It is less than 48 hours before a flight and the airline has processed all frequent flyer points upgrade requests and cash bids. But there are still business class seats available that are at risk of flying empty even though some passengers could be willing to pay for a last-minute upgrade if the price was low enough to be attractive.
From later this year, Sydney-based start-up Seatfrog, which has raised $1.2 million of seed funding, will launch new technology allowing airlines to earn extra revenue from the offer of last-minute seat upgrades in an auction process.
Co-founder Iain Griffin said he had the idea for the start-up after once arriving at an airport willing to pay $1000 to upgrade the business class ticket paid for by his employer to first class so he could try out the aircraft's on-board shower.
"When I checked in they already upgraded me [because the flight was full]," he said. "While that was a good experience for me it was a massive missed [revenue] opportunity for the airline."
Former Qantas International chief executive Simon Hickey and leading aviation lawyer Richard David are among the members of Seatfrog's advisory board. The company is backed financially by London-based venture capital firm, HOWZAT Partners, the investment team behind hotel metasearch site Trivago, which was sold to global travel giant Expedia for $US1 billion in 2013.
Mr Griffin said every year, millions of premium-class seats fly empty around the globe, representing billions of dollars of unrealised revenue opportunity for airlines. Most carriers allow loyalty program members to upgrade using frequent flyer points an increasing number, including Virgin Australia and Air New Zealand, use technology from Plusgrade allowing for cash bids to be made around a week before the flight.
Seatfrog, however, is designed for truly last-minute decisions and will offer payment and replacement boarding passes within the Seatfrog mobile app or the relevant airline's app.
Mr Griffin said the auction process would be similar to eBay, with the airline setting a reserve price, allowing passengers to view the latest rival bids and also offering a "buy it now" option equivalent to the difference between classes. Passengers can bid for single-class upgrades, such as from economy to premium economy and business to first-class.
"Airline ancillary revenue strategies are fragmented and there is a lot of untapped potential, particularly in relation to the same-day upgrade process," said HOWZAT partner and co-founder David Soskin. "The industry is positively ripe for disruption and this represents a significant opportunity."
Seatfrog's systems, now in a beta phase, are compatible with the global distribution systems used by airlines. The company's business model is performance based, meaning there is no cost to the carrier if seats do not sell.
Mr Griffin said the company, which has 12 employees and is looking to grow further, had signed up an unnamed launch customer but that contract was not exclusive and other airlines would soon follow. He would not reveal whether Australian carriers had already agreed to participate.
Mr Hickey said Seatfrog's technology brought a level of intelligence and capability to the upgrade process that had not previously been seen by airlines.
"It not only delivers an exceptional mobile passenger experience, but it is a smart solution to the challenges of merchandising facing airlines and is already integrated across their systems, enabling real-time upgrades of ticket bookings right up to the departure gate," Mr Hickey said.