This whitepaper describes how stakeholders in the travel retail industry – airports, airlines, brands and duty-free operators – can benefit from digitalization and how they can begin their journey on the way to a digital airport commerce ecosystem.
The travel retail industry has been undergoing major changes in recent years. Declining per passenger spend, despite steadily increasing passenger numbers, changed purchasing behavior and the omnipresence of smartphones are just a few factors that are forcing airports, airlines, travel retailers and brands to rethink their business models.
Landing fees as well as fuel and other operational charges are steadily increasing and being challenged by airlines, thereby increasing the dependence on non-aviation revenues for both airports and airlines. Sustainable financial viability is seriously threatened and represents an ever-present strategic challenge.
Non-aviation revenue is the most important financial source of income for airports today. On a global basis, approximately 50% of total revenues are from non-aviation sources making these revenues the most important financial pillar of airports. Accordingly, non-aviation is one of the most important strategic areas for the future.
These, and other, changes will continue to affect the airport ecosystem for years to come. Therefore, airports need to be innovative in creating their new non-aviation revenue streams. Travelers are increasingly predisposed to spending more of their money online, thereby leaving less for airport shopping. Airports and airlines need to be present on those digital channels where their passengers are, if they wish to stand a chance at improving retail revenues and winning back the business of digital passengers. This disruption is well underway; major airports and airlines have already begun to digitalize their businesses dramatically.
Aviation passengers’ behavior is changing. In the past, passengers entering an airport were usually enthusiastic. Flying was new and exciting. Strolling and exploring, overwhelmed by all the impressions. Many were at a major airport for the first time. This has changed significantly. Low cost carriers have made flying affordable for a much broader spectrum of passengers, the number of frequent business travelers is booming across the globe.
Observing passengers at airports nowadays, one realizes that their behavior there is similar to behavior elsewhere: always on their smartphones, except at check-in, security and boarding. Physical animation and interaction has therefore become a significant challenge.
Looking at the statistics during the past years, the travel retail market has stagnated. Propensity to spend is dropping continuously, because shopping has become easier online – coupled with free returns, easy and speedy deliveries, increasing brand presence and direct marketing on B2C channels on mobile. Online players such as Amazon and Alibaba with their strong global presence have become direct competitors for travel retailer.
According to the latest survey conducted by m1nd-set, based on 50,000 passengers at twelve global airport hubs, there clearly is a change in passenger buying behavior. The only growth is happening in Asia-Pacific, which is merely driven by downtown duty free and specialty stores instead of airport and airline shopping, and by a stronger growth in passenger numbers, but not by increases in spend (Statistics conducted by retailers tend to differ slightly, but that is due to those surveys usually being conducted in-store, therefore excluding the more than 70% who had not shopped during the journey).
As the numbers show, providing passengers with features to simplify planned buying is becoming increasingly important. Based on a recent global survey with high-income travelers, the share of pre-planned purchases is even higher than the share for all customers, (71%, with only 29% being impulse purchases). Moreover, Asian passengers show a high preference towards planned purchasing. In fact, they are the highest spenders at most airports worldwide and appear to plan almost their entire spending beforehand. Two reasons for this are the language barrier and lack of familiarity.
Pre-planned shopping is increasingly becoming the norm as more people fly more frequently and are therefore more aware of the limited time and opportunities they have available at the airport. Limited time also correlates to higher stress, as does worry about stock availability, price, size of packaging, delivery, etc. For this very reason, more people are choosing to begin their search for products online, not in-store. These passengers don’t want to browse through stores anymore, they want to complete their entire shopping online from the comfort of their home with an engaging and user-friendly digital airport marketplace solution. Passengers with the highest net worth income tend to correlate with top-tier airline frequent flyer or loyalty members, and they choose to spend their time in lounges as opposed to shopping. These are the very people who would much rather have the digital tools at their disposal to search, browse and order from the comfort of their seat, on their device with seamless fulfillment and payment across the entire ecosystem.
Many airports and travel retailers have converged upon a Reserve & Collect solution as the panacea for traveler pre-engagement as well as growth in retail revenues. However, conversion numbers have been underwhelming. For Reserve & Collect models, the average pick-up rate is below 50%, conversion rates are less than one percent. Compared to figures from E-Commerce merchants, these figures are below average, which, given the limited opportunities offered by Reserve & Collect, is not really surprising. These figures can be easily improved by introducing additional convenient services. For example, the introduction of online payment leads to a significantly higher pick-up rate of around 95%. With reasonable use cases and personalized offers, conversion rates of five percent are quite realistic. In addition, there are a variety of other reasons for the limited results of Reserve & Collect solutions:
In Chapter II: Why a digital airport commerce ecosystem is beneficial for all stakeholders we explain the benefits of a digital marketplace for all stakeholders of the "Quaternity" and show some use-cases from existing airport solutions.
AOE’s award-winning OM³ platform is a digital marketplace, consisting of a unique and modular set of pre-integrated omnichannel functionalities, services and infrastructure. It enables customized selection of functionalities according to airport-specific business requirements. OM³ was successfully implemented at Frankfurt Airport, Heathrow Airport, Auckland Airport and Singapore Airlines, many other airports and airlines are on their way to digitalizing their non-aviation revenue streams.