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

Ryanair's $326 million from non-traditional sources in the last fiscal year represented 16% of its revenue, and nearly matched its annual profit.

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.

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