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Start-up hawks below-market airfares

You have to buy a membership fee, but the discounts on airfares can be big, CFares CEO says.

PALO ALTO, Calif.--Think of CFares as the Costco for airline tickets, says founder and CEO Vajid Jafri.

The company has created an online flight-booking site that gathers fares from airlines, retail sites like Orbitz and Expedia, and wholesale consolidators that generally don't sell directly to the public. The company is permitted to discount the tickets sold directly by airlines under certain circumstances.

"The airline can dynamically change the price at the point of sale," Jafri said during an interview at the AlwaysOn Stanford Summit, a three-day start-up conference taking place here at the university. "The consumer gets a below-market fare."

As a result, consumers typically get a better price on tickets than they could get on other sites, he asserted. He demonstrated his point during our meeting. The best price on a nonstop, round-trip ticket from San Francisco to Tokyo on a retail travel site on a particular day in September was $956.

CFares, however, also pulled up a United Airlines flight on the same day for $890 being offered by a consolidator or an airline. (The system tells you the airline, but not the actual source of the ticket.) There was also a flight at a different time on the same day for $956 that came with an automatic rebate that cut the price to $912. Thus, the service cut the price by $44 to $66.

On another test, he searched for a San Francisco-to-Istanbul, Turkey, round-trip flight. CFares found a nonstop wholesale ticket on Northwest Airlines for $973. Retail travel sites had tickets for $973 as well, but those flights had two stops. Nonstop flights on the retail sites sold for $1,227.

Consumers have to pay a $50 annual membership fee to join CFares, but they generally make it up in one to two flights, Jafri said.

Jafri, who has worked in the travel and ticket industry (he's a Ticketmaster alum) for 20 years, started the company as a way to exploit the inefficiencies of the industry. Consolidators such as C&H International and Trans Am Travel commit to buying huge blocks of tickets from the airlines. As a result, they get discounts.

Consolidators, however, don't deal directly with the public.

"They won't talk to you," Jafri said. Instead, they sell through those travel agents that advertise in the Sunday travel sections of newspapers.

Consolidators also don't deal with companies like Orbitz. As Jafri explained, consolidators are required to issue the ticket as a condition of their contract with the airlines. Retail travel agencies, which also get discounts, don't want to turn over their customers to the consolidators, so they don't often deal with each other.

CFares thus serves as an outlet for the consolidators.

In addition, the company lets airlines better manage their inventory by giving them an outlet to sell seats at a discount that otherwise might not get sold.

Approximately 30 percent of airline seats a year never get sold. "That's 30 percent wastage annually," Jafri said.

The computer systems in the travel world, he added, are jumbled. Consolidators use one system for fares and another for seats. The CFares site, ideally, helps bridge those gaps.

The discounts offered on the site on tickets sold directly by the airlines are dynamically applied. When a customer submits a query, the CFares search engine seeks out fare prices from the retail sites, the consolidators and the airlines. If there is a large number of open seats, the system will then apply an automated discount for tickets from a particular airline. If few seats exist, don't expect a discount.

When and how the system applies a discount is determined by a complex set of rules. "This is real-time yield management," Jafri said.

CFares, which started selling fares about 18 months ago, already has about 100,000 members. So far, most of the company's customers are frequent fliers interested in international or business class travel. The average member flies about 12 times a year and buys tickets that are four to five times the price of tickets sold on retail travel sites.

The company makes money from membership fees, ads and transaction fees.