Flyers are finding more products and services for sale on-board their flights now than at any other time in commercial aviation history as a small group of point-of-sale providers leads airlines into a brand new world of retail strategy.
Already standard on budget carriers in Europe, companies such as Canada’s GuestLogix and the U.K.’s Onboard Retail Solutions are out to transform even the legacy U.S. airlines into flying shopping malls. With the use of wireless handsets, flight attendants can take purchase orders for food, luxury goods and ground-based services such as transportation and theme-park ticket sales.
And since the sales are all software-based, the carriers can keep better track of what sells, breaking the data down for specific flight routes, times and seasons.
That can be a huge benefit for airlines as they further unbundled their products and services to create new revenue streams. As average airfare prices plunged to five-year lows, many airline executives have said they’re becoming more reliant on non-ticket revenue to offset the difference.
“Several European carriers have shown great success with generating ancillary revenue on-board … with up to four to five different ‘selling opportunities’ on a given flight, like drink service, snacks, duty-free items and train tickets,” said Alison Croyle, a spokesperson with JetBlue Airways in New York, which has made some inroads with on-board retail.
“As technology improves, it is likely that more carriers will look toward this as a great way to meet customer needs as well as generate additional revenue,” she said.
According to Doug Cooper, an analyst with Paradigm Capital Inc., real airline ticket prices have fallen some 20 per cent in the last 15 years as fuel costs have more than doubled, leaving a significant gap between sales and costs.
“Flying has become a commodity,” Cooper said. “Consumers want to fly, but at the cheapest possible price. In such an environment, airlines will seek to drive (unit revenue) through non-ticket sources.”
Breaking out non-ticket passenger revenue is difficult. Airlines guard the data closely, and the U.S. Bureau of Transportation doesn’t provide much detail.
In the third quarter last year, the latest period for which data are available, ancillary revenue for U.S. airlines climbed some 36 per cent to $2 billion, which included $740 million in baggage fees, in addition to reservation change fees and some miscellaneous operating revenue.
Revenue from on-board sales of food, blankets, seat upgrades and entertainment, however, falls under “transportation-related revenue,” which also includes revenue from maintenance services provided to other airlines and fares collected from code-share partners. That category actually declined in the third quarter from a year ago.
But Cooper figures the impact from on-board sales will eventually be significant. Take AMR Corp.’s American Airlines, for example. With about 100 million passengers a year, if the carrier can just sell 10 per cent of its passengers $5 worth of food and beverage, it will add about five cents a share to its bottom line.
“Now take that example and multiply it by any number of user fees or ancillary revenue possibilities,” Cooper said.
“Even at this early stage … the importance of non-ticket revenue cannot be overstated.”
Food, beverages and alcohol are the biggest sellers, but there’s the potential for more services for both business and leisure travellers. Airlines flying into Paris already offer euro Disney tickets, and flights into New York City could soon sell Broadway theatre tickets.