Last updated: 05:03 PM ET, Fri September 30 2016

Airlines and Tech Startups: A Match Made in Silicon Valley

Airlines & Airports Paul Thompson September 22, 2016

Airlines and Tech Startups:  A Match Made in Silicon Valley

Photo courtesy of Thinkstock

For all of the volatility in the airline industry, what would possess an airline to start or fund smaller, non-airline companies? It turns out it can be very lucrative and advantageous to do — and upon this realization, some airlines are even starting their own venture capital firms.

Since its founding in 1999, JetBlue has been ahead of the curve versus many of its older competitors when it comes to technology. The trendy airline began taking reservations by Voice over Internet Protocol (VoIP) allowing their reservations agents to work from the comfort of their own homes. They were also the first airline to offer live television programming on flights through the LiveTV product, a company which they owned until 2014.

Two-thirds of the roughly 2,700 travel tech startup companies are located in California’s Silicon Valley. At the Future Travel Experience convention in Las Vegas, Eash Sundaram - JetBlue executive vice president of innovation & CIO, Chairman Technology Ventures explained why. “We're thinking about the next chapter of JetBlue five or ten years from now. If we don’t do that, we lose the game. Disruption is happening everywhere, especially in our industry, and it’s accelerating. Think of Uber and Air B&B… they don’t own assets. They’re powered by technology.” 

How does an airline create its own innovation lab? At FTE, German flag carrier Lufthansa spoke about their own tech lab. Lufthansa Innovation Hub Co-creator and chief strategist Sebastian Herzog said, “We had to fight for every step. We only had a three-month budget, then convinced the board to fund a new company, but that was only for a year. Don’t build the lab on PowerPoint.” Herzog emphasized the importance of coming into the conversation with the corporate side with innovative ideas that are beneficial to the company.

READ MORE: Is 'Progress Eagle' The Airliner of The Future?

Herzog pointed out the fact that $7.2 billion was invested in travel tech sector in 2015. Lufthansa  is worth $4.9 billion alone. The investment tally marks a 42 percent growth over 2014, and a 490 percent increase since 2010. One successful startup bred by Lufthansa is Hello Mission Control, which is a business travel assistant that uses artificial intelligence.

Many airlines are also focused on everyday passenger problems, such as bag tracking. “We still lose too many bags,” said Renaud Irminger of SITA (Société International de Télécommunications Aeronautiques). “We need to know where we lose bags and why. We can have tracking points today that are cheaper including webcams.” SITA also pioneered flight booking and check-in via Facebook with Malaysia Airlines. SITA is also championing efforts behind passenger identity management inside airports, for security purposes. SITA is partnered with over 50 startup companies, who employ over 1,000 developers.

Airlines and airports are also looking to source social media keywords in regard to certain events. For example, “JFK weather delay” or “LAX security disruption.” An active monitoring of phrases around events would help airport media reps correspond with local media and travelers

As for JetBlue, the goal of JetBlue Technology Ventures is to have 50 companies in their portfolio by 2018 then integrate products from at least 50 percent of them back into JetBlue. Other airlines want to see their products integrated into things like Amazon’s Alexa AI platform. For example, a potential airline passenger would ask Alexa to find flights from Helsinki to Copenhagen, with the option to reserve and pay, all done vocally.