Greg Becker will fly into San Diego this weekend for a friend’s wedding. Sounds simple, but it took him a long while to plan the trip.
Becker’s in his early 20s, as are his friends, and some of them live in L.A., which meant a road trip to San Diego was on the table, maybe. “It’s not the easiest thing in the world to get a bunch of twenty-something guys to agree to anything,” says Becker, who works at a Chicago technology startup called Elevate Datacenters.
Becker’s conundrum — ticking clock, vague plans — is a staple of today’s travel-booking experience, particularly for voyagers who are young, busy and impulsive.
Rob and Heidi Brown (they’re married) are trying to help befuddled travelers like Becker buy time. Armed with a set of proprietary algorithms, the Browns in July launched Options Away, a startup that lives in two of Chicago’s powerhouse industries — derivatives and air travel.
Options Away lets you buy an option on an airline ticket at a particular fare. The option price is a fraction of the fare price and gives you the right to buy the ticket at that price up to a certain date — or let it expire and forfeit the cash. Becker bought three options for a total of $17, holding one on a ticket to San Diego and two on separate tickets to L.A. In the end, he didn’t end up exercising any of them, but he’s only $17 the poorer for it. “It was worth it for the peace of mind,” he says.
Had Becker cashed in one of his options, the Browns would have been on the hook for the difference between the ticket price when Becker bought his option and whatever it had risen to when he exercised. In Becker’s case, the largest spread was $35 — about twice what he’d paid for all three.
“This is not unlike betting in Vegas,” says Jay Sorensen, president of IdeaWorksCompany, an airline consulting firm. “In the end, the house always wins.”
That’s what the Browns are hoping. They’ll occasionally take a bath on the spread but believe that over time, their pricing algorithms will hold up. They’re using massive data from the airline industry, plus lots of local knowledge about pricing options and airline tickets.
Although he’s had help from industry folks, Brown is the main author of the algorithms. A self-taught coder, he spent three years to fine-tune the formula. He and his wife hold patents on the technology and the concept, which industry experts say is unique.
While Options Away is a consumer-facing website for now, the Browns’ endgame is to use the proprietary technology to become a marketplace for the financial instrument they’re pioneering. “Our objective is to become the centralized exchange for travel options — the CME of the travel space,” says Rob. “In the morning, people look at the derivatives market to see where the stock market will open. What we want to do is become a leading indicator for demand for the travel industry.”
The Browns are in negotiations with several major airlines and online booking services. The pitch to airlines is they would get a slice of the option price.
“The ability to make money without selling a flight has to be extremely appealing for them,” says Alix Arguelles, vice president of online account management for Amadeus, a technology company that provides pricing, processing, and reservation functionality that online travel agencies like Orbitz use.
But Arguelles, whose company provides Options Away with technology, remains skeptical about the industry’s appetite for innovation. “The airlines believe that they know exactly what they need to do to make money,” she says. “When you come up with something new, you need to convince them.”
Sorensen thinks Options Away might have trouble finding traction on the consumer side, where few travelers understand the notion of options. “Anything that’s new and complex is always a tough sell,” he says. “That said, I’m confident there’s a market out there for this. Quite frankly, it’s one of the better things I’ve seen in terms of someone trying to apply technology to be an intermediary.”