airlineretail

Airline Retail Reaches New Heights

May 2020

Is it the way of the future for airlines?

30 days in April under COVID-19 isolation I am, as a Qantas Frequent Flyer, impressed at how Australia’s major airline is keeping in constant contact – 20 individual email communications in 30 days. About what you may ask? Flight schedule updates? News on how COVID-19 is affecting the airline?… No, nothing about Qantas’ own products and services.

The emails all relate to buying direct from retailers and receiving rewards:

  • x4 Wine (top of the needs list)

  • x4 Fitness-related (required as a consequence of first)

  • x4 Insurance – Car or Health (just in case)

  • x2 Home furnishings (working from home)

  • x6 Chemists, energy, Uber, credit cards, solar panels, petrol… (survival!)

You get the picture.

This reflects the ability of Qantas to leverage one of the most successful loyalty programs in the world, to generate income where little or no revenue comes from actually flying people from A to B, but rather through advertising revenue, other sales commission and the purchase of Frequent Flyer points to incentivise the sale. Last year the program contributed over 25% to Qantas’ bottom line. 40% of Australians belong to the Qantas program, though probably less than half would be regular flyers. I will be interested to see this year what percentage (and value) of Qantas income is related to this non-flight retail activity.

Maybe an email every couple of days is too often and may result in people turning off or worse still, unsubscribing. Conversely, with many people isolating and with time on their hands maybe this strategy is on the mark.

For the retailers, it’s no doubt a great platform to engage with a large audience online during isolation restrictions. For the members, it’s an opportunity to build their points balance and possibly get some good deals as retailers look at moving products during these difficult times.

Post COVID-19 airlines have the opportunity to rethink their business strategy beyond ‘bums on seats’ and having to compete on price. Like Qantas, they will need to build revenue streams outside their core business with the ability to sell bespoke non-flight related products and deliver value to travellers. This means that airlines will have a continuous revenue stream even when passenger numbers are down.

Most airlines around the world do not have the resources or volume to be able to replicate Qantas’ model and dominant market position. The difficulty for these airlines is due to a number of factors, but the three main ones for me are:

  1. Lack of differentiation as control of non-flight related products is in the hands of dominant intermediary consolidators

  2. High costs to establish, manage and maintain commercial agreements with many vendors

  3. Dated, costly and inefficient legacy distribution systems

At East2 Technologies, we are developing systems to enable airlines to grow their non-flight revenues. Driven by decentralised distribution and reward-driven activities and incentives, our solutions are designed to deliver value to the whole supply chain – travellers, airlines and vendors.

John Edginton
Co-Founder East2 & Executive Director Operations