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How will the future of travel-based retail look like?

Digitalization, intelligent infrastructures and seamless processes: The travel-based retail market is substantially changing.

New offers and players are entering the market and force airlines, airports and airport-retailer to rethink current structures and strategies. Considering that retail revenues constantly grow, all participants want to get a slice of the pie.

How does the retail future for airports, onboard and online shopping look like? What steps need to be taken to attract travelers both today and in the future and what needs to be done to successfully participate in the growing retail market?

The change of the travel-based retail market is in full swing and already yielding measurable success.

But it is still far away from a multichannel presence and realization of its full potential. Gates and lounges are not used for retail activities. Only a few airports have user-orientated online and mobile app offers. The in-flight entertainment screen is not optimized for retail activities either and there are hardly any personalized offers.

Airlines want to sell like Amazon

(fvw, Oct. 2015)

Airlines have ambitious targets and have good prerequisites to become a relevant participant in the growing retail market. They dispose of the travel-related customer data, are serious senders, benefit from existing vendor relationships and may determine the content of their in-seat screens.

Airlines are already making use of their advantages by expanding onboard internet, using existing customer data to provide individualized offers per passenger cluster and establishing customer-oriented processes such as new payment methods as well as numerous delivery options. But all these activities are still in an early stage and far from selling like Amazon.

Eurowings, the low-cost subsidiary of Lufthansa, introduced its program, “Wings Connect” on the ITB 2017 in Berlin. All 110 aircraft will be equipped with onboard internet by the end of the year. Passengers will be able to go online and use streaming services on their own devices during the flight. The digitalization strategy also includes “Wingsshoppen”, an online shop where passengers can buy various goods.

But for shopping, a valid flight ticket is needed, goods can only be purchased 90 days prior to the flight and home shipping takes up three to four working days. The role model for “Wingsshoppen” was Condor’s “Airshoppen”. Customers can order goods online which are then delivered to the passenger during the flight.

Last year, TUI Group closed a five-year contract with “Gate Retail Onboard”, a company exclusively focusing on in-flight retail. The contract includes the onboard sale of food and beverages, duty-free goods and pre-ordered retail goods.

Through bundling of services our passengers receive better services onboard, we generate additional profit for the group and make TUI one of the biggest in-flight retailer in the travel industry.

(Henrik Homann, former Managing Director Aviation TUI Group)

TUI Group is expecting an increase of 25% on onboard sales through the cooperation with „Gate Retail Onboard“ and the launch of pre-order retail within the next 5 years.

„Gate Retail Onboard“ also developed a mobile app, which is supposed to motivate flight attendants to promote more onboard sales. New payment methods are introduced: US low cost carrier Jet Blue recently included Apple pay as a new onboard payment method, allowing payments with the apple watch.

Airlines and service partners are trying to keep in pace with digitalization. But is the recent push of the airlines enough? Or will the lack of retail competence, the traditional miles based business model and the development of a customer orientated state of the art fulfilment structure overstrain the airlines?

But even if the development of a modern retail concept for airlines still doesn’t seem to be well thought through, it has the potential to not only impact but also deduct substantial demand from the stationary airport shops. As airports receive a share of the airport shops revenue, both shop operators and airports are working on a digitalization strategy to win the battle for the buying power of passengers.

Most European airports reinvented their business model during the last years.

Airports are generating more and more direct revenue with passengers via retail, food & beverages and services such as car parks. But the business model of airports keeps on changing: Car sharing options will reduce the demand for parking space and automated check in will make the check-in areas superfluous. Revenues from take of-, landing- and handling-fees will decrease. This trend can clearly be examined by the low cost carrier Ryanair, which e.g. benefits from 50% reduced fees at Frankfurt airport compared to traditional competitors.

Some airports and airport retailer are already adopting their business model to the new circumstances by launching their own loyalty programs and by establishing virtual stores to collect and analyse customer data. While the airlines already know their customers through the booking patterns, the customer data airports and airport retailer have is not sufficient for an individualized customer approach, so the loyalty program is a necessary step for further digitalization, personalization and a seamless multichannel presence.

Fraport refines its digital strategy by relaunching the airport app to allow in app shopping in cooperation with the stationary airport shops. Digital pre-order, delivery to the departure gate and home delivery including personalized offers and discounts shall also be introduced. The digital shopping platform is realized by a joint venture of Fraport and airport retailer Gebr. Heinemann.

The joint venture allows us to jointly react on the future development of the international travel retail market and the changing requirements of travellers, especially in the area of e-commerce.

(Raoul Spanger, Executive Director Retail and HR Gebr. Heinemann)

Fraport benefits from the joint venture by ensuring a long-term participation in Gebr. Heinemann sales and by rising the attractiveness of Frankfurt airport in order to prevent the loss of passengers to other international hubs. Gebr. Heinemann profits from earlier customer contact with the aim of avoiding to lose customers to the airlines inflight retail offers.

Whoever is first at the passenger has the highest chances to generate additional income.

(Michael Garvens, former CEO Cologne Bonn Airport)

The former Cologne Bonn Airport CEO goes even further and suggests a closer cooperation of airports and airlines to place retail offers when the passenger is booking the flight tickets.

And while big hubs have the critical size to independently implement multichannel offers and loyalty programs, such as “Frankfurt Airport Rewards”, for smaller airports strategic partnerships with either retailers or other airports might be the better option to push digitalization. The “Passngr” app of Hamburg, Düsseldorf and Munich airport proofs, that a cooperation between various airports leads to successful results.

All market players are working on strategies to make full use out of customer data, to implement new delivery- and payment-processes and to realize the first customer contact. Who will win the race about the retail revenues?


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