in the industry.

I was intrigued by how a startup could crack one of the airlines' industry best kept secrets, so I set out to interview Evan Konwiser, one of the founders.

Q: Ewan, I would like to ask you how did Farely take off? How did you come up with this idea?

E: We are both entrepreneurs and consultants in the travel industry: Scott is a veteran in corporate travel procurement, and I have experience in technology for both corporate and leisure travel. We stumbled upon the idea in 2010 while brainstorming what new data could be introduced to help break the gridlock in corporate negotiations.

We know that corporate clients want the airlines to make a sustainable profit, but at the same time are negotiating as hard as they can. The resulting contracts often fail to reflect any basis in profitability.

We designedFarelyto be the blue book of airlines, as a 3rd party trusted source for what fare level allows the airline to transport customers at a fair profit, defined as returning the cost of capital.

We also had an idea that consumers would want this information also. People often research and shop for airfares over several weeks and months, collecting fare data points from multiple sources. We feelFarelydata is another important piece of the picture, informing consumers whether they're flying at a discount such that the airline will lose money on their seat, or whether they are contributing significantly to airline profits. We think of it as an numerical answer to a question many people wonder about.

Q: What is your business model?

E: Our first business model is selling the data to corporate clients, as well as 3rd party business intelligence products, airline customers, and others directly in the airline purchasing value chain. We also believe we can attract enough users to a consumer site to sell media placements and generate affiliate revenue from travel searches off of our site, but we will not monetize that materially for quite a while.

Q: How you get the input data in an industry that has such a broad range of cost structures and variables to take into account?

E: For starters, we use publicly available financial data from public airlines. Due to DOT and SEC submission requirements, this data is somewhat standard, and we've developed our own algorithms to standardize the ones that are not quite the same. We then augment it with one-off data manipulations to reflect known issues in the data, such as airport-specific landing fees.

Q: I have seen now is on alpha stage with a limited set of airlines, what are plans for future roll out?

E: We are in the process of adding many more non-US carriers to theFarelydata set. We will continue to support more and more airlines throughout 2013, hoping to reach all the major public airlines in the coming months!

As we do this, we'll revisit all of the airlines and routes to iterate on our algorithms to make the cost analysis better and better. There is an ongoing effort to continually improve the precision of the output as things change.

Q: I wonder whether your cost-benchmarking technology could be used on other industries too. any plans in this regard?

E: Absolutely! Many demand-based commodity markets, like air travel, have long forgotten about cost when pricing for the consumer. We believe that cost does come into play, especially when negotiating bulk purchasing. As consumers and procurement professionals use more and more data to analyze purchase decisions, we think cost will become a major part of that.

Most people want to know if "they're getting a good deal" more than even if the price is high or low. Comparing market fares to the actual airline profitability will help debunk the mystery behind airline costs and inform customers.

The average consumer doesn't even know how much fuel it takes to fly them, and we think that's a vital data point to communicate the true cost of flying.