Farecast Now Predicts Prices for 55 Cities

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Farecast, the slick new site that predicts whether air fares between
particular cities will go up or down, has expanded its service to
cover more than 55 U.S. airports.

When I first wrote about Farecast on
June 27,
the service made predictions only on flights originating from two airports:
Boston and Seattle.

At that time, the startup — which has attracted $8.5 million in venture capital
— launched a public beta that benefited from major media coverage in the New
York Times, Time Magazine, and elsewhere. But with only two airports supported
by its site, I wondered whether Farecast was making a mistake by seeking
publicity so early. Wasn’t it alienating potential customers, who would see that
their local airports weren’t included and leave the site, never to return?

The answer is crucial to any company that must decide when it should publicize a
new and rapidly improving product or service.

How to Milk the Beta

In an interview, Farecast’s vice president of marketing and product, Mike
Fridgen, explained that the original wave of publicity for the public beta in
June didn’t hurt the site when it started covering 55+ airports last week. (This
expansion had originally been scheduled for the end of 2006, but Farecast
apparently accelerated the rollout because consumer feedback was so positive.)

Last week’s rollout day more than doubled the site’s unique-visitor traffic,
Fridgen says, compared to the day in June when the more-limited, two-airport
service opened to the public. That’s true, he adds, even though the mainstream
media coverage of Farecast’s expansion was much lighter than the coverage of the
original beta. The New York Times article about the enhancement, for example,
was a small story on an inside page, whereas its original article had been a
large illustrated piece on a prominent page.

Wisely, Farecast turned its limited number of airports into an advantage. A link
on the site urged visitors to “Add My City.” Fridgen says more than 50,000
visitors responded with airports that they wanted Farecast to support. A
somewhat smaller number of visitors, which Fridgen wouldn’t disclose, gave
Farecast their e-mail addresses to get a notice when their favorite airports
were added. Each of these people received a message the day Farecast unveiled
its new, 55-airport selection and newspapers were carrying stories about the
improvement.

Figures compiled by
Alexa, a Web ranking service, confirm that Farecast’s site received three
spikes of traffic recently: one for an early pre-launch in May, one when the
beta was first opened to the public in June, and a final spike last week when
the expansion was reported. Alexa’s rankings don’t show that the latest launch
generated twice the traffic as the one June, but Fridgen says his company’s
servers measure a significant amount of traffic that Alexa doesn’t.

Predicting Air Fares the Farecast Way

It isn’t as easy as snapping your fingers to add predictions for what the
airlines call “city-pairs.” Farecast is able to predict whether air fares are
soon likely to go up or down only because the company’s executives, many of whom
have corner-suite airline backgrounds, have compiled more than 90 billion
historical fares and analyzed them with sophisticated algorithms.

This doesn’t mean that Farecast is psychic. It can only predict fares within a
fairly limited range of dates. That’s because the airlines, which years ago
developed computerized models for pricing, determine ticket prices within three
rough time periods:

• About 11 months before your travel date is when airlines start
offering tickets. For example, on Sept. 1, 2006, you can buy tickets for travel
on Aug. 1, 2007. Fridgen says people who buy tickets this early are determined
to get to a particular spot on a particular date, so the airlines charge these
customers “list prices.”

• Around 90 days before departure, the airlines start to compare
the number of tickets that have been sold to the number their computer models
projected. If the numbers are too low, the airlines will drop some prices until
the number of filled seats is back on target.

• Prices start to go up after the 21-day advance purchase deadline,
and go up yet again at the 14-day and 7-day advance purchase deadlines. Within 6
days of a flight, the airlines know that any prospective travelers have little
flexibility in their travel plans. Higher prices in this down-to-the-wire period
are usually the result.

As a result of these pricing windows, Farecast makes predictions on future fares
only if your trip is less than 90 days in the future. You also must be planning
a stay of 2 to 8 nights. You can get price quotes for a trip that doesn’t meet
those criteria, but Farecast won’t try to predict whether the prices are likely
to go up or down.

A Business Model That Relies on Affliations

Since Farecast doesn’t charge consumers for its service, you might wonder how
the company makes money. The answer is that some airlines pay commissions when
people who searched for air fares at Farecast wind up buying a ticket. Farecast
sells no tickets itself, linking visitors directly to airline Web sites. (When a
special fare or multi-airline itinerary is involved, Farecast sometimes links to
Orbitz, which also pays commissions.)

Farecast recently started carrying travel-related advertising from the Yahoo
network. Fridgen indicates that revenue from these ads is already significant,
although he wouldn’t indicate whether the ad income is larger at this early date
than the commissions on airline tickets.

What he will say is that visitor traffic from the Boston and Seattle
metropolitan areas made up less than 20 percent of the site’s traffic, even when
Farecast supported only the Boston and Seattle airports. There seems to be a
genuine desire on the part of consumers to understand the airlines’ computer
pricing models — and to use Web technology to fight back by finding prices when
they’re at their lowest.

Now that 55-some airports are supported, Farecast should grow its customer base
even faster. “Seattle and Boston represent only about 4 percent of originations”
in the United States, Fridgen says. “The airports we have now represent 74
percent of domestic travel.” The site currently supports only trips within the
U.S., but international flights will be added as soon as possible, he promises.
Farecast also plans to someday support one-way ticketing and multi-city travel,
not just round-trip fares.

Conclusion

Farecast is only one of several second-generation travel search engines that do
more than an airline site can offer or the major portals, such as Expedia, can
provide. Katie Fehrenbacker, a blogger for the GigaOM tech
news site, says this includes such meta-search services as Sidestep, Mobissimo, and
Kayak.

But for now, Farecast is the most interesting. It’s the only site that’s
mastered enough mathematics to predict whether you should buy a ticket today or
wait a few days because the price is likely to drop. For more information, visit
Farecast.com.