Cooperation is increasingly necessary for getting ahead in travel retail.
Operators used to jealously guard their window of commercial opportunity, but now there is an increasing recognition of the benefits of greater collaboration to drive customer value.
We see two types of collaboration gaining importance:
Improved product offering
Where operators recognise a weakness in their product offering, a third party can be deployed to raise standards and transform sales. This opportunity is particularly relevant for airlines, long associated with lack-lustre on-board offerings.
Vietnam Airlines recently entered into agreement with King Power Traveller, a rapidly growing specialist in in-flight duty free. In the subsequent soft launch of the new "Lotushop", sales more than doubled. With 22m annual passengers on Vietnam Airlines, the commercial benefit reaped is potentially huge. For other carriers, collaboration with F&B operators has been a growing part of their catering strategy.
In 2016, BA's short haul menu was overhauled in collaboration with M&S. The partnership has been renewed and updated in May 2019, with BA also announcing a special partnership with Brewdog and the launch of an exclusive Brewdog Speedbird 100 IPA on its long-haul flights.
For airports and travel retailers, it is tech companies that have become increasingly important collaborators for delivering the multi-channel experience consumers have come to expect. Chinese giants such as Alibaba and Tencent have been particularly active in the travel space, making attractive partners for a sector looking to attract Chinese spend. Total Chinese international tourist expenditure is already estimated to be double that of the US, with a projected rise from 145m foreign Chinese trips in 2017, to 400m trips in 2030.
Alibaba's "Fliggy" travel app has grown rapidly to over 200m downloads, allowing users to book travel, and, increasingly, to view the commercial offer they will encounter. Integration with Alipay is an obvious next step in creating a seamless travel retail experience for the c.1bn users of the mobile payment service. Laox, Japan's largest duty free operator, plans to move its products onto Fliggy by July 2019, enabling reservation of products and tax free payment via Alipay.
This is the most radical form of collaboration. It requires operators to take a longitudinal view of the customer journey; for instance, by identifying the point of greatest spend potential and working collaboratively to maximise returns at that point. The benefit can then be shared out between collaborators.
The potential of this type of approach has recently been illustrated by the "B.A.R.T.A" initiative, a collaboration between Budapest Airport, Heinemann Duty Free and Wizz Air. This scheme provided any Wizz Air passenger spending over €50 at BUD's Heinemann Duty Free store with a €4.50 voucher to spend on food and drink during their Wizz Air flight. The trial ran for three months from March 2018 and was promoted by all three parties.
The results were striking. Duty free penetration and spend amongst Wizz Air passengers improved, resulting in an 8% spend per passenger increase. But perhaps more surprisingly, Wizz Air reported an increase in non-voucher café sales on its affected aircraft and no cannibalisation of its boutique (retail) sales, while Budapest Airport reported no negative impact on airport F&B. The benefit achieved appears to have been largely incremental.
Travel retail is in a unique position where it can curate a commercial experience across multiple contact points to appropriately suit the needs of the passenger. Travel operators should use this advantage through collaborative commercial initiatives such as B.A.R.T.A.
Collaboration has become an integral part of meeting the expectations of an increasingly demanding passenger. Travel retail must no longer just meet the standards of the high street, but move ahead to deliver new levels of convenience and satisfaction.