U.S. Airlines Eye Foreign Carriers' Success at Selling

Ryanair, the maverick European discount airline, will do nearly anything to generate extra revenue. It rents apartments, peddles insurance, sells lotto cards and puts advertising on its planes and air-sickness bags.

"We will brazenly sell you anything -- before your flight, during your flight and even after your flight," says spokesman Peter Sherrard.

The success of Ryanair and other European and Asian carriers in selling goods and services unrelated to transportation has caught the attention of many in the U.S. aviation industry, where carriers as a group this year are eking out their first slim profit in six years.

Although none of the U.S. carriers are embracing the trend as enthusiastically as Ryanair, Fort Worth-based American Airlines, Houston-based Continental Airlines and New York-based discounter JetBlue are among the U.S. carriers attempting to maximize their non-ticket revenue.

"As fuel prices rise, we look for more ways to generate revenue," says Kim Ruvolo, brand manager of JetBlue, which sells many items, including clothing, skin care products, coffee mugs and golf balls, on its website. "Our door isn't closed on anything."

Ryanair and United Kingdom-based EasyJet say the fierce competition that keeps their fares low requires them to sell non-travel items to stay profitable and to fuel growth.

Ryanair paints some planes with another company's name and logo, and some overhead luggage bins are emblazoned with ads. The airline, which flies to 127 cities and carries 42 million passengers annually, is putting ads on every tray table on every plane. Flight attendants announce to passengers what's for sale.

Ryanair's website, which sells 98% of the airline's tickets, hawks all kinds of products. Rentals of apartments, hostels, autos and hotels, as well as insurance, airport parking spaces and travel and ski packages, are displayed on the home page, Ryanair.com.

Ryanair adheres to no marketing model when selling products other than airline seats, Sherrard says. "We don't have much time for textbooks," he says. "We have a very straightforward approach: Get on and sell. The only research we do is: 'Have you paid?'"

EasyJet spokeswoman Samantha Day says U.S. airlines are missing out. "There's a great deal of potential in not just straightforward sales but in smart thinking. Airlines need to think what the consumer needs and wants."

Aboard its flights, EasyJet, which flies 122 jets to 74 cities, sells food, drinks, perfumes, toiletries, sunglasses, pens, cufflinks and lotto tickets.

On the ground, it sells airport parking spaces and airport bus tickets, and rents hotel rooms, cars and apartments.

Results have been impressive. Ryanair's $326 million from non-traditional sources in the last fiscal year represented 16% of its revenue, and nearly matched its annual profit. And the money EasyJet made last year from sales of items other than airline seats exceeded its profit: $165 million vs. $126 million.

Got customers cornered

Marketing experts say airlines have a golden sales opportunity because they have a captive in-flight audience and websites that draw lots of viewers. There may be much more that airlines can sell, they say.

"Airlines should expand their view of what they are offering," says David Aaker, a brand strategy expert and a former professor of marketing at the University of California, Berkeley.

At an annual meeting of discount airlines last month in London, many foreign carriers discussed strategies to boost non-ticket sales.

Diono Nurjadin, president of Indonesia's Mandala Airlines, said the carrier aims to increase non-ticket sales 30% in the next three years.

Tony Davis, CEO of Singapore's Tiger Airways, which sells jewelry, cosmetics and many other items in-flight, said airlines should take note of movie theaters, because they bring in more revenue from popcorn and soft drinks than from ticket sales.

Other airlines besides foreign discount carriers "probably need to get more aggressive in terms of marketing," says Jon Ash, a Washington, D.C.-based aviation consultant. But they must be careful they don't create a perception among consumers that their brands are "less than quality," he says. "I don't think we will see the major carriers, whether American or British Airways, denigrate the product or brand by putting advertising for Coke on the side of the airplane and then charging business-class passengers for a Coke in the Red Carpet Club."

Marketing experts say the big U.S. airlines, which collectively lost more than $40 billion in the five years ended in 2005, should better exploit their frequent-flier databases for information about their customers and their buying habits.

Airlines need to devote more effort to developing "customer intimacy," says James Lattin, a professor of marketing at Stanford University. Better understanding of their best customers should lead to sales of more goods and services, he says.

Hard to change?

Finding ways to generate new revenue sources doesn't seem to come easily to U.S. airlines, particularly old-line carriers in business since before the 1978 industry deregulation. After decades of government fare regulation, deregulation threw airlines into a competitive market in which many were unable to survive.

Now, they're rebounding from years of huge financial losses and related cutbacks in their services and marketing. They maintain that selling tickets is their bread and butter, and they're concerned that other sales might tarnish their brand names.

"We believe that satisfying our customers through our core airline business is the key to sustaining profitability and future growth," says Northwest Airlines spokesman Kurt Ebenhoch. "Selling non-ticket items will always be a secondary concern."

But U.S. airlines may be overlooking a strategy that could keep them profitable during downturns in the notoriously cyclical business of selling airline seats, says a new report by Mercer Management Consulting.

"They have started to dabble in it, but they haven't taken it seriously," says the company's Andrew Watterson, who co-wrote the report. "They have an amateurish way of going about it -- like it's a hobby."

U.S. airlines must follow the lead of their European counterparts and learn "to think like a retailer" if they want to remain profitable, the consultant says.

"If legacy airlines could equal the performance of EasyJet in generating non-ticket revenue, this would mean hundreds of millions of dollars, up to 6% more revenues," he says.

For sale, on the Web

U.S. airlines have been increasing the number of products for sale on their websites. They include clothing, luggage, toys and posters.

Legacy airlines also have established virtual shopping malls, where frequent fliers can link from an airline's website to those of retailers such as Target, Gap and Barnes & Noble. Bonus frequent-flier miles are awarded to buyers.

American Airlines says 1 million people look at its site daily.

"That's a lot of eyeballs," says Dan Garton, executive vice president of marketing. "Our website is one of the greatest future and current sales opportunities. Our job is to figure out what makes sense to sell."

Continental Airlines says its Internet sales have been growing dramatically. "Our goal is to do a better job merchandising to consumers," says Mark Bergsrud, senior vice president of marketing programs. "We need them to buy the airline ticket and fill the cart with other things."

Bergsrud says non-ticket sales "are not as important to our success and bottom line" as they are to Europe's low-fare airlines.

Continental brings in more overall revenue and caters to more business travelers, who offer less "opportunities for add-on sales," says spokesman Dave Messing.

Nonetheless, Continental this year began selling foreign currency and entertainment coupons for various destinations. Other items for sale include hotel rooms, car rentals, trip insurance and cruises.

The airline wants to make its website "sticky," says Bergsrud, meaning that travelers will linger on the site for more than just a ticket purchase.

Little record of success

Some consultants, though, say airlines have traditionally failed at selling other products and shouldn't try again. They say it didn't work when now-defunct Pan American World Airways and American separately got into the hotel business in the 1950s and 1960s, and when United acquired hotels and car rental agency Hertz in the late 1980s.

"Ryanair might be able to do it, but the legacy carriers have tried it before and failed miserably," says Barbara Beyer, CEO of Avmark, an aviation consulting firm. "There's nothing that tells me they won't fail miserably again."

Aviation consultant Michael Boyd, who is president of The Boyd Group, says, "This isn't Europe," and the U.S. airline industry isn't positioned to generate substantial revenue outside its core business. Airlines should not sell such things as parking spaces, car rentals, insurance and hotel rooms, he says.

"To generate revenue from outside sources, there must be a market need -- a market gap in providing that service," says Boyd. "There isn't any."

American's Garton says he doesn't foresee ads on planes and overhead luggage bins, because they "wouldn't be consistent" with the airline's brand. "It doesn't feel right for us today," he says.

But "that could change," he acknowledges, recognizing the importance of ancillary revenue. "We're not Ryanair, but we're not ignoring this opportunity," Some items Ryanair sells in-flight

*Cheese or salami pizza, $5

*Chicken soup, $4.50

*Champagne, $18

*Lotto card, $2.50

*Digital camera, $124

*iPocket video-audio player, $149

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