Kiwi.com – the next Czech unicorn nears fruition

Kiwi.com – the next Czech unicorn nears fruition
By Nicholas Watson in Prague April 26, 2017

For all its noted manufacturing and IT prowess, the Czech Republic still only boasts one unicorn company, Avast Software. However, another Czech startup with a valuation of over $1bn is appearing on the horizon – the online travel agency Kiwi.com.

If you haven’t heard of Kiwi.com, that might be because it rebranded last year from Skypicker, in a move its founder and CEO, the boyish-looking 29-year-old college dropout Oliver Dlouhy, explains was designed to differentiate itself from the myriad of other online flight search engines and travel companies with similar-sounding names. However, it is the valuations of those companies that indicate just how close Kiwi.com is to unicorn status.

Last year Skyscanner, an Edinburgh-based travel aggregator that allows people to search for cheap flights and hotels, was sold to the Chinese tourism group Ctrip.com for £1.4bn, which was 11.7x its 2015 revenues. Given Kiwi.com is set for gross ticket sales of €700mn and revenues of €120mn this year, then the same multiple would give the Brno-based company, which celebrated its five-year anniversary in April, a valuation of around €1.4bn.

To some in the industry that’s likely to be an underestimate, because Kiwi.com is a more interesting company in several aspects than its competitors like Expedia, to which it is often compared. “Kiwi.com reminds me of Expedia 12 or so years ago. There is a collaborative, curious and innovative company culture, full of young, smart employees. The rate of growth is very fast and ambitious,” says Alison Couper, a consultant for Kiwi.com, who cut her teeth at the US travel company in the noughties during its transformational period into the world’s largest online travel agency with annual gross bookings of around $60bn.

At the heart of Kiwi.com’s business is its proprietary algorithm, designed by its software engineers in Brno – a centre of today’s Czech IT industry. This flight search algorithm allows users to automatically combine flights from more than 650 airlines, many of them budget carriers that do not normally collaborate with each other, into a single itinerary in a process it calls “virtual interlining”. This throws up significant savings: the German magazine Focus found Kiwi.com to be, on average, 28% cheaper than the competition, and in some cases the savings were as high as 90%. A demonstration of its ‘multicity’ flight search engine came up with an eight-city European itinerary for €161.

Kiwi.com also marks itself out from the competition by being a ticket vendor, so that while many other flight search engines like Skyscanner patch you through to the airline or travel agent that is selling the ticket, only to find sometimes the ticket for that price no longer exists, Kiwi.com will book the flight and issue you with a boarding pass.

Finally, flight delays and cancellations are the bane of all travellers – something that can be especially troublesome when trips involve multiple bookings. To mitigate this, Kiwi.com covers trip itineraries with its so-called ‘Kiwi.com Guarantee’, which means that if the first flight is delayed and the connecting flight with the other airline is missed, the company will book another flight to the final destination free of charge or refund the money.

That’s certainly a major selling point, but for a company that sees more than 6,000 flights booked daily it’s also quite a risk in an age when a volcano can shut down the entire airline industry, as the eruptions from Iceland’s Eyjafjallajokull did in 2010. “When investors ask me about any real threats to our business, whether it be competition or market changes, I always say that only the eruption of an Icelandic volcano could really harm us,” Dlouhy says, laughing. “But actually our business is now global so some disruptions are happening every day in some part of the world…  and we are doing things very much on a large enough scale that this has become a stable number – we can predict each month how much we need to pay for this guarantee.”

For now, Dlouhy says the biggest test is trying to properly manage the company’s exponential growth, which saw revenues grow 1,500% in 2015 to the point where the company is already in profit. The number of employees has also risen to over 1,100 as it offers 24/7 customer support now in 32 languages. China of course is a huge market it is looking to expand into, and Dlouhy will be part of a delegation that will accompany the Czech president, Milos Zeman, on his next trip to Beijing – a sign of how favourably the Czech government regards its new player in the global travel market. Dlouhy himself appeared in the Financial Times’ “New Europe 100” list of Central and Eastern Europe’s brightest and best people in 2016.

Personalisation of travel

But over the next five years, what keeps Dlouhy, who with 27% of the company is already a very rich young man, motivated is the chance to be at the forefront of new developments in the travel industry. “I still see lots of issues in the travel segment which need to be fixed. It’s not just the transportation from A to B; it’s about offering the right services to the right people at the right time – it’s the personalisation of travel,” he says.

That means offering more flights at better prices on more routes, while also integrating ground transport into the algorithm, so that one leg of the trip can be by air, the second leg by train and the final leg by coach. Integrating ground transport is especially important for itineraries that mix flights on incumbent carriers with those on budget carriers, which famously use less-congested secondary airports in metropolitan regions like Ciampino Airport for Rome, Beauvais for Paris and Charleroi for Brussels to keep costs down. So you can fly into Charleroi on Ryanair, then leave Belgium on Lufthansa from Brussels Airport.

Dlouhy also regards himself as a ‘blue sky thinker’ on the travel industry through his constant travelling using Kiwi.com. “I’ve many ideas such as how to sort out the issue of delayed luggage once and for all,” he says. “Imagine that you are departing in two days, so you pack your bag and the next day a courier rings your bell and takes your luggage, and when you arrive at your hotel destination it’s there – no hassles, no checking in of bags.”

All these ideas will take money to implement. In late 2013, Kiwi.com received €500,000 of investment from a part of the venture capital group Touzimsky Kapital for a 22% stake, followed by €1mn of investment in 2015 by Ondrej Tomek, the co-founder of the second-largest Czech search engine and a successful e-commerce investor, for a 10% stake.

“We are not necessarily looking for external financing – in fact, if you’d asked me six months ago, I’d have definitely said no. But after digging deeper into all the opportunities I actually see some opportunities that would be really hard to fund ourselves, so we are open to negotiations, but it’s all about the fit with the partner –  money is always secondary, we need to find partners which can support us in other ways,” Dlouhy says.

Features

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss