The proliferation of price comparison websites has driven airlines to lower airline ticket fares, and, as a result, airlines increasingly depend on revenue from ancillary sales of seat upgrades and baggage fees.
But online travel agencies largely lack the technical infrastructure to sell anything but tickets. So how do airlines build the ability to sell seat upgrades and additional baggage allowances into their platforms?
Gordian Software developed an API that solves this major pain point.
Co-founded by two software engineers who met at travel search engine Skyscanner, Stephen Grabowski and Joe Sarre, Gordian acts as an intermediary between travel agencies and airlines.
The team built an API that integrates roughly two dozen agencies (including Hopper and Trip.com) with the sales systems of over 100 airlines to make cross-platform sales of ancillary services a seamless process.
The online travel agency (OTA) business model involves a “double-loop” payment process. Once a customer makes a payment (first loop), the payment is then distributed to airlines on the other side (second loop).
While it may sound straightforward, this two-sided flow can be hard to manage when you factor in high payment volumes, foreign-exchange fees for international trips, flight cancellations, disputes, and refunds. The complexity increases when you factor in a global pandemic.
Gordian was using Billing and Settlement Plan (BSP) — an electronic billing system that facilitates the flow of funds between travel agencies and airlines — to process these ancillary service purchases, but the process didn’t scale well and quickly became unwieldy.
The BSP system also made processing cancellations and refunds challenging. Gordian briefly considered using traditional physical cards to solve this, but that wasn’t feasible because it introduced a new challenge — tying multiple transactions to a single card number.
Solution: Virtual cards
There was another card-related option gaining ground in the industry that could solve this: virtual cards, which can be generated quickly for individual transactions.
“Virtual cards are really important, because we can tie one payment to one specific card. It makes it really easy for us to handle the money flows that are needed for customers in the airline industry.
Especially with COVID, there's lots of refunds, there's lots of partial refunds, there's lots of things that happen after the transaction is supposedly closed, because there's such a gap between when the transaction happens and when the person actually travels.
– Stephen Grabowski, CEO of Gordian Software
The only hurdle holding back Gordian from using virtual cards was finding a partner willing to work with a startup that was just getting off the ground back in 2018. Many card issuing providers require an upfront capital investment and significant processing volumes to even consider taking on a company as a client.
“We met with a banker, but they were not interested at all,” said Grabowski. Other potential providers had steep requirements that the startup couldn’t meet. But the need was urgent since Gordian was already closing deals with major travel companies.
There were a few factors that drew Gordian Software to Lithic:
- Lithic was startup-friendly
- Had the right pricing structure
- Offered virtual card products
- The platform could scale fast.
Lithic also gave Gordian better ways to control where cards are issued, which is helpful when facilitating international travel booking.
“One thing I loved about Lithic was that they backed us from day one. The other options that I looked at all required extensive due diligence and significant deposits.
The real differentiator was that we could just sign up and start building and it would just pull money out of the existing cash we already had flowing through our system.
We were able to start from zero with Lithic and grow to 8-figures of transaction volume, which we're quite proud of. It has been a great partnership.”
While most players in the travel industry are struggling to get back to 2019 levels, Gordian has grown more than 10X since onboarding with Lithic. The company was recently named among the top 25 hottest startups of 2022 by Phocuswire and is working to be a household name in the travel industry.
Gordian is now expanding its ancillary sales options to keep up with a changing industry. In addition to offering seat selection and upgrades, baggage selection, and other common basics, the company is starting to offer amenities like lounge access, ground transit options, and insurance products to their platform and will be announcing several strategic partnerships over the next year.
As the travel industry recovers, Grabowski expects Gordian will continue growing rapidly. The company is now focusing on building an infrastructure that supports anticipated expansion.
“With Lithic’s help, we're building a payment stack that's going to be able to withstand 100 times our pre COVID sales volumes.
Virtual cards have a big part to play there because they make it convenient to create payments via an API, which we need in order to scale effectively.”
- Company: Gordian makes it easy for airlines to generate critical revenue by selling ancillary services (like seat upgrades) through travel agencies and other online providers
- Use case: Gordian’s API enables airlines to sell ancillary offerings through third-party travel agencies
- Industry: Airline/Aviation, Online Travel Agency (OTA)
- Goal: Speed up and simplify cross-platform sales of airline ancillary services
- Challenge: Needed a payment tool that offered speed as well as traceability, especially in cases where travel plans were canceled and required refunds
- Solution: Partner with Lithic to build virtual cards into Gordian’s API and create a scalable payment stack that can withstand 100X pre-COVID sales volumes
- Result: Company has grown 10X and is now processing 8-figures in annual transaction volume