Selling to high flyers: the possibilities of in-flight marketing

Could ‘ancillary revenues’ be the airlines' lifeline? Growing Business looks at the opportunities for entrepreneurs arising from in-flight marketing


Sizeable operating costs are threatening to undermine the business models of national carriers and low-cost airlines alike.  But could ‘ancillary revenues’ be their lifeline? Growing Business looks at the opportunities for entrepreneurs arising from in-flight marketing

In April 1 this year, a new airline was unveiled – one that definitely stole the thunder from easyJet and Ryanair. You can sometimes get a ‘free’ flight on these carriers, but this one had abolished fares altogether. Finance was to be generated from advertisers, brands and agencies. The resulting revenue would offset the operating cost of long-haul flights. The idea had wings. Every space on the aircraft would be up for sale – exterior or interior. The chairs, headrests and even the crew’s uniforms would carry advertisers’ slogans and logos. Publicitair proposed to fly once a month between the UK and New York. Within an hour of the campaign’s launch, hundreds of enquiries had been received via the ‘Air travel should be free’ Facebook page, along with a flurry of Twitter mentions and numerous re-tweets. Hundreds more submitted their details and ‘booked’ into a proposed ticket lottery. Several global brands then made contact and requested sponsorship details. So who was the April fool? The stunt was devised by Mark Terry-Lush, founder and chief executive of Renegade Media and his team. There were no false promises. Just an intriguing concept which appealed to the producer and consumer alike. Renegade account manager Dave Barton, as ‘CMO’ of Publicitair, started his pitch to potential sponsors with this enticement: “Imagine a captive audience engaged with your brand for eight solid hours – no escape, just your brand and our passengers. Publicitair is a new concept – the first airline to offer advertiser-funded flights. Passengers pay absolutely nothing – because you do.” It’s an extreme idea and there may not be any real Publicitair planes, yet, but the truth is that ticket sales don’t pay the bills anymore. Ryanair got 20% of its revenue from ‘ancillary sales’ in 2008, mostly from fees for using credit cards or baggage check-in. But a big proportion – some £152m – came from in-flight purchases and car rental or internet sales made on booking.

Competitive mania

Different carriers are cultivating a variety of ancillary revenue sources. Among them are products and services related to the journey, but also loyalty schemes operated by the ‘legacy’ carriers, former state-owned airlines such as BA, Air France or Lufthansa. For the low-cost carriers, the emphasis has been more on ‘unbundling’ – taking something out of the traditional package, such as desk check-in or hold baggage, and then charging passengers for it. What they all have in common is a mania for keeping fares competitive, while leveraging the contact and relationship they have with the passenger. It is as if the effect of rising fuel costs, security and capital depreciation has made the entire travel industry understand for the first time that it has a captive market from the moment a passenger comes on to the website to book until they leave the arrivals hall. As Richard Cushing, EMEA vice president and general manager for on-board retailing specialist GuestLogix, points out: “The airlines’ core business is moving passengers, just as for a supermarket it is selling groceries. But we are getting used to being offered financial products, insurance, even broadband and mobile phones at a Tesco checkout. The supermarkets use their powerful brands to drive ancillary sales to customers who come to them for an essential service. The analogy with the airlines is very close.” Airline passengers are among the greatest consumers in the world, Cushing believes. “They are focused shoppers with a strong appetite to purchase,” he says. Business travellers are time-starved and anxious to make the most of their downtime in a new destination. Leisure travellers are ready to indulge themselves. Both segments are the cream of the crop of consumers, with above-average household incomes. They’re also educated and discerning – and already engaged in in-flight magazines, catalogue shopping and other forms of entertainment. In fact, Cushing’s business was the first to develop the software and hardware to create a ‘virtual store’ where passengers can easily access a whole range of services during the ‘dead’ time on the aeroplane. It’s a system that’s already been adopted by Ryanair, BA, American Airlines and many more global carriers. The concept was based on research by GuestLogix, which concluded that inside the typical airline passenger there is an ‘alpha consumer’ anxious to get out. The study revealed that nearly 60% of travellers would buy destination-related products and services if the on-board purchase experience was convenient and made good use of their time.

Huge opportunity

Airline ancillary revenues reached $10.2bn in 2008, and these are expected to reach $58bn this year. Furthermore, Cushing expects the average on-board passenger spend to grow five-fold over the next few years. So you can see why the carriers are keen to encourage ancillary sales. This is a huge opportunity for them, and also for entrepreneurial companies like GuestLogix and Novo IVC, which has sold its TouchStar handheld system to Thompsons and Air Berlin, among others. “The on-board retailing phenomenon has created a direct-to-passenger, pay-as-you-go retailing sales model for airline, railway and ferry operators. To take advantage of this operators need on-board retail processes and technologies,” says Cushing. The platform is there – all it needs now is content. Entrepreneurs and marketing managers should ask themselves the question: “What kind of travellers will buy my product in-flight?” Collinson Latitude is a leading global provider of new and recurring revenue programmes in the travel sector. It is also a monocline content owner, with insurance and Priority Pass, which gives frequent travellers access to VIP lounges regardless of the carrier they are using at the time. “We suggest you go back to the customer, identify their needs, then find the touch points on the travel journey, so you can identify the products and services required along that journey,” says Collinson Latitude’s business planning director Janet Titterton. She adds that bundling products allows economies of scale, which mean these items can be offered competitively, so everyone benefits.

Fear of flying

Baggage is always a big issue for air travellers. First Luggage is a fast-growing business based on a disruptive proposition. Security when checking bags in and delays retrieving them mean that many passengers don’t want to hand their luggage over to the airlines. They shouldn’t have to, according to the company’s founder and managing director Gideon Kasfiner. “Luggage should not travel through airport terminals,” he says. “If you take the luggage away, 95% of security problems vanish. The airlines would save millions by not carrying luggage. They could use the extra space either for freight, which generates more revenue, or provide additional room for passengers and make it more fun to travel.” When volcanic ash stranded air travellers in Europe in April, First Luggage was able to get their cases home, often before they found alternative routes, says Gideon. “Ours is a service that could easily be sold on board once the airlines see the advantages,” he explains. “For the passengers it’s often cheaper than paying excess baggage.” Business travellers don’t switch off when they travel. They are on their mobiles until they board. What’s more, these days trips are often planned at the last moment. So if you have to travel to, say, Johannesburg at short notice, you may not have had time to sort out transport to the hotel – you may not even have booked accommodation. Alternatively, you may need to organise office space, conference facilities, or just somewhere to eat. Currently, there’s nothing you can do about any of that during the flight, so wouldn’t you bless the airline that gave you a way to get all that off your mind before you land? “American Airlines passengers can book a seat on the Heathrow Express from the flight attendant rather than struggling to find a taxi or a bus when they leave the airport,” says Cushing. “The fear factor of getting into London is eliminated and the airline earns a commission.” The same principle applies to leisure travellers. Although their needs are different, what you sell them can be quite focused, as TUI Ski has found after it started using GuestLogix on-board retail technology on its buses at the end of 2009. Skiers need to hire or buy equipment, and while TUI Ski was happy to help them, juggling with credit cards used to be a chore, explains managing director Mathew Prior. “Technology gave us more opportunities to market destination-based products and services to our customers and provide a personalised service tailored to their needs.”

The back office

Technology has a lot to do with developing this market. Air-to-ground wireless connections have been trialled over recent years and promise to extend the activities that can be carried out at 30,000 feet, according to Tim Clifford, marketing director of Novo IVC. “It’s not just credit card verification and car rental any more. For example, if you know you’re going to miss your connection, it will be possible to re-route before you land.” Plus there will be big opportunities for entertainment content. Instead of a menu of films, you’ll be able to access as big a range of music, games and movies – even real-time TV – as you could on the ground. Systems developers such as Novo provide the back office support (the airlines simply want to maximise their incremental revenue streams from ancillary services), but, by definition, those services need to fit the airline brand and the customer profile. The in-flight period is an intensely focused marketing opportunity, so the more precisely it can be fitted to the traveller the better. Don’t waste time trying to sell theme park tickets to business class passengers, warns Cushing, but use the airline’s database to identify their needs. Don’t underestimate the power of the airlines’ frequent flyer programmes, adds Titterton. “This industry is renowned for giving great value even in the current climate,” she says. “Gather the data so you can be intelligent with your marketing programme.” If you can get in under the BA Executive Club or the Star Alliance programme that spans 25 airlines, for example, it’s like getting your cat food accepted as a Waitrose own brand. Titterton also suggests following the example of the banks. “Whatever you think about them, they are good at making money and keeping their customers,” she continues. “They make it hard for you to leave. They constantly innovate themselves and build products and services people often don’t notice. That ability to stretch across these multiple touch points and really understand customers’ behaviour keeps them ahead of the pack. We should all be looking to do that, irrespective of how small we are.” Publicitair suddenly seems more feasible, doesn’t it? It’s merely a heightened version of the existing in-flight experience, and might actually offer a glimpse of what’s to come.

 

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