(Bloomberg) -- As holiday travel and winter weather converge, the annual ritual is about to unfold at U.S. airports: Flights are canceled, and disgruntled masses throng ticket counters and flood airline call centers hunting for alternatives. Happy holidays?
A Boston-area startup, born of a disastrous ski trip 10 months ago, aims to offer an alternative. For $19 to $34, the company, Freebird, guarantees it will buy you a ticket to your destination, regardless of cost or carrier, if a flight is canceled or delayed more than four hours or a connection is missed due to an airline’s delay.
This can avert what usually happens when a trip is disrupted: An airline automatically books you on another of its own flights, regardless of the time, connections, or your own wishes. That’s because airline computers typically search for the widest availability when a cancellation occurs, so you don't always get the very next flight if there's a chance the carrier might sell that seat for a premium to a last-minute traveler. In these cases, passengers typically queue up in the airport or on the phone waiting for an airline employee to change the itinerary.
What also happens: Seat options are limited and people get frantic, spending hundreds or thousands of dollars for a ticket on another airline. There is a wedding, a funeral, a cruise ship, or an ill loved one involved. The financial hit can be harsh.
“There are certain extreme events where everybody feels helpless,” said Ethan Bernstein, a former Expedia M&A executive and the co-founder and chief executive of Freebird, which is based in Cambridge, Mass. In February, he and some friends were returning to Boston from a weekend Colorado ski trip when one of the two nonstop flights the group was booked on was canceled. One friend got assigned a new flight, 35 hours in the future, while another paid thousands of dollars to get home via New York.
“When the dust cleared, one thing was clear: Everybody had a terrible experience,” Bernstein said.
Freebird is much like an insurance product in that the buyer aims to protect herself from some ugly outcome. The company resists that analogy because there is no claim to file for reimbursement, unlike most of the travel protection policies sold by companies such as American Express and Allianz. Freebird touts “three clicks” to a new flight: You pay the fee, they take the hit for a new ticket.
The closest analogy is probably a product from an insurance industry heavyweight, Warren Buffett. Like Freebird, Berkshire Hathaway’s AirCare monitors flight disruptions and transfers money to its customer during a trip. Unlike Freebird, AirCare manages risk by disqualifying certain flights and certain airport connections and limits the number of flight legs per day it will cover.
In an insurance model, most of the time nothing happens. Freebird will pocket the cash. The business’s Achilles heel lies in its software programming and understanding of how airlines’ performances vary greatly during foul weather—what the industry calls irregular operations. If the sophisticated algorithms don’t correctly assess and price nearly every flight Freebird covers, the startup will quickly burn a ton of money and could fail. Freebird has raised $3.5 million from venture capital firms General Catalyst, Accomplice, and Slow Ventures and from several angel investors.
The company has hired several employees with backgrounds in risk assessment to crunch the voluminous data the Department of Transportation collects on such things as flight delays, flight cancellations, weather history, and airport operation performance. The model can work because of the abundance of data on how airlines have performed in a variety of situations.
For example, according to Freebird data, the best round- trip route—and thus the safest, in terms of risk—is from Seattle to San Jose, Calif., with a disruption rate of 0.3 percent across 6,000 annual flights. The worst? Boston to New York LaGuardia, with a rate of 6 percent over 10,000 flights.
“There’s so much data, and that data is available, it’s workable,” said Heidi Brown, a former currency trader who co- founded OptionsAway, a Chicago-based travel startup that also assesses risk for its business of selling travelers options to hold an airline fare before purchasing it. “You can figure out anything you need to. It’s just math.”
The biggest unknown to Freebird’s risk software—and thus, how to price a customer’s itinerary—is the mystery in how airlines will price their same-day fares that Freebird needs to buy. Another issue the company may confront: Will airlines cancel return tickets if Freebird customers switch to another carrier when a disruption occurs? Freebird encourages its customers to call their airline when they get a new ticket and request--beg?--that the return flight be honored.
“The real opportunity is on understanding the cost side,” Bernstein said of the business’s evolution. “We’re at an early stage; there is still a lot of stuff we’ve got to learn.” He declined to disclose what kind of profit margin Freebird can earn or how much it expects to spend on airline tickets.
Freebird’s current price, $19 one way and $34 round trip, will change after a winter “promotional period,” Bernstein said, with most future one-way trips likely to cost $20 to $30. Each flight will be assessed on a variety of risks of disruptions, such as the high winds common each June in the Northeast or how much of a trip involves a regional airline flight, the ones usually most at risk for delays. Airlines also have different reputations for delays. Allegiant Travel and Spirit do not operate as reliably as Alaska or Hawaiian Airlines.
And lest you wonder, Lynyrd Skynyrd fandom isn’t a direct influence on the company’s name, which aspires to convey “the spirit of what we do for customers.” But Bernstein is a Skynyrd fan, too: “Who isn’t?” he said.
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