Airlines Push Limits of Selling Onboard

From Broadway tickets to upgraded food, carriers such as American, BA, and JAL are copying Ryanair's success at merchandising to passengers in the air

By Greg Walton

Booking ski-hire, Broadway tickets or train tickets are just some of the new services being offered to customers up in the sky as airlines seek new ways to beat the downturn and make money.

Winter-sport operator TUI (TUIGn.DE) Ski is now offering passengers ski hire, lift passes and reservations for après-ski events as they fly into resorts – receiving a commission from every sale. American Airlines (AMR), meanwhile, is testing on-board sales so that passengers can buy tickets for Broadway shows as they cross the Atlantic, while those coming back to Britain can get their Heathrow-to-Paddington express tickets ready even before landing.

Finding new ways of selling more to passengers in the skies has suddenly stepped up as the world' s airlines struggle to make money from flying. American Airlines is working with GuestLogix (GXI.V) on its new ticketing service, and both Ryanair (RYAAY) and British Airways (BAY.L) are signed up to use the same system. Japan Airlines and All Nippon Airways, like EasyJet (EZY.L), are also looking at imaginative new ways to improve services, mainly by offering better food in the sky. JAL will soon offer on-board vending machines selling alcoholic drinks to customers in the airline's revamped cabins, while, on ANA, economy passengers will be able to have business-class meals, as well as to order drinks through their seat-back touch screens.

"The global on-board sales market could be worth up to $45bn a year," said Brett Proud, the vice president for sales at GuestLogix. "At American Airlines they are hoping to realise the potential of on-board advertising and product placement – nowhere else are customers 'sealed in' for an average of three hours with nothing to do but shop."

These latest moves to improve retail profitability in the air come as the industry faces one of its worst years for decades. But will they make any real difference to revenues?

Giovanni Bisignani, the director general of the International Air Transport Association, is downbeat. "The dimension of this crisis is larger and will be longer-lasting than the post-9/11 period. It will be at least two or three years before revenues recover."

EasyJet disappointed investors at its half-year results on Wednesday, and Air France posted particularly bad results last week with a €147m (£131m) loss for the second quarter, compared with a €27m profit for the same period a year earlier. In response to the downturn, Air France management announced that it intends to cut 1,700 jobs in 2010.

Japanese carrier JAL is desperately seeking a rescue package to offset its $15bn debt as Tokyo indicated that it would not step in to save the ailing airline from bankruptcy. Tyler Brûlé, the editor-in-chief of Monocle magazine, has warned that rival ANA will "cause JAL to despair" as it revamps its services while JAL is forced to seek a bailout.

Industry losses for 2009 are expected to be in excess of $11bn, but some airlines are more willing than others to embrace a new approach to on-board retail. Ryanair, the low-fares Irish carrier, has been at the forefront of in-flight retail and was the first European airline to sell tickets for onward travel on board its flights. Now, 20 per cent of the airline's revenues come from the sale of optional extras.

"Ryanair has pushed the envelope as far as it can and has pioneered the growth in ancillary revenue," said Wyn Ellis, analyst at Numis Securities. "I'm sure it'll try and get more out of car hire and hotels."

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