Spending on in-flight product and service is often the first to go when times get tough, but while cost is king, some have still found opportunities to innovate

Throughout the past year, despite the most intense scrutiny from their financial masters, the marketing and in-flight teams at American Airlines, Cathay Pacific Airways, British Airways and a host of other full-service carriers have continued to roll out a new generation of in-flight products. But the search is on to find innovative ways to raise service levels without adding costs.

Admittedly, some were already so far into their refurbishment projects it would have been more expensive to slow down or stop them than to carry on. Some, like SAS Scandinavian Airlines, had been preparing fresh interior concepts for new aircraft types scheduled for delivery anyway.

Others, like Gulf Air and Swiss International Air Lines, have been relaunching their in-flight catering in response to their own particular market situations. Gulf Air is investing in its in-flight service to put it firmly back on course as a premium carrier. Swiss had to launch at short notice what it calls its "interim product" when the carrier started up with its new brand and look in April, prior to fully relaunching its in-flight environment in 2003.

Whatever motivations carriers have had, all the investments inevitably require a tough fight to win boardroom approval. But a well-argued case, showing clear customer benefits at reasonable cost, can win out. "You have to pick and choose your battles," explains Veronica Lopes, managing director for in-flight products at American Airlines. "I cannot over-emphasise the financial situation - we are under unbelievable scrutiny."

For example, American is carrying on with its $50 million project to add more overhead bin space to its Boeing 757 and MD-80 fleets, but the in-flight group is not pressing as hard for lie-flat beds for its long-haul business class. The addition of extra bin space for large "roll aboard" cases is part of American's drive to improve its domestic service offering, which it started in 2000 with its "More room throughout coach" seating project. However, while it is studying the introduction of lie-flat beds, Lopes says, its current sleeper seats with 60° of incline do a good job. "Lie-flat seats are probably not the first thing we would do when picking our battles," she says.

Innovation limbo

With frugality the watchword among all carriers, the marketing teams at some have become smaller and less powerful, believes Charles Trevail, chief executive of branding agency FutureBrand. This has created an "innovation limbo", where the stress is on trimming back the in-flight product to save money, rather than looking to improve service.

"The in-flight service budget is a wonderful playground for managers to save money," agrees Alfred Rigler, global senior vice-president total in-flight service at LSG Sky Chefs. "But many airlines realise they are at rock bottom on the in-flight side. Further savings are not now on the food side, they have to come from carriers addressing systems issues."

The challenge of investing in the cabin product is very different between the short-haul and intercontinental fleets. On long-haul services, in all cabin classes, customer demands remain fairly constant. "Comfort levels are always the biggest issue, this has never changed," says Sarah Blomfield, manager-product at Cathay Pacific. "The rest is value added - it is all about putting the package together."

On the short-haul side, there are new factors in play. In both Europe and North America, the influence of the low-cost carriers is coming to bear, while weak domestic traffic levels and poor yields in North America are causing carriers to try and wring every cent out of their unit costs to remain competitive.

A handful of full-service carriers around the globe have reacted to the low-cost challenge with new short-haul products. Air Canada, for example, inaugurated its Tango low-fares operation in late 2001. From 1 November 2002, Air New Zealand ditched business class and meals altogether in launching its single-class Express domestic product. On average, Express Class fares will be 20% lower than before. In Europe, British Airways has revised its entire short-haul pricing strategy to offer simpler and cheaper fares, while SAS has launched its Scandinavian Direct low-fares concept on intra-Scandinavia routes.

Such a reaction to the low-cost threat remains the exception rather than the rule. Air Canada's chief executive Robert Milton believes full-service carriers are "in denial" about low-cost carriers. According to FutureBrand's Trevail: "Most full-service carriers have not figured out how to tackle them."

His agency has been working with BA to prepare its response. "Carriers have to understand what their brands stand for and tailor their response in an appropriate way. For BA, service excellence is its unique attribute," he explains. BA says: "The main change is our price strategy, but we will stick with what we do well, and that is being a full-service airline." It will continue with a two-class European product and a meal service.

That does not mean BA stops looking for better and cheaper ways to deliver its in-flight experience. For instance, it has saved £5 million a year by bringing in smaller meal trays on UK routes under 60 minutes in duration. This enables more trays to be loaded on board the aircraft. The saving comes from loading the food for both the outbound and return journeys at the outset of a flight.

Ulf Ingnas, SAS director for in-flight product management, admits that the introduction of the one-class Scandinavian Direct concept was quite risky. While it features substantially lower fares - and the quality of the service is unchanged - the amount offered to the customer is reduced in some areas. After six months in service, SAS is pleased with the positive feedback it is receiving, he says. "The perception has been much better than expected. The key to passenger acceptance is that we didn't only work in one area. We not only changed the pricing, but the ground and distribution strategy too."

"It is an overall package," says Ingnas, that includes communicating the concept to the passenger. SAS is now preparing to take a version of Scandinavian Direct to some of its European routes.

In North America, the in-flight service on domestic routes is being brought back up where there is a competitive need. Generally after 11 September, carriers slashed their offerings, for instance not offering a meal on flights under four hours, or doing away with magazines, something which has saved American $2 million a year in weight and space.

"We are looking [to get rid of] things that provide complexity and variability," says Lopes of American. A move to offer free in-flight entertainment - previously it charged $5 a passenger - will ironically save the airline $6 million a year. The idea is for passengers to bring their own headsets, or buy them from American for $2. The savings come through not having to distribute or repair the headsets anymore.

Apart from specific instances like the overhead bins, US carriers are freezing the investment on their domestic product, and mulling where to go next. Delta, for instance, says that the future direction of its strategy is "unclear".

According to Lopes: "It will be virtually impossible to get the funding to do anything major." American was lucky in this regard, because by mid-2001 it was completing a $400 million refurbishment of its massive domestic fleet that will last for a couple of years before needing further work.

Long-haul investment

In the long-haul arena, there is no less a focus on costs, but there are fewer carriers that would contemplate seriously downgrading their service. Cathay has reviewed its huge project to upgrade the economy and business class cabins of its fleet, but concluded that any change to its plans would be counter-productive.

"We learned in 1997 that if you do slow down some things it is very hard to catch up, and some carriers still have not caught up," says Blomfield, referring to measures taken by carriers when the Asian economic crisis was in full force. "Cathay took the decision to capitalise on what might be a slow market for when there is an upturn," she says.

However, for some, a natural result of the economic climate is that the speed of change will slow. "It will not be so much of a 'me-too' industry as it has in the past," believes Lopes of American. "We will make our choices and stick to them. It is too expensive to change so regularly and the industry will be more thoughtful going forward."

This attitude is in contrast to an emphasis on the in-flight product in recent years. According to FutureBrand's Trevail: "In the last 18 months, there has been almost no focus on how one airline can differentiate its experience from another," he says. "This comes after a period of four to five years where airlines have put a lot of effort in trying to create some distinct levels of service and have a brand experience that is different."

For Ingnas of SAS, while there may be a slowdown in the pace of total fleet refurbishment projects, there are many other areas where changes can still be brought in, such as in-flight e-mail and Internet, live television and improved food service. "Change and innovation will continue, it is what our passengers are asking for and will pay for - to be competitive we will have to be innovative," he says.

Inevitably, market dynamics in different regions will drive how carriers view their in-flight investment. Responding to healthy demand on its Europe-Nairobi routes, Kenya Airways has invested a modest $80,000 in each of its three 767-300ERs to rebrand and re-position its business-class product.

In a project designed to be minimum cost for maximum impact, it launched its new Premier World class on international and regional flights in October, explains David Granville, UK sales manager. The main change has seen it convert the Sicma seats into full lie-flat beds, making it the second African carrier, after South African Airways, to offer them in business class, he says. "Our objective is to position ourselves as a world-class carrier, and with this we are moving closer to achieving that."

After creating in-flight products for Ansett International and Australian Airlines, Michael Kent has been brought in as head of in-flight services by new Gulf Air chief James Hogan to raise its cuisine to "new heights". This is another element of the carrier's wide-ranging turnaround programme. The upgrading will not stop at the food service - new cabin designs alongside a new branding project are also in the pipeline.

In redesigning Gulf Air's food offering across its three classes, Kent believes that his team will not only be able to save money compared with the former food budget, but also improve the product at the same time. This is achieved by a microscopic attention to detail, including an exhaustive off-load analysis, which looks at the waste coming off a flight. "This never tells you what passengers want, but it does tell you what they don't want," he notes. Other features of the project are a closer relationship with caterers, a precise understanding of the labour content needed to produce dishes and flight attendant training.

Gulf Air began introducing its new first-class product - based on having chefs deliver the service - in December, starting with its London routes, and will gradually roll it out to the Far East and sub-continent. The concept behind its business-class product is to "take all of the icons of first class and move them back into business", explains Kent. Accordingly, Gulf Air will offer an eight-tier food service, with each course served individually.

The same principle will apply to economy class. There will be a two-tier meal service, with the appetiser and main course served and taken away before the dessert and coffee.

"It will bring back some grandeur to the economy class," believes Kent. "All of this will be achieved for the same cost. I cannot add one cent to the budget, and I believe we will achieve a cost reduction."

The budget was not the main problem for Swiss when it was racing to design an in-flight service for its product launch in April, says Sarah Klatt, general manager in-flight product. "We wanted to position it right from the start, with the brand values of 'Swissness' and quality. Time was our biggest constraint," she says.

"The initial goal was to bring the service back up to the level where it should be," she says. Over the previous years, the former Swissair had made some serious cutbacks, particularly in economy. But the environment has changed. "The airline has a very challenging business plan, with the goal to breakeven in 2003. There is a need to reduce costs in all areas, and the product will have to contribute to that," says Klatt.

Her team has started a major over-catering project to cut back on food wastage, but this alone will not produce enough savings. "The goal is to find ways to reduce costs without the passenger feeling it," she says.

As it undertakes these disciplines, Swiss began rolling out a new food service for its European and long-haul routes across all classes in December. Called "Swiss - the taste of Switzerland", it is a concept that focuses on the various regions, seasons, cultures and cuisines of the carrier's home. "It is a unique product across the industry because such concepts are usually only done for first and business class," she says.

In the second phase of its product improvement, the arrival of new Airbus A340s in June will see it introduce the newest generation of lie-flat beds in business class for the first time. Klatt describes these seats as a "must today". The economy-class seat pitch will also be increased from the traditional 31in (0.8m) to 33in. "We have received so many customer complaints about 31in - it is too tight - and if we want to be a premium airline we have to do something about it," she adds. This move mirrors that of American. It has expanded its economy space from 31in to an even more generous 34-35in.

Aircraft such as the A340 and Boeing 777 with their wide fuselages have given designers more scope to create spacious interior layouts. In terms of products, it is the arrival of lie-flat beds and new technology such as Internet and e-mail access that is exciting airline marketing people today.

However, it will take the arrival of the 550-seater Airbus A380 to make possible a "step change" in thinking. "In current aircraft types there are not many directions in which to move that do not cost a lot of space, unless there are some hugely space-efficient solutions out there that are the holy grail - but we don't know about them," says Blomfield of Cathay Pacific.


Source: Airline Business