Side Sales

Lufthansa's Heavenly Plans

Lufthansa Source laif 45495538
Lufthansa wants to sell more products to customers while they wait for a plane or when they book their ticket online.
  • Why it matters

    Why it matters

    Lufthansa needs to increase revenue and profitability to keep up competition with low-cost carriers and Middle East airline companies.

  • Facts

    Facts

    • Lufthansa will charge €16, or €18, to those who book through a reservation system starting on September 16.
    • The carrier wants more direct online communication with its customers to be able to sell more products.
    • Brussels Airlines, a holding of Lufthansa, has increased its sales through “branded fares” by 35 percent in just one month, a study showed.
  • Audio

    Audio

  • Pdf

Today, the majority of ticket sales go through reservation systems, such as Amadeus, Sabre or Travelport, through which travel agencies, online portals and companies book their tickets.

In the future, they will be sold increasingly over the Internet, allowing airlines to establish closer relationships with customers and sell them other services to generate additional revenue.

That’s the goal of Lufthansa’s “Direct Connect.” Travelers who book through a reservation system must pay €16 per ticket, beginning on September 16. Those buying directly from Lufthansa can avoid the fee.

Not surprisingly, the planned service has drawn hefty criticism from travel associations.

Providers of reservation services, like Amadeus, are also concerned and will need to find their role in the new scheme. Jens Bischof, the chief commercial officer at Lufthansa, can imagine Amadeus, for instance, supplying technology services to the airline.

Numerous major airlines worldwide need to find ways to generate additional to survive in an industry upended by low-cost airlines. And some are. According to a study by the consultancy IdeaworksCompany and the car rental service Cartrawler, the industry globally earned almost $50 billion from supplementary business in 2014.

 

Lufthansa and Rivals-01

 

Digital technologies are especially driving new business ideas. “The market and the technologies are ripe for change,” said Mr. Bischof.

Jet Blue, a low-cost airline from the United States, in which Lufthansa had been involved until recently, has outfitted its cabin crews with iPad minis. They let the flight attendants see who is sitting where with what frequent flier status, and can offer them special services, which the passenger gladly uses. He or she can pay with ApplePay.

At Lufthansa, passengers can bid on an upgrade to Premium Eco, which are economy seats with more comfort and service. With “MyOffer,” customers put in an amount they are willing to invest. Whether or not he pays the additional fee depends on the seating capacity and the offers from competitors.

Mr. Bischof can imagine “picking up” the passenger at his or her arrival, as he said: “If we see that they are late getting there, we can offer them, for example, a closer parking spot, a fast-lane at the security check or even concierge service.” Such offerings are conceivable within three to five years, he said.

It helps to have experience in the retail market when it comes to new ideas. Experts there know that people buy more if they see others buying. Therefore, major webshops show how many customers are looking at a particular offer and what else might interest them. Airlines could also show such information on their websites.

This even works above the clouds. Pedro Gardete from the Stanford Graduate School of Business found that passengers who saw others buying things on board the plane also had the desire to shop. Airlines could show information about the current purchases on board in the digital ordering system, which is integrated into the monitor in the seat.

The model is always the same: The passenger buys the pure transportation service and books additional things according to their taste. Such “a-la-carte sales” have been available at Lufthansa for a while. But they present a problem: Many passengers find it to complicated to click through all of the options on the website.

Therefore the airlines are tending to design packages. With these rates called “branded fares,” the aviation executives are again using their experience from retail. They are offering three tariff packages, which contain additional services such as free luggage or access to lounges in the airport. People tend to buy the mid-level package, with the feeling that they are getting additional comfort at a manageable cost. According to Cartrawler, Brussels Airlines, a holding of Lufthansa, has increased its sales through “branded fares” by 35 percent in just one month. Lufthansa started these tariffs with its winter flight schedule.

 

Jens Koenen leads Handelsblatt’s coverage of the aviation and IT industry and is bureau chief of the Frankfurt office. To contact the author: koenen@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!