HARDWARE COSTS AND Inflight Revenue GENERATION
article from July 2001
The latest figures from the World Airline Entertainment Association indicate that spending on IFE has doubled since 1996 - last year alone the annual expenditure stood at $2.2 billion. As a result, the passenger's inflight experience on the leading airlines has improved immeasurably with the introduction of hardware such as noise cancelling headphones, games, laptop facilities and personal TV screens. While much of this hardware is still not that widely available, demand and competitive pressure has led to carriers to look for yet new ways of ensuring customer satisfaction as passenger's high expectations of IFE continue to exceed investment. Already DVD, video on demand and email are being touted as the latest ‘killer applications' to entice and entertain the passenger on board. "It follows the old rule of thumb," says Rob Brookler, spokesperson for the WAEA. "If the customers have it at home - whether it's entertainment or information on their TV and computers - the airlines must provide it too because that's what passengers expect".
With an estimated further $8 billion expected to be spent on IFE over the next 5 years, airlines are understandably increasingly anxious to see a return from this enormous investment. While optimists estimate inflight Internet to be worth as much as $50 billion over the next decade, it will be several years before these services may emerge as a significant source of revenue offsetting spiralling IFE costs - let alone becoming a profit centre for the airline. Charging passengers for IFE has often proved difficult because the general perception is that the cost of the inflight entertainment on international flights is included within the price of the ticket. Carriers have absorbed the increasing costs associated with IFE because it is an effective means of differentiating their product.
IATA's director general, Pierre Jeanniot, announced earlier this year that profits per passenger were falling for the second year running in spite of the current overall increase in commercial air traffic of 6.8%. The airline market appears to be becoming polarized with a focus on the profitable premium class passenger at one end and the rapid growth, certainly in Europe, of the no frills carriers like Go and Ryanair at the other. Both ends of the spectrum, however, are interested in the revenue possibilities from IFE. The CEO of Ryanair, Michael O'Leary, is "exploring ways of entertaining people during their journeys and using that money to eliminate fares... If we can increase the average spend per passenger enough, we could afford to cut fares to zero." The Sunday Times reports that passengers spend about £4 on each flight. Gambling and pay per view television could provide an alternative revenue stream, particularly for popular events such as live sport.
When BA announced that it would be concentrating more of its resources on the business and first class passenger, IFE and information services play a vital part in enhancing the overall airline product. The expanding number of quality inflight services offers passengers the chance to relax and rest, be entertained and supported if they choose to work during the course of the journey. The hope has been that the best IFE available could be perceived as adding value to premium class fares while providing a possible source of revenue from those in economy wishing to upgrade their entertainment during the flight and for example, watch live TV, send an email or see the latest movie releases. This would require heavy promotion and ambient prompts at the point of ticket sale and the airport to make the passenger aware of the services available as well as encouragement on board.
Inflight tax-free shopping has been available on many international routes for years providing a reasonable return for the airline. More recently, other retail schemes have been developed such as SkyMall and Flightstore that will introduce e-commerce to IFE. No doubt other entrepreneurial schemes will follow as airlines begin to establish their online strategies and extend them to incorporate the inflight experience.
Although carriers seek the IFE equivalent of the ‘holy grail' - making inflight entertainment pay for itself - many are now wary of the newest applications - email and the Internet - following the well documented disappointment of telephony and onboard fax facilities. Charging premium rates for connecting the business traveller has a poor record and it is of little surprise that many are approaching the new services with caution. Airlines have been burned in the past by other attempts at using IFE as a means of revenue generation. Swissair had little success with inflight gambling and more recently one airline attempted to persuade passengers to pay for Live TV but quickly resorted to offering it for free when customers resisted using the service. The very successful short-haul carrier JetBlue also introduced the same system last year and, according to Screen Digest, has been able to install, operate and maintain its DirecTV service at a cost to the airline of only $1-$2 a seat per flight. While it does not actually make a profit for the airline, JetBlue has been able to offer popular entertainment to its passengers at a fraction of the cost of many airlines' IFE expenditure.
