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Turbulent economic times are once again forcing network carriers to rethink their full-service models. Let’s face it; it’s getting more difficult to operate at full-fare as air travel is no longer a novelty or a luxury undertaking. This, in part, explains why the entire industry has yielded so little in total return to stakeholders since the inception of commercial flight. Hotels, often the destination upon flight arrival, have not succumbed to the same business practices, however. Instead, they frequently focus on the ancillaries, even bottled water by the bedside. Rail operators, another participant in the travel ecosystem, have always relied on captured passengers paying extra. Why, because consumers are willing to pay for convenience. Those in the travel supply chain know that quality paired with convenience can often breed loyalty.
Since inception, carriers have bundled the travel-related services as part of one fare. With fluctuations in fixed operating costs represented by fuel, labor, and landing fees, operators have had to steer steadily to ancillary revenue generation to sustain any semblance of profitability. While use of fuel price hedging, outsourcing of food services and duty-free merchandising, and bartering empty seats for extra cash have had some impact on containing costs and downloading economic risk, the reality is the supply chain is being forced to re-invent itself with even more commoditization developing. The trend to onboard retail has the potential to return all the participants in the passenger experience to a more profitable footing while simultaneously providing options the consumer has never before experienced.
Onboard retail can be at least 10 times more profitable than any other airline revenue operation. Network carriers first experienced this type of operating leverage with their popular frequent flyer programs. Trading empty seats for cash with credit card operators has been the mantra that led to not only new found revenue sources but customer loyalty building as well. The trouble is that there are now over 700 trillion reward miles in circulation looking for a transaction. Traditionally linked to reward airline travel, rewards are now being rapidly directed to web shopping as more airlines engage in web commerce through their booking sites. So much for loyalty; Amazon naturally offers a much better web shopping experience than any airline brand could.
Onboard retail is now positioned to take over where reward miles have left off with the potential to engage every passenger not just loyalty program members. Take for example, one airline’s efforts to sell airport transfer tickets to passengers landing at Heathrow, UK. Passengers save time upon arrival by avoiding ticket lineups and proceeding directly to their downtown train. Every airport transfer ticket sale yields new profit to the airline. Another carrier has chosen to sell full complement of beverages and snacks. Leading food and beverage brands have joined the airline to offer passengers choices they never had before. Will that be Evian or Perrier, sir? Working with their food service provider, this airline has turned a cost into a profit center and has eliminated food waste in the process. Each onboard food and beverage sale now yields margin to the bottom line.
Both of these airlines have implemented the GuestLogix Mobile Virtual Store™ retail technology to manage sales, launch new promotions such as combos, and track product popularity by flight leg. Based on field experience, the GuestLogix system provides a hidden benefit as well, the ability to minimize shrinkage and fraud transactions during flight. For some operators, this hidden factor can provide up to 30% to the respective bottom line.
Onboard retail initiatives are being launched everywhere. Take a look at what carriers and others are undertaking in onboard retail here.
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