No transactions, no problem: why this travel veteran is optimistic about a startup launched on eve of COVID-19

Russell Carstensen founded Melbourne, Australia-based Aeronology in July 2019 and launched the business to market in December.

In light of what has transpired in the global travel industry since then, that might seem like a very untimely decision. But Carstensen doesn’t see it that way, and in fact Aeronology is ahead of schedule with its business plan and regularly adding new partners.

Carstensen previously ran two large travel businesses in the Australia/New Zealand market – corporate travel management company QBT and Air Tickets, a 70-year-old airfare distribution and ticketing services provider that Carstensen says was doing about $1.7 billion in total transaction value when he left in 2018.

His plan for semi-retirement changed when former colleagues approached him about creating a new – and improved – travel technology solution, primarily for travel agents.

We spoke to Carstensen to find out more about Aeronology, how he plans to continue growing the business and why he’s going to be cautious about taking on investors. The conversation has been edited slightly for brevity.

Explain the problem that Aeronology is intended to solve?

When I left the Air Tickets business, we had been booking and buying from ticket wholesalers and consolidators in the Asian market, and what we found was that market was really manual, low tech.

What we provide is the equivalent of internet banking for the travel agent. They have their own direct contract with a global distribution system, and we provide a web front end to the green screens and through an API pull out the relevant information for the travel agent to make a business decision.

For a travel agent to make a booking – say four sectors, two passengers, two bags, two meal requests – in the GDS, for someone with five years’ experience to do that booking it takes about 28 minutes. There’s a lot of entries that are quite complicated. When they used our front-end process, it takes three minutes.

And that example is just flights. The natural occurrence is a travel agent will first check flights and book that, then add hotels, then travel insurance, then activities and then maybe a car. And they may do cruise, and they may do tour. Often they have to go to different screens to do all that.

We’ve just connected with WebBeds, which is the second largest room bank in the world. We connect all their hotels to the booking process in one screen.

To a certain extent it’s like Expedia for travel agents. Our biggest sale point is we can turn a travel agent from $1 million travel agent to a $4 million travel agent without actually doing any special training. And then at the end of it all, the agent can price that product at any price they like. It may add up to $2,000, and there may not be a lot of margin or commission in that booking, so they can mark it up to $2,200. We provide a document to say it’s $2,200 and an itinerary as well.

How has your business been progressing since you launched?

When we launched in December we got two very large organizations to sign up with us – Connexus Travel in North Asia, which is the old Swire Travel, and one of my original biggest competitors in this Australian/New Zealand market signed up within three days of me launching – that’s Express Travel Group. And then we’ve got really large businesses out of Singapore - Chan Brothers Travel, one of the prestigious travel businesses out of Singapore, and also Global Travel.

So I’ve got the Hong Kong, Beijing, Shanghai, Taiwan, Singapore, Australia and New Zealand market footprint, and that’s what we’ll focus on probably for the next six to 12 months.

We are multi-GDS – we have Travelport, Sabre, Amadeus, Travelsky. We’ll have all the low-cost carriers if we do our deal with the low-cost carrier aggregator, and we’re working with all the major airlines with NDC.

We’ve also been selected by IATA for their accelerator program that starts in August, also ATPCO Bridge Labs and the Singapore Tourism Accelerator. As a startup we’ve been very fortunate and successful getting into these huge organizations.

Tell us about your business model and how you are being impacted by the coronavirus crisis.

I personally own 65% of the company. We’re fully funded until early next year.

Up until the virus hit, travel agents were continually busy, and they had been making a lot of good money for the last 20 years. When you are making money, when you are busy, the tendency to change is minimized. It’s human nature.

Now the virus has stopped everything. Every single travel business around the globe is thinking, ‘If I’m going to last, my business is going to have to look different. My costs are going to have to be much lower, and I’m going to have to be much more productive.’

But there’s no technology out there to do that. This is where we’ve come in. We have hit the curve before the curve was realized.

How we make our money is we charge $1 AUS per transaction. We’re 13 people now, and we’ll probably grow that up to about 20 by the end of this year. We’ve opened a developer team in Manila, but most of our operation is in Melbourne. Once we’ve got all our technology in, we don’t have to grow, we just have to maintain. So I could be producing 100 million transactions with the same staff numbers.

What are your plans as far as geographic expansion?

Last year when we were doing our business plan it was to focus on APAC in 2020 – to get a footprint in each of those major markets in North Asia, Southeast Asia, Australia, New Zealand.

We got to that by February with very reputable travel businesses, so we are now nine months ahead of the curve and our market reach is broader than budgeted.

Now I’m already discussing the technology into Europe and into the United States. The beautiful l thing is we operate on the back of all the other global GDSs. Our platform is cloud-based. We’re going to be multi-lingual. And the services we provide a travel agency are dictated by the deal between the agency and the supplier.

Next year we are aiming to the United States, North America and South America, and the following year we expect to put a footprint into Europe and Africa.

You say you have enough money to last until the end of 2020, but what is your strategy if travel volumes do not in fact pick up until well into 2021? And then it may be much longer before they return to the levels I assume were in the business plan you devised last year - so how do you survive a sustained period of lower than expected revenue?

Obviously what is going on with the transactional side of travel is unprecedented, and the numbers are in general around five to 10% of the 2019 figures.

Thankfully there is a lot of long-term experience in our business, so we have been in situations like this before – the recession, September 11, SARS, Swine Flu, aircraft crashes and wars. This holds us in good stead, because we have learned not to panic, so control what we can and keep on developing. We won’t blink… yet.

We have a five-year forecast and to be profitable in the second full year of operations, and we plan to stick with those numbers.

There are three strengths - and in some ways luck - in our current business model: we have a very strong domestic market in Australia and New Zealand and potentially a “travel bubble” between these countries, then there is the Chinese domestic market where even now there is a huge number of travel transactions going on. Finally the APAC region has done an incredibly good job in containing the spread of COVID-19.

Another strength we have is we have contracts, strategic ones, and our product is actually working as expected. The travel agents and online travel agencies using our application are in fact between three to five times more productive and our business reputation in the industry in this region is outstanding.

But no matter how good your product is, consumer demand is out of your control. Does that cause any sleepless nights?

Aeronology has the proven technology, the experienced team, a low and flexible cost base, great contracts with great travel businesses in the APAC region, and we don’t rely on supplier revenue. We don’t do commercial relationships with any of them, we just need their APIs to transact.

If we need new investment, we will ask. Aeronology has what most investors want, a great model, low cost innovative technology and unlimited ability to transact billions of transactions without increasing operational costs by the same growth percentages. I sleep with one eye open.

So what would you be looking for if you open up to investors?

At the moment we are happy to stay private. But if an investor is dedicated into travel and has some got some sort of leverage in that market, we would consider them.

Absolutely no way will we allow a GDS investor in us, because as soon as a GDS buys into anything they screw it up. So if we’re going to have investors we will be selective who they are.

We don’t need the money, but it would be good to have a gateway into a market – maybe the U.K. or maybe the U.S.

Despite the continued growth and proliferation of self-service booking tools, you are banking on the longevity of traditional travel agents?

Yes. I was in Geneva in January to apply to get on the IATA accelerator. When we were successful I asked the chairman of the selection panel how we got onto the group - we’re the only one dedicated to travel agents -  and the reason he said is that still 65% of all transactions in IATA are done by travel agents, and they have been doing the same thing the last 20 years.

So they can see the value for the technology on a market that’s still bigger than the OTAs and that can direct travel behavior better than an OTA can.

An OTA, everyone runs to the bottom of the barrel. A travel agent provides value to the trip, and there are still a lot of people that will go to travel agents to get expertise, to feel comfort, to pull it all together, and then they know they can contact that travel agent to fix any issues.

The OTA model has been [expletive] exposed in this particular market because as soon as everything went pear-shaped, no one had anyone to call.

So if I get 5% of that 65%, I’m a very rich man.

But you also do provide technology for OTAs – tell us more about that.

Quite often when you make a booking on an OTA, that booking has been processed on the back end, and a lot of that process is done by humans - they may be sitting in the Philippines, in India. Fifty percent may be robotically done, and we also provide technology for that.

But also behind the scenes a lot of those OTAs, they have outsource businesses doing file finishing all around the world – so what you think is automated is still highly manual on the back end.

My focus is on the travel agent, my secondary focus is how do I automate an OTA’s services, whether corporate or retail.

Who are your competitors? What about your former company, Air Tickets?

Good question. I haven’t got one. That sounds really, really stupid because if it’s that easy everyone would be doing it. But it’s not easy. The reality is some do part of it - there are those doing robotics, cue management, pricing.

Aeronology is absolutely in competition with Air Tickets via the tech stack in Australia and New Zealand, because we provide the transaction technology to Air Tickets’ major competitor Express Travel Group.

The current Air Tickets technology version is V1, the ETG version is V8. I expect ETG to be bigger than Air Tickets within two years and potentially earlier. I created Air Tickets ticketing technology, so I know where to take our new applications.

And Aeronology’s technology will also be in absolute competition with any ticket wholesale business anywhere in the world who isn’t using our services.

Are you bringing in revenue now?

I made $2 last week.

We’ve been testing our technology, and issuing thousands and thousands of test tickets. The first two tickets issued on our technology commercially as paying passengers were done last week.

It was two first class Hong Kong to London return tickets that were around $8,000 each. They were done by a consultant out of the Hong Kong office – that would have taken around 20 minutes and they did it in about one minute. And I made $2.

I want to do a 100 million of those a year. And that’s the possibility. It’s not just the ticket, it’s the hotel room, the travel insurance, the car.

Just think about that small market in Australia that I had for the Air Tickets business, and we were doing 3.5 million transactions a year. If I can duplicate that - and it will happen in the next two and a half years – that’s $2.5 million Australian dollars that I make.

The beauty about this model is I don’t have to increase the size of my staff. Once we have the process in one GDS it stays that way. The only cost will be is if I have to ramp up my cloud computing, which proportionally won’t be that bad.

I don’t have to continually upgrade. And the beauty for travel agents is they are not paying license fee, they are just paying per use. So if they don’t use it, it doesn’t cost them anything. And If they use it, it is very cheap and it’s a value add to their existing service.