Alto Seems to be for Experience-Hailing Market Area of interest with Personal Automobiles, Drivers

Former McKinsey & Co. partner Will Coleman left consulting to co-found Alto, a premium ride-sharing service that owns all its cars and hires its drivers as W-2 employees, not contractors. The company has its eye on the business travel market. BTN senior editor of transportation Donna M. Airoldi spoke with Coleman, former lead of McKinsey’s air and travel practice across North America, about Alto’s alternative business model, expansion plans and offerings for corporate travel programs. Edited excerpts follow. 

BTN: When did you launch, and how did you come up with the business idea?

Will Coleman: I started the company in 2018, and we launched commercial service in 2019. Before that, I spent 11 years in consulting. At McKinsey, my clients included some of the largest airlines, hotel and car rental firms in the U.S. and the world. That’s also where I came up with the thesis behind Alto. I saw a lot of challenges with the marketplace model that Uber and Lyft were using, namely safety, consistency and quality of experience for both drivers and passengers. It had become commoditized with both passengers and drivers selecting between multiple apps based on very limited pricing differences. And my experience in the travel space was that if you don’t win the more discerning passenger, the traveler willing to pay a bit more for a differentiated product, a higher quality experience, [with] trust and love in a brand, it’s very difficult to make the business profitable. 

So I built Alto to create a very de-commoditized experience for drivers and passengers that could attract [customers with] a higher willingness to pay and a higher willingness to wait, which primarily are the two underpinning factors necessary to make a more sustainable, profitable business model in this space, where profits have been so elusive for 12 to 15 years now. 

The reason we chose to turn the business model on its head was because inherently we felt we needed to exert something that our competitors couldn’t, and that is control. We needed control of the experience, the drivers and the fleet to be able to drive that differentiated experience, to create something that was consistent, high-quality and safe every single time. That consistency of experience we believe is incredibly important to our customers. 

BTN: Alto is looking to grow its corporate segment of the market. What do you currently offer business clients?

Coleman: Corporations [can] use our service for a range of their needs. Corporate customers have a duty of care to their employees, and they choose many of their travel products based on a certainty around the safety and quality and consistency of that product. That is exactly what we can offer to a travel manager. There is none of that uncertainty associated with the independent contractor marketplace model. … We have corporate memberships, which are discounted seat-level plans for corporations to provide to their travelers so they can use our app to do their own on-demand prescheduled bookings. … We support everything from back-end discounts based on volume to billing on an individual’s payment card or corporate card to invoice-based and charge-code-based billing, depending on how a company wants to set up their travel program. 

We also have a platform that travel managers, assistants or bookers can use to book and manage trips for their travelers. We have a web-based portal that bookers can use to book and mange hundreds of trips at a time. They can use it for airport transfers or transfers in a city or for events. If you have a lot of travelers coming in for a big event, you can pre-schedule all their pick-ups and arrange all their transportation while in town for your event. With that, we offer corporate discounts, volume-based discounts, as well as the ability for travel managers to fully control the end-to-end experience for all their travelers. 

The last offering we have is a bit in between those two. We call it a voucher, and it allows travel managers to create subsidized bookings that they can then send a link to a specific traveler that allows [them] to book a very specific trip. You can customize these vouchers to be very locked down—from a specific origin to a specific destination—to very open, where they can go anywhere and spend up to a certain amount or up to an unlimited amount. 

BTN: You currently operate in Dallas, Houston, Los Angeles, Miami, San Francisco and Washington, D.C. What are your plans for expansion?

Coleman: We’re looking to enter Atlanta, Chicago, Boston and New York over the course of the next year to 18 months. … Today we do not have a full national presence, so we have more small and midsize businesses that have regional presences or who overlap with our program, but as we continue to expand, we also are ramping our offering to more national managed programs with very large firms as well.

BTN: How large is your fleet and number of drivers, and how do you procure your vehicles?

Coleman: Alto has about 2,000 drivers and 400 vehicles on the road today, with 600 more to hit the road in 2023. Vehicles all come sourced directly from the manufacturer.

BTN: Tell me more about the corporate membership program.

Coleman: Corporations can buy on behalf of their employees. We do have custom pricing for corporations based on size and volume, and we’ve done everything from minor discounts to free seat licenses for major corporations that are using us with hundreds of travelers and providing very large scale to our operation.

BTN: What are seat licenses?

Coleman: It’s a membership, so you could have 50 memberships. Seat licenses is a software terms, but you can give those 50 memberships to any 50 people in your organization. If one stops traveling or leaves the firm, you can reassign their membership to someone else. It’s a membership you own and control as a travel manager and can assign out to the requisite people within the organization.

BTN: Do you have a dedicated sales team for corporate leads?

Coleman: We have a dedicated sales team. They work across all of our verticals, including corporate and event companies and hotels and some others we’re working on. But we have a national leader who sits in L.A., and business development folks in each of our markets.

BTN: How are you working with travel managers to get into preferred programs?

Coleman: What we’re really trying to do today is help travel managers understand the benefits of working with us. A lot of travel managers are rightfully very focused on cost. And we are a bit more expensive than the absolute cheapest options in the space. But what we found is that the vast majority of corporate travelers are not buying the cheapest options even if it’s preferred. There is a lot of leakage in this space. … [With competitors], there are real safety concerns. Whose insurance is primary? What’s the total value of that insurance policy? Whose responsibility is it for the person in the back seat? We’ve really been working with travel managers now to weigh those different aspects of our business versus our competitors and help them understand our differentiation and how our value shapes up. 

Increasingly we are seeing a lot of travel managers understand [that], and they are finding that because we offer this consistent quality of product, they can create a more firm policy around that that can be supported by happy travelers, that are excited to use the service, that feel comfortable and safe using it. … It’s a high-quality business-class product. … We provide a luxury five-passenger SUV with captains’ chairs, Wi-Fi, chargers and other amenities. … Frankly, our biggest customers in the corporate space today come to us because they see a lot of their travelers using us [then] expensing it back. We can come in and help provide more management and oversight and discounting and all the things that a travel manager is obviously focused on by creating an actual program around it.

BTN: What is your roadmap for expanding your corporate client base?

Coleman: [It’s] expanding our national presence and creating a large network that allows us to serve more companies’ and travelers’ needs. That is priority No. 1. Priority No. 2 is to continue to take feedback from our corporate travelers as well as the managers and bookers and the ecosystem of people using our products. We’re still quite young as a company, and we have a lot of agility and flexibility, and our product continues to evolve really quickly. We are constantly learning from new relationships and new customer needs and using that to refine, to upgrade our software and our products to better serve this segment. The third thing is finding innovative ways to create integrations with airlines, hotels and booking platforms to expand the array of ways in which people can interact with us.: not just directly through our own distribution, which is how we work today, but also through other distribution platforms.

BTN: You have a firm stance about no tipping and instead launched with an automatic 18 percent service charge. Is that still the case?

Coleman: That hasn’t changed since day one.

BTN: Do you get much feedback on that?

Coleman: Honestly, we don’t. It’s one of those things that removes friction from the entire process. The vast majority of customers really appreciate it, and drivers, they come to us because they want the consistency of knowing exactly how much they are going to make based on an hourly wage, based on knowing how many hours they are going to work, not how many trips they use. It really aligns and centers with our drivers. Tipping and really any kind of trip-based compensation creates adverse and perverse incentives for drivers to not want to wait on customers, to not want to service certain parts of a city or sit at an airport and wait for a ride for a long time. We really believe it’s both the right thing to do for our drivers, and it allows us to performance-manage and care for them. 

BTN: Can customers add more of a tip if they want to?

Coleman: Not today. We did a survey recently of our customers, and remarkably a pretty large group of them would like to be able to add an additional tip or gratuity to their fare. So that is something we will explore over time.

BTN: How do your prices compare with Uber and Lyft premium services?

Coleman: It’s highly variable because their prices change, our prices change; it’s different by market. On a national average, we are 30 percent to 40 percent cheaper than Uber Black, and about 20 percent to 30 percent more expensive than an Uber XL. 

BTN: I read that it takes about 10 to 15 minutes to get an Alto car. Is that because you don’t have as many vehicles as your competitors?

Coleman: It’s exactly that. You need to drive higher asset utilization. The reality is that in order to offer four- to six-minute pick-up times in a city like Dallas or even L.A., you need far too many cars on the road, which drives utilization rates down too low. It’s bad for the city, creates excess congestion, excess vehicle miles traveled, excess emissions. … Instead, we offer slightly higher but more consistent pick-up times. Our average pick-up window today is 11.5 minutes, and the standard deviation is very small, about 1.5 minutes. We get that because we won’t pick you up sooner than 10 minutes. Even if we have a car available, we delay that pickup, both because it creates advantages for us in terms of optimization and timing to reallocate fleet if necessary through another customer that may request after you. But also because we want to train our customers to expect that certainty and consistency. … [Plus,] we’ll never leave you. We’ll wait for five minutes for free. And we’ll wait as long as you need us to, whether it’s to finish a meeting or if you get caught up on your way out of the office or if it takes longer to get off the plane than you expect. We try to take all that friction out.