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There’s no shortage of conferences and advice regarding how businesses can increase revenues profitably through innovative and disruptive business models. Business strategy consultants, such as Monitor Group, recognize that most leaders today are under relentless pressure to adjust in this economic downturn like no other in history. Simply battening the hatches by reducing costs and shrinking capacity is no longer a viable option to maintain market leadership. Finding answers often demands thinking outside the box and looking into other industries and business models for clues.
As onboard retailing gains momentum airlines have increasingly shifted focus towards traditional and online retailing and merchandising models for ideas and know how. They have established merchandising manager positions, hired new personnel from the retail industry, and have sought out retail consultants to help with strategy. Retail systems providers have also played an active role in this dynamic which is reshaping the airline industry as we know it.
Other partners in the travel ecosystem, such as hotel operators, have also taken on a new perspective in their management. More of them are using metrics such as revenue per square foot rather than the traditional occupancy rates measuring how many beds are slept in each night. Revenue management is now driving the agenda for innovation in these establishments. Intercontinental Hotels, for instance, discovered it could generate US$15 million in new revenue annually by simply offering and charging for bottled water at check out. This firm is behaving more like a retailer rather than an hotelier. Its patrons are pleasantly touched by the convenience of the drink offer as many of them end up buying water at the airport in any event.
Airlines can take cues from their partners in their ecosystem. Carriers have largely operated on the basis that first class and business travelers subsidize the cost of economy class flying. That is, economy helped the airline to breakeven, first and business class provided the profits (not taking cargo into account here). With premium traffic, as represented by first class and business travel, falling off as much as 19 percent year over year, operators must now take a hard look at possibly new metrics to measure progress and success: revenue per square foot.
So how does this retail metric drive behavior and revenue opportunity for airlines? For one, it forces carriers to think about their onboard workflows and customer offers differently. Today’s workflows are largely determined by safety announcements, snack/meal or beverage/cocktail scheduling. From the retail perspective, airlines now need to look at all the customer touch points to enhance the travel experience while providing new revenue opportunities. It means flight attendants and other marketing efforts need to reach out to passengers and provide clues about the new offers. It means that flight attendants need to become customer attendants.
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