How and what to charge for onboard connectivity is a dilemma for airlines. People are used to free wifi in the local coffee shop and other public places so there’s a question of whether they’re prepared to pay for it inflight.
However, it costs between $200,000 and $300,000 to fit a single plane with wifi, depending on vendor and whether it is a ground-based or satellite service.
Apply that to JetBlue for example, which announced it would be equipping its fleet with wifi throughout the course of 2013, it’s a big bill. The carrier says it will offer free wifi until 30 aircraft are kitted out and after that email and browsing will be complimentary while streaming will incur a charge.
Brett Proud, chief executive and co-founder of GuestLogix, which held its user conference in London last week, says consumers think of wifi like plumbing – they expect to have it and that only about 5% of people on planes buy it.
But, he adds, right now only about 10% of the worlds aircraft have connectivity and that it’s going to take another six to seven years to really take hold.
In addition to airlines having to address expectations, connectivity vendors need to demonstrate the value in terms of ancillary revenue, Proud says.
"If you don’t have connectivity it’s pretty hard to sell hotels, theatre bookings, some sort of entertainment... there has to be content alongside the connectivity."
Tours and attractions opportunity?
Given how hungry airlines are to prop up the balance sheet with ancillary revenue as well as the fact that half the passengers on a flight are known to be staying in the destination city, it seems like a no brainer.
The audience voted on the following – ‘I can grow my ancillary revenue by offering destination content and activities’ with 70% falling into the strong agree or agree category.
But a show of hands during the conference demonstrated the lack of traction (ie no one doing it) despite the perceived value.
The company also threw up some figures of an airline selling destination content via its OnTouch tech with steady year-on-year conversion increases from 2.4% in August 2012 to 4.2% in August 2013 based on a flight attendant driven model. Average revenue per ticket and total tickets sold also increased.
More channels, more spend?
Onboard is beginning to follow the consumer trend towards self-service in banking and other elements of daily life, especially with talk of bring-your-own device.
GuestLogix’s executive vice president of global sales, Ilia Kostov points to Cisco research showing that this year, for the first time, more than 50% say they prefer self-service in shops to queuing and it’s not a Gen Y things – 85% of those aged 51 or over will use self-service according to NCR.
He also refers to McKinsey & Co research showing that more channels in the retail world drive a four times higher overall spend and a propensity to higher value items.
Applying that to onboard and a similar pattern is emerging – more channels in the purchase cycle drive more transactions. The average number of duty free purchases on a flight is about five but if you enable self-service via seatback screens or BYOD, there are three to five-times more transactions.
"With self-service you can keep the shop open for the whole flight, it’s simple maths," says Proud.
Other factors come into play such as the type of content and where consumers are in the travel journey. For example, on board passengers buy more general admission things such as the London Eye compared to more complex items such as theatre tickets.
Given the fact that half of passenger on a flight are known to be staying in the destination city and how hungry airlines are for ancillary revenue, it seems like a no brainer.
GuestLogix’ work with China Southern is another, albeit more quirky, example – the airline enables passengers to bid for an upgrade once the flight has taken off and according to Proud, $990 is the average price being paid, not bad if you have an empty seat or two. Other airlines are trialling similar initiatives.
In 2013 – ancillary revenue is expected to hit $46bn (according to IdeaWorks and GuestLogix’ own internal study). The US breakdown is currently 50% frequent flier miles, 20% baggage fees, travel retail is 5% and onboard and other retail services is 25% and also, says GuestLogix, where the growth is going to come.
Interesting to note that inflight meals is currently the fastest growing ancillary for airlines according to PhoCusWright Consumer Travel report.
Other (potential) inflight trends
Mobile – showrooming, people browsing in store and buying online is on the up. Airline executives believe mobile apps as a sales channel will equal existing channels and 71% of airports plan to sell to passengers via mobile. Add to that BYOD initiatives and there is clearly opportunity for ancillary sales.
Personalisation – SITA figures show 100% of airlines investing in business intelligence in the next three years and of those planning to use data for personalisation - 60% plan to use location data via smartphone, 50% past purchase behaviour and 53% customer profile data.
GuestLogix points to Air Canada’s ‘rouge’ service offering personalised inflight entertainment to passengers via their own devices as well as Alaska Air deals and destinations mobile application alerting fliers to airfare deals from their home town to where friends and family live.
There's clearly opportunity and there are barriers too - wifi cost, figuring out what to put in front of consumers/when and what to charge and making all systems talk to each other. But, given the potential rewards can airlines really afford not to?
NB: Featured image from Virgin America's 'Experience' campaign.