Airlines have long strived to boost revenue with inflight retail that monetizes on their flights’ captive audiences. For decades, inflight retail has focused on perfumes, makeup, alcohol, chocolates, gadgets, and home goods. When it came to destination-specific products and services, airlines have rented out their inflight screens to tourism board marketing departments looking to place ads. But rarely would an airline facilitate tourism-related sales.
With the steep decline of inflight retail sales, the time has come for airlines to embrace a travel marketplace that sells destination products, tours, outings, and services to travelers who are, by the very fact of their plane seat, destined to shop in a region known to the airline.
Inflight shopping has been on the decline for decades. As Immarsat Aviation put it,
“Inflight shopping is seen as tired and dated. Passengers have become desensitised to the offer. According to Counter Intelligence Retail, the biggest category for inflight sales is female fragrances. The second biggest is alcohol. This hasn’t changed for decades.
Of course, there are good reasons that carriers struggle to compete with airports. Stock is bulky so ranges are very limited. The shopping experience is much diminished. Flyers can’t interrogate. To customers used to pointing, clicking and zooming in on items online, nothing looks quite as good in a printed catalogue. Meanwhile cabin attendants only moonlight as retail assistants. Sales are neither their focus nor their area of expertise.”
In response to the decline, airlines have experimented with new sales models on planes that range from push carts to in-plane show rooms to duty-free catalogs and partnerships and even home delivery! And yet those interventions haven’t moved the needle towards greater inflight sales.
As planes have become increasingly connected with steady wifi signals, some airlines have begun to move the shopping online. Lufthansa has begun offering digital payments and an eCommerce store in its inflight entertainment. Retail inMotion, a service provider many major airlines contract to provide inflight retail services, recently launched a digital payments and online shopping technology solution.
These recent, digital innovations have improved sales in recent years somewhat. In October 2018, TFWA Managing Director John Rimmer revealed that in 2017 inflight retail sales grew for the first time in four year by 4.2% to over $2.5bn. Even so, inflight retail sales have not bounced back to where they were a decade or more ago, which is especially troubling given the fact that air travel has been steadily on the rise since the Great Recession. Whatmore, over 70% of inflight shoppers are over 40, posing a threat to the long term growth of inflight retail.
So if more people are flying, and airlines have been shifting to convenient digital sales methods, what are inflight sales struggling?
The real problem: It’s the same limited products. Digital payment solutions simply transform products few buy in a plane into products few buy in an iPad.
Current inflight digital stores suffer from the same limits as all linear stores (whether they’re digital or brick-and-mortar): limited supply and lack of pricing competition.
Consumer habits and expectations have changed. Passengers accustomed to sprawling online stores and easy price comparison won’t suddenly settle for limited catalogs and opaque pricing while sitting in a plane.
Airlines looking to seriously expand their product offering (and thereby their sales) must create marketplace that is open to third-party vendors. Marketplaces benefit from the high growth that result from the network effects of platform business models. More products and services beget more customers which beget more vendors which beget more customers.
Of course, what is included in the catalog matters greatly. The tastes of millennial travelers differ greatly from their older relatives. In the early stages of the marketplace, airlines can shape the type of offering by choosing which vendors to partner with first. This is where the second growth opportunity for inflight retail lies.
Airlines have one vital piece of information about travelers: they know where they’re going and when they’re going to be there. While that may sound trivial and obvious, for the tourism industry it is not. Tourism marketing spends a lot of money trying to convince vacationers to choose their country or region as their next destination. Passengers on a plane have already made their decisions regarding destination, and now must choose which tours to take, restaurants to sample, artisanal local products to buy, and so on.
This isn’t new. Several airlines team up with the tourism boards of their destination countries to advertise tours and travel packages. Finnair has taken a step beyond marketing to add Finnish artisanal and fashion products to their inflight retail catalog. As TravelPulse described it,
“Finnair takes this idea a step further by offering things that are either not widely available or are very destination-specific. Could these kinds of niche shopping and destination-based service offers find their way into other airlines’ in-flight entertainment offerings? It certainly seems likely. Services tailored to fliers or to people traveling to certain destinations would have a higher chance of selling than generic SkyMall items.”
A destination-specific travel marketplace may not only appeal to the modern traveler, but would also remove a lot of the logistical issues in offering inflight retail. Airlines don’t need to hold any inventory on planes or in warehouses, nor do they need to worry about shipping products. The product or service vendor would see to it that the customer receives their purchase, as they would for customer acquired via any other channel. And the airline collects a fee for facilitating the transaction. Thus airlines would shift from being linear retailers to transaction facilitators who are prized by vendors for their access to a captive audience of travelers.
Furthermore, airlines have an opportunity to deploy unique sales channels. Rather than simply recreate an Amazon-like marketplace, filtered by city, in the inflight entertainment iPad, airlines can take a Google Maps-like approach to travel shopping.
Moving maps are undergoing a digital facelift with a commercial emphasis in mind. Imagine a traveler en route to Paris who knows in which neighborhood their hotel is located. That passenger could simply open the map, zoom into that neighborhood, and find local restaurant coupons or tour services or Parisien shops.
The airline who builds out the moving map travel marketplace first will benefit from the winner-take-all dynamics of platform businesses, especially if they made their marketplace available to other airlines’ inflight entertainment systems.
While it may seem counterintuitive at first to allow competitors to benefit from the availability of their marketplace, in fact the airline that owns the marketplace benefits the most. Their marketplace would expand greatly in terms of demand and supply as more and more destinations are added. And the marketplace would be three-sided, with the third participant being other airlines who use the system, effectively acting as a broker between the marketplace and their passengers.
The platform owner would collect the largest fee for facilitating the transaction regardless of where it takes place, and therein lies the power of the platform business model.
Platform DesignRead more
Platform InnovationRead more