Airlines hoping to cash in on the potential of onboard sales may want to rethink some of the business models that have been the mainstay of this reliable segment of ancillary revenue.
At the Airline Retail Conference held at Heathrow International airport on 21 July there was agreement on the importance of ancillary revenue from onboard sales, but there were a lot of different ideas on how to maximise sales potential.
In 2009, duty free and travel retail sales ginned up a total of $2.38 billion for airlines, according to statistics from Sweden's Generation Research.
As airlines have unbundled charges in an effort to cut costs, they have been able to target certain goods and services to customers willing to pay extra.
"They've cut costs to the bone in terms of operating costs. Where else do you go? The big hurdle we've got is to convert passengers into customers," says Richard Cushing, SVP GuestLogix for Europe, Middle East and Africa. GuestLogix is launching its OnTouch technology and merchandising platform that will enable airlines to create and manage branded onboard stores.
With the right technology platform - such as onboard WiFi and handheld transactional devices - airlines could increase onboard sales that would include ground services such as transportation, hotels, theater or amusement park tickets along with traditional duty free items, Cushing says. Selling these kinds of "inventory free services" would save customers time, he believes.
"Airlines have to grow up and start acting like businesses," says Ryanair COO Michael Cawley. Ryanair has led the way in unbundling services and charging customers for everything beyond its basic, low fares. Cawley explains that the airline relies on its ancillary revenues to maintain low fares. But the cut-rate carrier has yet to commit to onboard wireless connectivity, which is considered essential for sustaining a robust onboard sales programme. "If the customer pays for it, it's worth investing in it. [But] economy fares do not respond to these enhancements," Cawley maintains.
Vueling Airlines CEO Alex Cruz says that revenue from airfares is not enough and that carriers must continue to find the "right product with the right price" that go beyond traditional points of sale. Airlines want to sell the products, but don't want to be responsible for the marketing, fulfillment and sales processes.
"Why hasn't anyone figured out a way to trade at the gate?" he asks. Products could be targeted directly at the inflight experience, he suggests. But it is difficult to find the right mix or product and sales approach, he admits.
"Every single month we come up with new initiatives that don't really make it because of added costs. We want to be innovative but it takes to time develop technology," Cruz says. Still, he believes that investment in technology to enhance retail activity will "generate tremendous amounts of revenue".
Source: Air Transport Intelligence news