REMINDER AS TO WHY I BOUGHT CINT...........
From Peter Gallic (CFO),
The relaunch of Intellifares in October and the anticipated success of that program should make the company look like a diamond in the rough. My background is in designing consumer systems and products. I have worked on teams with major corporations to develop everything from disposable cell phone batteries ( Cellboost) to video compression boards ( IBM - DatacomNVS). Along the way I worked on project designing insurance products and financial instruments. The other director in the company is named Peter Dugan. Peter founded DVC, the largest branding promoter in the world. He had 1400 employees when he sold the company and worked with two thirds of the Fortune 500. He was the guy who introduced ATT to the calling card business and convinced hotels chains to give out free newspapers.
Intellifares was a creation spawned from our overlapping backgrounds. I was intrigued by the the travel system. There is fixed supply in the market, there is a somewhat predictable demand. My premise was that if I could isolate patterns of spending in the cloud of airfares, we could apply the same dynamics that are applied when underwriting bonds. SO Peter and I embarked on an exhaustive study of airline passenger behaviors until we discovered what we were looking for.
Some of the obvious examples were people that own timeshares in ares that you can't drive to. Aruba, Hawaii, Mexico and the Caribbean. You purchase a timeshare knowing that you will return for years. Why not lock in your prices for the next five years. There are over 3MM timeshare owners who travel in packs of 3.2. SO 9.6 MM tickets a year are purchased. Average ticket purchase is around $337. That is over $2+B a year, multiplied by five years it comes to over 11B. SO just tin timeshare market there is enough potential market for Intellifares.
But that is an obvious one. Cruise lines leave from ports on the same days. They have data that shows that people who cruise come from the same locations every year. A cruise line might get 300 passengers from Wisconsin and 4000 from Maine. And while they are not the same person each year, the travel agency that sells them is the same. So the travel agency becomes our customer. We added a feature allowing you to change the name on the ticket voucher up to the day of ticketing at no extra cost to make this happen. Same rules apply to the college crowd. Most trade convention are also scheduled year in and year out around the same dates. Again it is the pattern we look for and then we isolate the purchaser.
As you go through the patterns you start to see the repeat patterns and then it was a case of designing a product offering that appealed to as broad a base as possible.
The next question is why the airlines would go along. The easy answer is that it same them money. Airline spend about 10% of a seat cost in marketing and sales. It would save them about .01/mile to sell five years in advance. It also saves them money in planning. There are a host of other savings that I could detail but probably the most important one is this. Airfares are a function of supply and demand. When the travel sellers on the net, Orbitz Expedia, etc, entered into the travel arena they increased the supply of airline ticket 400 fold. Before they were around you had to buy tickets that were issued by one of four GDS's. (Global Distribution Services) These were system that the airlines built to give travel agents a window into there inventory. You must remember the travel agents sitting typing for seemingly endless minutes only to say "there are two flights available". The GDS had rules about how many connections you could have, Saturday stay overs, who you could do combinations with. All of those rules limited the inventory and the routes that were available and kept a tight lid on supply. The Internet crowd bought feeds into all the GDS and started doing there own combinations. They circumvented all the rules and allowed all sorts of combination on flights. SO if there were sale going form Buffalo to Detroit and the computer could route someone from Laquardia to Buffalo to Detroit it would show that price. The airlines tried to compete with every price that was shown on the board and in three years there was a 30% decrease in margin for the airline. Every time an Intellifares is sold it removes inventory and reduces the supply. The remaining tickets can be sold at higher rates. Not good for the consumers but good for the airlines.
We published two papers for CFO.com about this . If you go to the website and head over to the white paper tab you can search for Intellifares and read them.
We believe that the product has huge potential. We spent the last year testing out our pricing formulations. They have withheld the turmoils of the last year so they should work in a normal environment. We designed a product that was incredible flexible. But we still were worried about getting knocked off.
Until we did research into the tax arena. In 1953 Arthur Murray Dance studio was taken to IRS court for not declaring income. It seems that Arthur was selling returning GI's three year dance lesson packages. As the soldiers used the lesson, Arthur would record the income. The IRS took exception to this and said that in any advanced sale you have to declare the income in the current period. In our case this would have killed us since we didn't have any ticket expenses to offset the income. SO we set the company up in Ireland, which uses the European revenue recognition rules, that allow us to declare the income when earned. This means we can not sell the product directly to any consumer ourselves but have to work through distributors. IN fact any US company that comes up with an Intellifares program cannot do so unless they shut down and move to Europe. This allays our fears about copycats. Right now we are the only game in town.
We also have patents covering our operation and business models.
The operations is largely automated, as you can imagine. We will be offering 30 month payment plans on purchases. All Intellifares are refundable and the money is held at UBS. The company does not touch funds for ticket purchases until they purchase tickets. The money is allocated into sub-accounts based on the purchase price.
We are not the best in getting out our message. Very well versed on the product design and marketing side, not really strong on the public side. I can tell you that neither Peter or myself have ever sold a share of stock in the company and have bought more to add to our positions since we got involved in the company.
