Qatar Airways's caviar strategy: a deep dive
The Gulf airline’s caviar service is a terrible idea, extremely well implemented
Qatar Airways’ three brand values are “naturally generous”, “confident” and “progressive”. Today we will look at the economics of their business class caviar service, which is somewhat but not entirely aligned with the brand values but a heck of a risk.
This article was written with data from OAG Schedules Analyser. Visit oag.com. Thanks OAG!
The idea of serving caviar in business class is not particularly progressive. Airlines have been serving the upper crust snack for decades. Singapore Airlines and Lufthansa are probably among the world’s biggest purchasers of the prized fish eggs.
It is however confident and generous. Small 15 gram portions of Baerli caviar as served by the airline for the last five months retail for about £20 (£16.70 after VAT, or $20.57) each. The airline will get a significant volume discount, let’s assume 50%, and will probably not pay an input tax like VAT.
So I would guess that after discount, serving caviar roughly increases the food cost for each passenger taking a portion by about 50%, from around $20 on a long-range flight to $30.
They must be confident that this will help them sell seats. On a “typical travel day” in May this year*, the airline has 6,792 business class seats available for sale, of which 1,296 are on the routes where caviar is offered. These are shown in the map below.
* Wed-14-May = mid-week, mid-year, not a public holiday in Qatar or their key markets
A back-of-the-envelope calculation suggests:
1. 1,296 business class seats at 85% seat factor and 50% caviar load = 551 portions of caviar
2. $10 extra per portion of caviar x 551 portions = $5,508 per day
3. $5,508 per day x 365 days = $2.0 million extra per year
Now $2.0 million is a big chunk of change for any airline and Qatar Airways will not have taken the purchase decision lightly. Even if Qatar Airways is getting 75% off and not 50% that would still be $1.0 million per year and persuading budget holders in Finance to open the purse would have been tricky.
In fact, it would not surprise me if they got the 75% discount and the airline’s Finance team demanded under $1.0 million as a “magic number” to release the budget.
There are also good reasons why a caviar service is risky. Realistically, not many people eat caviar at home or in restaurants on a regular basis. Quite a few passengers will probably not like it.
To make things more difficult the airline has form taking unfortunate decisions when it comes to high-end catering. In 2011 (when they were still operating the A340-600 pictured above) they introduced yummy foie gras as an amuse bouche on all longhaul flights, pictured below.
Apparently passengers said they wanted more special, restaurant-type food on-board. That seemed a good idea in focus groups.
Unfortunately, when passengers were actually presented with foie gras without the prism of a 100 Qatari Riyal restaurant price tag, they decided that it was just a chunk of liver and they did not want it.
The airline ended up throwing away a lot of foie gras.
At first glance, serving caviar looks extremely risky. So designing the caviar service seems like a terrible idea.
But look at the details and it is clear that the airline has designed the product carefully. They have taken an on the face of it terrible idea and through savvy product development turned it into a market share winner.
The map above shows that caviar is served on 13 routes. Nine of these are westbound and four eastbound. Examining the schedule data from OAG (see the table below) I note:
1. Qatar Airways operates 141 routes on the selected day
2. The 13 caviar routes represent 9.2% of routes, or 11.6% of routes if you exclude short middle east routes
3. They also account for 8.1% of business class seats, or 23.2% if you exclude short middle east routes
4. Finally, the 13 caviar routes also account for 16.3% of business class Available Seat Kilometres (ASK), or 32.1% of ASK if you exclude short middle east routes
Caviar routes represent 11.6% of non-regional routes, 23.2% of non-regional seats and 32.1% of non-regional ASK.
We can also take that 23.2% of non-regional seats and assume that 50% of them are connecting passengers who will not originate or turn around in Doha.
This means that roughly a third of all the airline’s business class passengers probably have the opportunity to experience the caviar service. A high-impact service from only 11.6% of non-regional routes and “only” a million or two Dollars of budget a year invested.
That is smart product design. It ensures that the airline gets high exposure for it’s investment, increasing demand and willingness to pay across the network as much as possible.
At the same time it limits the risk of carrying a heavy load of expensive catering like they did with the foie gras. Just the sort of thing that the Finance Department will look favourably on when the Product Development Department fight for a budget.
A final point:
The 13 caviar routes are only slightly more likely to be on services that are not overnight flights, which I defined as flights leaving between 9pm and 6am and where you would expect passengers not to eat
All the caviar routes from Doha with an overnight service also have a daylight service. I would not be surprised if Qatar Airways either does not offer or restricts loading on the overnight flights.
Do I need to update the analysis to account for the night/day split? Answers on a postcard please!
oliver AT ransonpricing DOT com
oliver DOT ranson AT inkaviation DOT com
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