Airlines Push Limits of Selling Onboard

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EasyJet has pursued extra revenues, though less aggressively than Ryanair. But analysts expect that easyJet will further increase its income from extras such as Speedy Boarding and on-board sales, having recently improved its in-flight product line.

GuestLogix conducted a survey of 3,500 airline passengers which showed that many were keen to buy ground transfers on board to avoid queues on arrival. In response, the Toronto-based company has signed deals with every big airport in the world to offer tickets for onward transfers through the company's OnTouch system.

Despite the vast potential for airlines such as BA and Virgin Atlantic to increase their revenue from onboard retail, analysts warn that the premium carriers should be wary of following the likes of Ryanair too closely. One analyst cautioned BA in particular; the airline is now charging passengers if they want to choose their seats before flying, and also plans to charge for additional hold bags. He warned that aggressive on-board sales might push premium customers towards the budget airlines. Wyn Ellis of Numis says that while increasing its on-board product line might help with profits, BA risks playing into the hands of Ryanair as the two airlines become less distinct but BA continues to charge more.

BA, like Virgin Atlantic, has been cautious in changing its on-board retail model, sticking to a traditional duty-free service. A spokesman for the airline said: "At BA we don't see on-board retail as bolstering our bottom line, but rather benefiting our customers. It is not something that we are dependent on, rather it's an additional service that we offer." The airline acknowledges that it earns a "modest profit" from its duty-free shop and recently made its Highlife shop available online to sell to passengers after their flights have touched down. BA recently introduced in-flight mobile-phone services on all its business routes from London City airport to New York, from which it earns a commission. However, there are no plans for a roll-out on all services because of the cost involved.

EasyJet recently overhauled its onboard retail system to help it to track its on-board sales and target products more accurately. A spokesman for the airline said: "In the past we tried to sell German beer to French passengers and vice versa, which didn't really work, so now we're looking to stock our aircraft locally with more consideration of what each market will want."

As easyJet has grown, it has taken account of its passengers' requirements by, for example, stocking kosher food on its Tel Aviv route as well as planning to introduce halal food on its Turkish and North African routes.

In its full-year results last week, when the Luton-based carrier announced a 50 per cent slump in profits, management indicated that it wanted food and drink to become a "more important" part of the business. In addition to catering, the airline has started selling discounted Oyster cards – Transport for London's pre-paid passes – and rail tickets on its London routes. EasyJet receives a commission on sales, and, according to the airline, the new products have been such a success that the airline is now looking to introduce similar travel products on flights to other destinations.

Some airlines remain above such tactics. Virgin Atlantic, like BA, has been reluctant to put the hard sell on its passengers, choosing instead to focus efforts on keeping costs down elsewhere in the business to allow staff to concentrate on on-board service. A spokesman for the airline said: "The staff focuses on providing service with a smile. Our competitors have an expensive cost structure with many aircraft, whereas we only have 37 aircraft. There is a small take from our on-board duty-free but it's profitable." The airline introduced a line of in-flight laptop chargers in October for use in Upper Class cabins, which have, it says, been a success.

However, Gert Zonneveld, a Panmure Gordon analyst, says: "They are missing an opportunity and they could cash in on the untapped market, which would make sense as long as they didn't bombard their passengers. It depends on whether the unions and whether staff contracts allow for sales in the same way as Ryanair's contracts do. Also, it's complicated by the fact that Virgin offers food for free, and so would have to choose products for which demand would be highest."

But it is Ryanair that has led European airlines in adopting on-board retail as a big part of its business strategy. Today the airline receives 20 per cent of revenues from optional extras, including on-board retail, with passengers spending £9 ($15) on average. The Irish carrier was the first in Europe to sell tickets for onward travel and has introduced a number of exclusive products, including scratch cards and smoke-free cigarettes. A spokesman for the airline says: "All of the products available on board come through third-party suppliers and we're open to all propositions. We respond to customer demand. A Ryanair poll showed that many customers wanted to be allowed to smoke on board. So we found a supplier and we have been selling smokeless electronic cigarettes for four months now and they have been very successful."

Ryanair offers its customers car hire and hotel bookings on its website, though there are not yet any plans to offer these services on board its aircraft. Analysts expect that the airline will try to "get more out of car hire and hotels" in the near future, though they also acknowledge that Ryanair has probably pushed on-board retail as far as it can.

Provided by The Independent—from London, for Independent minds

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