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
