Kayak, a travel search company facilitating easy research and comparison of fares across travel websites, has recently incorporated a new exciting feature into its flight search service, which the company calls ‘’Hacker Fares’’. The functionality can lead to even cheaper round-trip fares than currently thrown up by the search engine and has the potential to improve Kayak’s valuation by boosting its airline ticket referral revenues.
We currently value Kayak (still private) at $835 million.
What are Hacker Fares?
Hacker Fares are derived from pairs of one-way flights from different airlines to create a discounted round-trip. These are different from interline fares (an interline fare is one round-trip booking on separate airlines, but one booking whether fulfilled by an OTA or airline) as each leg must be booked separately on the airline or online travel agency website (See Kayak pairs one-way flights into Hacker Fares)
How do they benefit Kayak’s customers?
The new feature thrives on the idea that allowing travelers to buy two one-way tickets from separate airlines for a round-trip against the usual model of booking a round-trip via the same airline, can turn out an overall cheaper fare than the best round-trip fare otherwise available through Kayak.
Most travelers have long been aware of the possible cost savings from this approach but hesitate in adopting the same due to considerable time involved in doing manual searches across airline websites. Kayak has capitalized on the latent market need for an effective search tool that does these maneuvers according to the traveler’s itinerary.
Hacker Fares therefore provide both time and cost savings for Kayak users.
How does the feature impact Kayak’s valuation?
Hackers Fares would help the company to increase its air ticket referral revenues in the following ways:
1) Generate additional user traffic due to cheapest fare option available
The company officials did not provide guidance around the number of times a round-trip fare on the same airline is more expensive than two separate one-way fares on different airlines but indicated that it’s less than the majority of times and that Hacker Fares will show up in a very meaningful number of queries.
This means that a more cost effective travel option is available for users on a sizable chunk of airline search queries. Hence, Kayak would now be able to produce the lowest fare option thereby attracting more budget travelers than any other search engine.
2) Higher air ticket referral revenues through increased number of bookings
Hacker Fares show up in search results when they are substantially the lowest-price itinerary, the lowest fares in a time slot, save time or add an airline. If Hacker Fare turns up in the search results and the user opts for it, the airline websites/travel agencies would register two bookings as compared to one booking as recorded earlier.
Since Kayak earns revenue either on per click basis in terms of Cost Per Click (CPC) charged to the vendor or for every completed transaction on the vendor’s website in terms of Cost per Acquisition (CPA), the higher number of air ticket referrals thus generated due to Hacker Fares would boost overall air ticket referral revenue for Kayak.
Kayak currently draws around 15% of its value from the airline ticket referral fees division, according to estimates under the Trefis model. The above factors are likely to improve the division’s contribution to Kayak’s total value. This can further help the company command a better price on its IPO, which the company is planning to launch for long now. (See related article: What’s Delaying Kayak’s IPO?)
