Mktg - A midair Mall ? (G.Read)

By Caroline Brothers

LONDON: The passenger beside you is playing poker on an online gambling site. His wife is chatting on her mobile phone while the children fire off text messages and tune in to pay-per-view satellite TV. Your overpriced drink sits on a tray table embellished with advertising, while the cabin crew, working on commission, moves up and down the aisles peddling theater tickets and DVDs along with traditional duty-free goods - for home delivery.

"It's an on-board mall," said Ramsey Nuwar, sales director for ARINC's Skybuy, speaking of a not-so-distant future, when airlines may become retailers with wings. His company sells the satellite-connected machines that would bill your credit card directly, from high in the sky.

The idea is part of a frantic quest by airlines for new ways to maximize earnings amid a financial crisis that is hurting demand after oil prices climbed dramatically over the past two years. With little control over most of their costs, the airlines are increasingly charging passengers for elements once covered by their tickets, while low-cost carriers are spearheading efforts to find new things to sell in the air.

"There is no low-cost airline that isn't being kept alive by ancillary revenue," Mike Rutter, chief commercial officer of the British low-cost airline, Flybe, said during a recent interview. "You may lose money flying from A to B but you can reduce your losses on ancillary."

Flybe, which introduced a baggage fee early, sees check-in as the next frontier for breaking out costs for the traveller.

"We can unbundle check-in more," he said, offering possible fee levels, "from not using check-in at all, with the Internet; to using kiosks in the airport for some help, which is Level 2; to full manual check-in, which is Level 3," he said. "Then different forms of baggage could be Level 4 - for fragile objects that need unusual handling on the ground."

Prices would increase from one level to the next.

Traditional airlines that have long used an all-inclusive fare system have been slower to "unbundle" costs to passengers, though some started charging for checked bags as the price of oil approached $150 a barrel during the summer. Now that the oil price has receded, few airlines are revoking those charges. United doubled the fee, to $50, for a second bag last month.

Willie Walsh, the chief executive of British Airways, said there were some things his flag carrier would never charge for.

"We won't unbundle seat assignment," he said during an interview last month. "We won't unbundle the checked-in bag allowance. We won't unbundle check-in at airports and we won't charge you for a glass of water on the aircraft."

But he did not rule out introducing fees for checking in golf bags and skis. "That debate is still going on," Walsh said.

Passengers' comfort is not expected to be the top priority for flight attendants in the midair shopping malls of the future.

"You need them to break away from Salvation Army service," said Joao Monteiro, an executive at LSG Sky Chefs, a Lufthansa-owned airline caterer and service provider. "You want retailers on board."

Sales commissions of 10 percent to 12 percent would work as powerful incentives for cabin crews to sell extra products, said Laura Duran, ancillary revenue manager at Vueling, a low-cost airline based in Barcelona that is merging with a rival, Clickair.

"From Vueling's perspective it's a very good idea," Duran said. Making cabin crew salaries entirely commission-based would, however, be a step too far, she said. "It's just a topper."

Passengers could be encouraged to spend with offers of discounts on attractions like Disneyland if they paid more than $50 on board, Nuwar said, while sales targets would drive cabin crews to ring up more in-flight sales. Train tickets, hotel rooms and rental-car reservations could all be offered.

Duty-free perfumes and alcohol, which are too heavy to stock aboard weight-sensitive aircraft like Vueling's, could be picked up at destinations or even delivered. "You scan and pay with your credit card and have them delivered to your home," Nuwar said.

No midair snack is too small to generate a profit, provided it can last through several flights before being sold.

"The basic needs are hunger and thirst - not the lifestyle of gourmet food," said Monteiro of Sky Chefs, whose experience in supplying gourmet sandwiches to one airline was not a happy one. "We had wastage of more than 30 percent - we had to throw them all out after the first flight."

Airlines, he said, should think like flying supermarkets instead.

"You have to think like a retailer who has space on board to get higher margins," Monteiro said. "When you are struggling to make a profit on a ticket, then selling for $3 to $5 that item of water on board that cost you 20 cents can make you a profit."

Meanwhile low-cost airlines, early adopters of all new methods to make the passenger spend, are impatient for new technology that will let them charge for access to live and satellite TV. But the prohibitive cost of retrofitting existing aircraft for broadband, Rutter said, means that cash source will be realized only when airlines renew their fleets.

At a time when planes are jettisoning ballast to reduce their fuel bills, the equipment alone will add 70 kilograms, or 154 pounds, to a plane's load.

But Asbjorn Christoffersen, chief regulatory officer at OnAir, an information technology company, said the system would allow airlines to offer passengers services like in-flight gambling.

"If you can make one passenger sign up for a gambling application on your aircraft, you will be paid $100 by the gambling application provider," he said.

Ryanair, the biggest low-cost operator in Europe, will roll out the mobile phone and Internet system on its whole fleet "in the next few weeks," Christoffersen said. Two other low-cost airlines - Air Asia and Shenzhen Airline of China - are set to follow, while Kingfisher of India and TAM of Brazil are interested.

"Low cost airlines are aggressively driving this," Christoffersen said. Mainstream carriers like Air France-KLM, TAP of Portugal and BMI of Britain are also starting to explore the service. "It's becoming something you have to have," he said.

Laws about gambling do not apply over water, and they apply only during descent into the national airspace of certain countries, said Rutter of Flybe. Like Ryanair, Flybe has long been interested in gambling as a form of entertainment on flights too short for watching films.

Vueling, meanwhile, hopes advertising will bolster its revenues. Duran sees tray tables as untapped ad space.