Startup Arcube takes flight, unlocking billions in airline ancillary revenue

How many startup entrepreneurs have you met who founded and exited startups while in their teens, then went on to found and bootstrap another startup while at university, raising $625,000 in profitable revenue with no investors while still being students? Oh, and their first client was Etihad.

I'm going to suggest not many. But the founders of Arcube, Prithveesh Reddy and Harvey Lowe, met through AccelerateME, a 12-week accelerated programme run by the University of Manchester to help student startups get off the ground.

The company is developing a passenger intelligence platform to help travel providers unlock billions in loyalty and ancillary revenue.

Infrequent flyers typically have many abandoned airline loyalty accounts, which need interoperability or shared benefits. The scattered miles are usually not enough to redeem anything useful. 

Beyond points and miles: Arcube's solution for personalised loyalty

According to Arcube, traditional points and loyalty programs are no longer primary factors influencing passengers' flight. As a result, airlines find it challenging to retain passengers and build meaningful relationships.

Yet, according to Reddy:

"We realised airlines have a lot of data on passengers — what they eat on the plane, how early they get to the airport, and how long they spend in the lounge. But none of that data is really used at scale."

Further, If you frequently travel business class for work using the same airline and book a flight today on their website, you will have the exact same experience despite the airline having lots of personal data on us. 

In response, Arcube has developed the industry's first 'Post-Flight Solution', which analyses a passenger's travel history, market data, and hundreds of other factors to predict and increase the likelihood of returning to an airline.

This enables passengers to instantly convert their idle loyalty points into hyper-personalised ancillaries after a flight — such as priority boarding, check-in, lounge access, hotels, and car rentals — which can be used on future bookings.

"It's a white-label model which we plug into an airline's data set. When you're going through the booking flow, you see the suggestions that you can add to your booking."

To achieve this, Arcube developed two key AI models: one that personalised ancillaries based on passenger data, and another that dynamically prices them at an individual level.

Lowe explained:

"Traditionally airlines do mass batches of email marketing companies, for example "they literally scrap the data, see who went to Asia the last two years of the summer, and they send an email blast to them. But tradionally, they don't really have the ability to do this in real time."

"As soon as you get off the flight, we read your data and understand how we can bring you back to the same airline. So we know how long you wait in the queues, how you like to spend some time in the lounge,

We allow you to convert your points or miles into ancillaries like fast track security, priority boarding, or lounge access, which you can use for your future bookings. That way, when you compare prices or multiple options, you're more likely to go back to that airline even in specific scenarios, which means paying slightly extra."

A company like Etihad has 600 different redemption options from hotels to car rentals. 

"But they cannot try and upsell you all of them because there's no space, so they usually go for the top five or seven or eight on the top. And if you want to consider the rest, it's extremely hard to find them, and the airline is likely to lose the booking", explained Lowe.

Further, real-time data tracking can help improve an air carrier's reputation.  I'm sure I'm not the only one who has pledged never to use a particular airline after they've had delay after delay with poor communication or lost my bags — again. 

Reddy detailed:

"For example, after you get off the flight, if we know that your flight was delayed by three hours and that you had a bad experience, we will allow you to convert your points into delay insurance.

Then, the next time your flight gets delayed, you can actually wait in the lounge. 

So we try to increase the ancillary revenue that airlines can make and mitigate the negative experience that you possibly had, which happens quite frequently."

How do you get an airline like Etihad on board? 

Gaining those first criticalclients is no easy task for any startup, especially those without industry specific experience. 

According to Lowe:

"Given that we had no credibility or case studies, our deal with them really was, uh, look, we are going to build you software, we're going to risk our own capital.

And if we end up making additional revenue for you, we just want to take a chunk of that. It's an unconventional arrangement, and it took a few months for the air carrier to sign off on the dotted line but eventually we convinced them."

The startup created a pilot program with Etihad Airways with 1,300 passengers (MVP) 1,300 passengers spent $16.5 million miles on personalised ancillaries (priority boarding, lounge access, chauffeur service etc.) over 12 months.

Etihad generated $1.6M in additional revenue during the pilot — from only 1300 passengers. Etihad flies 17M passengers annually) and AOV increased by 10.3 oer cent

The benefits of student entrepreneurship

The Masood Entrepreneurship Centre (MEC) is a cross-discipline campus-wide teaching centre at The University of Manchester.

Established in 2000, the University's focal point for enterprise and entrepreneurship, offering opportunities for all current students, recent graduates and staff.

Besides initial grants, this year the duo recently participated in and won first place in the Technology Category of the Venture Further Awards 2024.

Aiming to dominate travel ancillary data

Reddy explained that this is just the beginning for Arcube:

"Long term, our goal is to build the world's largest data set when it comes to travel ancillaries because airlines actually make 20 per cent of their revenue from selling these extras.

Low-cost carriers like EasyJet and Southwest make 50 per cent or more. We want to start with airlines but do this across all travel loyalty programs, from car rentals to cruise lines, airports, and hotels."

Since the pilot with Etihad, Arcube's sales pipeline has 14 airlines ($23.5M ARR), and the company is now raising its first round of external funding.

Lead image: Arcube. Photo: uncredited.