An App to Predict Airfare Prices that Uses AI
“Not all those who travel are lost” said J.R.R. Tolkien once, and it just so happens that many of our MBAs who work tirelessly around the clock to provide you with the insightful research pieces we serve up, are avid travelers – so much so, that one of our MBAs has a small colony of ants living in his Lenovo laptop. (You too can enjoy these perks. If you’re an analytical writer with a great sense of humor who loves traveling and technology, drop us a line.) That same Tolkien quote could also apply to artificial intelligence startups. “Not all those who say they use artificial intelligence are actually able to capture a sustainable competitive advantage” might be what a modern-day Tolkien would say about some of today’s companies that claim to use artificial intelligence.
We’ve talked before about how artificial intelligence is being used in the travel industry, and today we came across a company called Hopper which falls into that category. At first, we thought Hopper was just another company using AI as a recommendation engine, but it turns out that they’re doing something called “predictive analytics” to predict when the best time is to purchase flights or hotel rooms.
An App to Predict Airfare Prices
Founded in 2007, Canadian startup Hopper just closed a Series D funding round of $100 million last week which brings their total funding to around $183 million to date. (They didn’t make our list of top Canadian AI startups because they’re not classified as “AI” in CrunchBase. That’s the downside of using CrunchBase for research, but we don’t have enough cash yet to give Anand for access to the Holy Grail of startup data.) Hopper says they can predict airfare prices with 95% accuracy up to 1 year in advance. Let’s say that you wanted to purchase a one-way ticket from Tokyo to Portland. Pick a date, and the app will give you predictions as to when the optimal time would be to buy a ticket. Here’s a screenshot of our proposed trip priced on the Hopper app:
If we simply wait a while, there’s a 95% chance that we can save $49. We popped over to Kayak and priced the same flight along with our own secret weapon for cheap airfare prices. Here’s the price comparison between the three:
- Hopper – $682 (26 hours)
- Kayak – $646 (27 hours)
- Our Secret Weapon – $453 (30 hours)
Sure, this is just one use case, but we’re not impressed with the results. The app has a “flexible” option which sounds interesting, but it’s only available for iPhone users and round trips (rolls eyes.) At any rate, we’re not here to review the app. We’re here to look at how this company uses big data and artificial intelligence to obtain a competitive advantage in the travel industry.
Hopper’s Business Model
A pretty solid article by TechCrunch provides some added detail on how Hopper uses AI to get people to buy things they don’t think they needed. When you start using the app and pricing possible future trips, the app “gets to know you better” and then starts making suggestions based on what it thinks you might like. 25% of all bookings made on the platform are the result of AI-powered recommendations which convert 2.6X better than searches that people plug in themselves. Since bookings take place on the platform itself (definitely a perk), the company gets paid commissions for bookings. More than 50% of their bookings are for long-haul international flights so their average purchase is much higher which leads to larger commissions. The platform is mobile-only and 70% of its users can be classified as millennials.
According to Hopper, nearly 30 million people have downloaded the app and collectively saved more than $1.7 billion on airfare. (Hopper’s CEO told CNBC that users typically save about 10 to 15 percent on tickets.) They also offer “secret fares” now which are allegedly up to 35% percent cheaper than anyone else. The company plans to use their funding to build out the AI algorithms more and expand internationally.
Hopper is a travel search engine that looks to predict when prices for flights and hotels will increase or decrease. That notion isn’t new, and sites like Kayak – and another site we won’t name which is our secret weapon for getting cheapest fares – also offer the same sort of functionality. Hopper has a platform in place now which they can keep adding big data to, and over time it will get better and better at telling you when to buy your tickets and book your hotels. Every day, they collect upwards of 10 billion priced itineraries which provide a wealth of information that can be used to better predict prices going forward. The question is, are you always getting the best price? We’re not overly convinced that’s the case. But then again, when 70% of your customers have difficulties understanding how interest rates work, does it really matter?
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