Airlines turn to retail therapy for buy-on-board meals

US airline lobbying group, Airlines for America (A4A), recently delivered some sobering news to the industry – the country’s top 11 airlines earned a combined $390 million in 2011 or less than half a penny on every $1 of revenue generated for the year. The scant profit was achieved on the heels of an extraordinarily difficult decade for airlines. In the spectre of soaring fuel prices, low yields and global economic instability, the USA’s leading carriers accumulated more than $50 billion in losses in the preceding 10 years.

But the A4A also shared some optimistic news about the airline passenger experience, saying that US operators in 2011 received their best scores ever for customer service in metrics such as mishandled baggage and bumped passengers, and that consumer complaints dropped slightly to 1.18 per 100,000 passengers.

The ability to eke out even a minor profit in today’s harsh operating environment while improving aspects of the passenger experience is no small accomplishment. Undoubtedly aiding this effort in the United States is an evolution in the inflight space that has seen airlines move to an ‘a la carte’ fee structure for onboard services.

While an unbundling in baggage fees has added hundreds of millions of dollars in additional revenue to some airlines’ annual coffers, an upgrade to the “buy-on-board” (BOB) concept – whereby airlines offer more retail-inspired products – is also doing its part to bolster their bottom lines.

Skyteam alliance member Delta Air Lines boasts: “We’re doing all we can to satisfy your hunger and tantalise your taste buds with premium products like Boar’s Head meats, healthy snacks and fun family favourites like Peanut M&M’s and Pringles potato chips.

A BETTER BOB

Airlines actually jumped on the BOB bandwagon in the early 2000s, though for a long time “it never seemed to really take off”, says David Loft, president of the International Flight Services Association (IFSA). “But it’s certainly coming back stronger now, and I think much more successfully. Airlines are learning what they need to have and are not selling just a regular airline meal; they are now selling something more related to a retail product, and really providing the passenger what they want.”

With BOB, airlines can tailor menu items according to preferences based on consumer research, which helps control costs, reduce waste, and satisfy the discerning customer, notes Loft. This can mean partnering with well-known brands or unique, premium products.

Some of the more interesting concepts, says Loft, “include: well-known restaurants, such as Trader Vic’s, partnering to bring their selections on board; onboard sales of half bottles of premium wine; and the shift toward on-demand dining, rather than having set meal times. The difficult part is getting the right amount of product on board and not ending up with wastage in the end.”

Continental – now United-Continental – was the last major US carrier to offer free meals on all domestic flights. When the airline finally launched its BOB programme in 2010, it did so, says Loft, “with a much more retail focus. It’s all about ‘what I can develop for on board and sell at a premium price that really satisfies our customers?’”

Some of the scene-stealers in the BOB world include San Francisco-based Virgin America and, outside the United States, Dubai-based flydubai. Both carriers are distinguished by the fact that their in-seat inflight entertainment (IFE) systems allow customers to order retail-style food and beverage options on demand with a mere swipe of their credit card.

TAILOR MADE

“When you fly our airline you get a customised experience. You’re in your cool capsule in the sky and you have more control over the experience,” says Virgin America VP of marketing Luanne Calvert.

The carrier has seen a few different trends emerge around its BOB menu. “One is a move by some guests to look for and demand healthier options, more organic products, and local products and there is a big push on cocktails and even draft beer from local breweries in San Francisco,” says Virgin America VP corporate communications Abby Lunardini.

Virgin America last year added a new coffee vendor, San Francisco-based Philz Coffee, based largely on guest feedback and social media feedback. “In general, there is definitely a move to more upscale quality products and menu items,” says Lunardini.

Virgin America’s focus on offering local, organic and sustainable foods on flights has even garnered positive attention from non-profit environmental advocate Green America.

Another factor that has “definitely increased sales” is the open tab feature on Virgin America’s IFE system, says Lunardini. “Those [transcontinental services] can be pretty long flights so having the ability to keep your tab open and purchase movies or meals or another cocktail or snack makes it easier.”

APEX AND IFSA

With so much innovation occurring in parallel in the IFE and onboard services space, it is little wonder that the Airline Passenger Experience Association (APEX) and IFSA have strengthened ties; the two organisations last year co-located their big conference and exhibitions, and will do the same this year in Long Beach, California.

“I think co-location does a couple of things,” says Loft. “As airlines consolidate their own [interiors, IFE, onboard and ancillary revenue] departments in house, you’ll end up with more of these departments under control of single person, and if that person can come over and see everything in one place, it’s a huge bonus for the airlines. Additionally the airline employees who are focused on catering can see what’s happening at APEX, gain an idea of the overall package for their customers, which they may not always see, then look at their business and how it fits into others and vice versa with the APEX members.”

Does Loft ever see a day when the two organisations will combine forces in a more formal way?

“I think what we’re doing is working with each other to try and leverage the benefits of what we can do with the co-location, and looking at how that works. Over the next few years, I’m sure there will be more discussion about how we can both get more advantages out of that. Where it ends up, I wouldn’t know. But I think as it moves forward, I’d like to see things get a bit closer. I’m sure there will be much bigger overlap in terms of onboard catering and the IFE, so the two organisations will control the whole onboard experience together.”