CEO Series: Interview with Tom Douramakos, CEO Guestlogix, Onboard Retailing Pioneers.

This is the second in a series of interviews conducted with CEOs of interesting Canadian technology companies. The intent of this project is to provide investors with a unique understanding of what various companies are doing - directly from the top dog. Hopefully, the interviews conducted over the next few weeks will help investors to gain insight into the fundamentals of the companies to which they may not otherwise have access.

The second interview conducted is with Tom Douramakos, Chief Executive Officer, Guestlogix (GXI.V). The company is headquartered in Toronto, Ontario and provides airlines and rail carriers with technology that allows them to sell just about anything to passengers while they are immobilized in their seats for hours at a time.

RES: Why don't we start with an update on progress to date. How many planes is Guestlogix on?
TD: Well, we don't really measure the planes that we are on, we measure passenger trips. For example, if you flew today from Toronto to Phoenix and back, it would be two passenger trips - one there and one back. So as of the end of Q3, our onboard retailing solution services 680 million passengers trips worldwide and we are adding another 160 million over the next two quarters. We are about to sign up two rail operators representing 75 million additional passenger trips and a couple of smaller airlines. We should be close to a billion passenger trips soon.

RES: How much of the total available market do you now serve?
TD: We have nine of the top eleven airlines in the world as clients, and eleven of the top twenty. Right now, our deployments cover 35% of all air passengers trips worldwide. Most of the remaining top twenty airlines are Asian, and we are just moving into that market now. We are also just scratching the surface of the rail market. There are seven billion rail passenger trips in the world every year. There 7x more intercity rail passengers in the world each year than there are airline passengers at approximately 21 billion. [RES: yes, I miss-read my notes - confused x with b. I also confirmed this number - most of the intercity passengers trips are generated in India and China]

RES: Clearly, you are making great progress in the market among airlines. How do you best describe to investors what Guestlogix actually does?
TD: We provide passenger carriers with the ability to create and manage retail stores in the plane or rail car during transit. We provide everything from merchandise planning and selling, to multiple payment options from credit card, to debit, loyalty, coupon, or even cash. We provide analytics, in-flight promotions with targeting and personalization. With OnTouch, we even provide some of the merchandise on the shelves like destination services, entertainment tickets, and product catalogs.

RES: Investors have been worried that as mobile devices and the web are accessed more often onboard during flights, there won't be as much need for your dedicated solution in the future. How will the inevitable march towards in-flight internet connectivity impact Guestlogix?
TD: First of all, it is a pretty expensive thing for airlines to do and it will take time. In the end, it will be good for us because then passengers could pay with any device. We don't have to supply as many payment terminals onboard. Dedicated internet connection is not a threat. The WiFi/satellite solution that is being deployed is plumbing and we plan to use the plumbing to make the onboard retail experience better for passengers and airlines. For example, we could do more big-ticket retailing with real-time authorization via dedicated connections.

RES: But doesn't a dedicated internet connection allow passengers to simply skip the airline store and go directly to something like Amazon or Best Buy online?
TD: The question is whether the airlines will protect their store. Would Walmart allow Target to sell in their stores? It is the same thing. The airlines control access in flight, and they have a captive audience, so they would need to determine who can sell or not. Amazon could sell in flight, as long as the airline gets compensation. As for us, as long as there is a transaction, we get paid. Anyway, the airlines will need to figure this out as internet access increases in-flight. We think that strong merchandising strategies and personalization supported by our technology will make in-flight retailing provided by the carriers increasingly popular among passengers.

RES: GXI recently completed a bought deal financing. How much cash do you have and what are you using it for?
TD: Right now we have about $11 million in cash with $7.0 million coming from the bought deal net of fees, and about $5.5 million already on the books. We are focusing on three areas: First, we are accelerating our deployments. Secondly, we are building out our infrastructure in terms of people, processes, technology, and facilities in order to support our growth. Finally, we are looking at strategic acquisitions possibly to accelerate our growth in the rail sector.

RES: Recently, you announced a partnership with Aeromechanical Services (AMA.V). What do you want to get out of that relationship?
TD: We are really concentrating on Asia right now, and we want to get to more real-time transactions. Aeromechanical Services provides real-time satellite uplinks to airlines, and we want to be able to use those uplinks to do real-time transactions. Also Aeromechanical Services has Asian carrier clients that we can provide our services to.

RES: People can buy train tickets, limo vouchers, anything from Skymall, various entertainment tickets - what are some of the cool new things that you have lined up that passengers will soon be able to purchase?
TD: We are now getting feedback from passengers, and they really want more destination services like airport transportation. So we are looking to expand the amount of destination services available to passengers onboard. We also want to be at the gate. We are working on things right now to do transactions for the airlines at the gate where people are waiting to get on a plane. We are also looking at destinations like hotel concierge. Ultimately, we could be an end-to-end platform for the airlines to act as travel concierge from the airport to the hotel. We are also working with in-flight entertainment vendors like Thales and Panasonic to provide payment mechanisms for in-flight entertainment services as well. We would like to continue to expand that as well.

RES: What is the biggest thing that anyone has purchased?
TD:Recently, someone bought a Nettlestone Library Ensemble worth $950.00 from Skymall.

RES: What are the most popular purchases?
TD: Our client base is still skewed towards North American carriers, so the most popular items purchased are still food and alcohol.

RES: Will the demand for your solutions by carriers be influenced by fluctuations in fuel prices? Will lower fuel prices mean that airlines are less likely to want to generate revenue in-flight?
TD: The fuel price crisis of 2008 was a tipping point. It forced airlines to begin to unbundle services to create more revenue streams to survive. Unbundling is here to stay and there is no turning back regardless of the cost of fuel.

RES: Three years from now, what will Guestlogix look like?
TD: We are just getting started so we will be much bigger. In terms of on-board, people will be transacting with all kinds of devices like their mobile phones and laptops. There will also be a Guestlogix device on board for printing vouchers for passengers, but we think a lot of fulfillment will be done with electronic bar-codes by email or SMS. There will be a lot more merchandise available, and duty free will be a big part of it in Europe and Asia. Passengers will enjoy the convenience of being able to arrange destination services and events on their flights. Airlines will compete on merchandising strategies.

RES: What are you most proud of to date?
TD: If you would have asked me when we first started if, by now, we would have become a global Canadian company with its own user group, I would have called you crazy.

RES: What are your challenges right now?
TD: We need to build out our infrastructure to support our growth as a global company. We need people with the right skills and the processes in place to support our worldwide growth. The need for money used to keep me up at night, now it is building the right infrastructure.

I would like to thank Tom Douramakos for taking the time for this interview. If there are any inaccuracies in this interview, they are probably due to my inability to read my own handwriting.

Disclosure: I do not own shares of GXI, AMA, or any airlines.

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