New Revenue Mindset in Flight Catering
The cost-saving mindset is obsolete – earning more revenue is cheaper & easier
When I started my product development job at Qatar Airways in 2011 the first project across my desk was service trolleys. We needed this new equipment to deliver drinks, catering and duty free to passengers onboard our planes. The old trolleys were not only worn out, they were also extremely heavy – I was amazed by the Driessen Hybrite model, which was so light I could hold it over my head with one hand.
Like most airline equipment, the Hybrite is engineered to be as light as possible – lighter loads means planes guzzle less fuel and save the airline money. But so much R&D has gone into reducing weight that purchase prices are high. It now costs a lot of money to save money. As a result cost-focused mindsets of ever-increasing efficiency are obsolete.
Suppliers will have to generate revenue to thrive in the future – the Hybrite achieves this by printing adverts on the side. But selling ad space on galley equipment, while of some value, has it’s limits and airline product suppliers will need to get creative to really move the revenue needle. This article explores three ways to do this.
Waste management is about cost optimisation, not cost minimisation
The second product project I completed for Qatar Airways was about waste management in catering. We were throwing away millions of Dollars worth of food (food banks and homeless shelters do not accept it for health reasons) and something had to be done.
We first needed to define how much waste was acceptable – remember this is waste optimisation, not waste minimisation. It was clear that if throwing away food genuinely helped the airline earn revenue, for example because passengers offered a meal were willing to pay more or book again, it could be justified.
On a short flight from Doha to Milan, perhaps only five to six hours flying time and leaving at one in the morning, we decided to eliminate dinner and retain breakfast in economy class.
On the much longer flight from Melbourne to Doha, also leaving at 1am, we had a real problem though – sometimes every business class passenger would eat both meals and sometimes almost no food at all would be eaten. There was no visible pattern for holidays, day-of-week, origin-destination pair, point of sale or anything else. We just did not know what would happen on a particular flight. The choice was stark – throw away a million Dollars worth of food and protect fifty million Dollars of revenue, or risk fifty million in future ticket sales to save a million on the food.
Ultimately the CEO had to take the call and I seem to remember that he chose the former. No doubt many airlines would do the opposite. Personally I think we were right to do so as it protected revenue and I would not be comfortable with passengers telling their friends, colleagues and business travel managers that they did not get a meal on a 14 hour flight – that would truly be bad for business.
First revenue principle of flight catering: Cater to protect your revenue account, not your cost account.
Qatar Airway longhaul breakfast: Doha to New York business class - yum!
Buy-on-board is the new full service
Later on in my Qatar Airways product development adventure I encountered a third interesting catering question. The airline was branding itself as a ‘five star’ full service carrier and it was felt that complimentary food and drink was an important part of the offer, even on short one hour flights like Doha to Abu Dhabi, Kuwait or Muscat.
First class catering was decent – kebabs, salads and fruit platters washed down with Dom Perignon champagne, later replaced with Veuve Clicquot (but neither ever available in Ramadan). Economy class passengers were offered a hot sandwich and despite the menu development chefs’ best efforts they were ghastly because cost pressures being what they are the airline was not prepared to spend enough money on delivering them. Most of them were thrown away and our passengers hated them. We would have been better off from both passenger experience and financial standpoints by offering nothing.
I remember building a business case to give passengers what they wanted, but at an additional price. The cost saving was huge and the revenue potential looked solid if we could get it right. We discovered through research that the best possible menu item we could offer for sale was pizza because it is vegetarian, halal, known in many languages and almost everyone likes it.
I attempted to make the case that in a five star hotel guests do not normally expect free food and drink, and that surely high quality service meant giving people things they would like rather than things for free. This I feel today is an important part of the revenue mindset in flight catering.
But sadly it was not to be – the clear business case was overruled for reasons that were never made clear to me.
Second revenue principle of flight catering: High quality service is more effectively monetised by giving people things they want rather than things for free.
Qatar Airway regional dinner: Doha to Dubai first class - yum!
Designing galleys for profit, not cost
After I left Qatar Airways to found my airline consulting company (please get in touch by the way – oliver AT ransonpricing DOT com), my airline of choice became British Airways because I am based in the UK. A few years back I witnessed the launch of buy-on-board in the airline’s Euro Traveller cabin, which is what they call shorthaul economy class. The menus looked great – tasty sandwiches, a wide range of quality snacks and drinks from well known brands.
But BA messed it up. They forgot that the purpose of the exercise was to earn revenue and I heard they imposed crazy conditions on their supplier, making the contractor liable for produce not sold. The result was that planes were under-loaded and passengers could not buy what they wanted, even with the money in their hands. Surely that will have been bad for BA’s business in the long term.
Third revenue principle of flight catering: Galleys are now revenue centres, not cost centres and the best way of minimising waste is to sell almost everything in a full trolley.
Qatar Airways foie gras: There’s a great story behind this - I might tell you some other day – yum!
oliver AT ransonpricing DOT com