Pierre J. Jeanniot
Coffee, Tea or IFE – In-flight Service in the New Age
Keynote address by Pierre Jeanniot to the World Airline Entertainment Association 28th Annual Conference
Toronto, 17 September 2007 >>
Ladies and gentlemen,
Last night’s reception was – if indeed you enjoyed it as much as I did – a good illustration of what your Association stands for, “great entertainment”!
I’m going this morning to address the subject of in-flight entertainment from the perspective of an airline CEO.
It’s a role that I played for close to seven years, which is not a bad record compared to the revolving door game that has prevailed for airline CEOs in the past decade or more.
In my more recent past role as Director General of IATA, I had a Board which consisted of some thirty airline CEOs – and given the turmoil that was on-going in our industry I often found myself acting in the role of “father confessor” to my colleagues.
I can say one thing with some certainty. In-flight entertainment was not the most important thing on their mind.
In recent years, CEOs have been far too busy trying to ensure the very survival of their airlines to worry about what’s playing back in the cabin.
They’ve been focused on cost reduction, on safety and security, on simplified passenger handling, on fleet renewal, airport and airways congestion, and on a subject of critical importance in this new century – the question of air transport’s impact on the environment.
By and large, their efforts have paid off.
Globally the international airline community almost broke even last year, and is expected to make a combined net profit of about $5 billion this year.
But before we start to “pop the champagne”… we should remember that this is only a net margin of just 1% – still far below its cost of capital of 7% to 8%.
Although airline survivability has much improved, all those cost reduction and productivity improvement measures have taken their toll on the customer.
One should guard against becoming a “cost reduction fundamentalist”.
The National Post reported last December that, after calculating that it took a litre of fuel to flush the toilet at 30,000 feet, one of the Chinese airlines urged its passengers to go to the bathroom before boarding.
Advances in baggage tagging angered one lady who was travelling to Fresno, California, and noticed the word FAT – the code for Fresno Air Terminal – had been printed on her luggage claim ticket.
As she was a bit overweight, she took it personally and thought it was quite insensitive of the airline to point it out on her baggage tag!
Funny stories aside, despite the financial recovery, many carriers are still delivering less than acceptable customer service – ranging from more late departures, minimalist cabin comfort, to too many misplaced bags.
One of the causes, of course, is the continued downward pressure on yields.
To get close to break-even, load factors reached a record 76% for the totality of the world’s airlines last year.
In North America it crept above 80%.
The air transport cycle may be in high gear once again, but the strength of this industry is certainly not reflected equally in all regions.
Passenger demand is strong, but cargo remains sluggish.
The Asia Pacific sector generally is booming.
Europe is doing relatively well, and the U.S. industry is finally recovering – but thorny problems remain to be solved in Africa and other areas of the world.
Incidentally, it was reassuring to read in the April issue of Fortune magazine that its listing of Fortune 500 companies still included seven U.S. airlines.
Despite its many challenges, the airline world remains surprisingly vibrant, and substantial progress has been made in many areas.
Carriers have reinvented themselves to survive. But the evolution of this industry into a hardier species is far from complete.
Weaknesses remain: pricey oil threatens, and cost cutting will continue.
Heavy investments are still required in North America, particularly where fleets are only beginning their renewal.
Market forces are hampered by liberalization moving too slowly.
Regulation remains excessive in some areas – and insufficient in others.
In various parts of the world, congested terminals and airways are choking growth.
Safety and security are still issues.
And concerns for the environment are once again threatening to outpace our ability to deal with its contingencies.
Nevertheless, after many years of virtually stagnant cabin innovation, carriers have more recently begun to pour millions of dollars into improving their cabin product and, in the process, to elevate first and business class to new heights – while reducing the back end of the airplane to a flying merchandise mart.
It’s a calculated risk. IFE alone has become the most expensive item on an aircraft, just after the engines.
Part of the calculation focuses on how much an average business-class customer is worth to the carrier, and whether he or she would stay loyal if the product remained the same while the competitor’s product changed.
One airline marketing guru was heard saying “My experience has been that by the time we had done the surveys and figured this out, the customer was gone and it was too late”.
I understand that this marketing guru is now looking for a new job.
Although it may be hard to pin down an exact ROI (return on investment), investing in a premium service is simply mandatory for any carriers committed to remain a credible player in that market segment.
British Airways’ CEO Willie Walsh, for instance, makes no secret that “our premium product is the most profitable part of BA’s business today.”
First and business class now represent 20% of the airline’s capacity – and it is growing.
Indeed, I would add it is the only sector of the business where legacy carriers like B.A. can be truly competitive.
When I started at Air Canada, in-flight entertainment was a selection of dog-eared magazines of the kind commonly found in a dentist’s waiting room.
In the seventies, movies were shown by means of a reel-to-reel projector set up at the back of the cabin.
By the time I became CEO in the early 80’s, technological advances had brought the video cassette player, but passengers were still forced to stretch their necks to view a shared screen.
Now Air Canada is billing itself as the first airline in the world to adopt a
digital personal entertainment system throughout its entire fleet, including its regional jets – an industry first!
They are planning to offer on-demand movies, television, music, and interactive games to all classes of passengers.
I’m not sure Air Canada has jumped the queue here, since everyone else seems to be making announcements about their latest investments in IFE.
In very short order IFE has become a 2 billion dollar business.
This Conference which brings together an estimated 1,100 members of your Association, representing some 100 airlines as well as 260 suppliers and related companies, is a measure of the increasing importance of this vital aspect of our industry.
In the interests of full disclosure, I must confess that this is one of the reasons I was very pleased to accept this speaking engagement.
The other reason, of course, is that one of my part-time occupations is that of Chairman of the Board of THALES Canada.
And as you know, THALES – our parent company – is one of the two major suppliers of IFE systems, each with a large share of the market.
That’s the end of my commercial!
In the bad old days of highly regulated air transport, when IATA conferences decided how many cashews a carrier could offer its first class passengers, and seat pitch had to conform to a universal standard, product differentiation as such did not exist.
Today IFE and the whole cabin environment have become a driving forces of airline business success.
The cabin environment offers the most significant opportunity for any airline to be different, and in the front of the bus price is no longer the only consideration.
In the last few years, many airlines have made huge investments of effort and money to differentiate their in-flight product.
For first-class passengers, Gulf Air offers “Sky Chefs” on all its A330 and A340 flights.
There Chefs, trained at top hotels, meet privately with each passenger to discuss the menu and service options, and then personally prepare and serve the meals.
British Airways overcomes cabin limitations altogether by serving gourmet meals to their first-class customers in high quality airport restaurants before some evening flights.
Aboard, private flat beds are nearly two metres long, and upon arrival the lounge has showers and massage facilities.
Qatar Airways has a first-class lounge with a stand-up bar and leather sofas on its new A340-600s.
Lufthansa pampers first-class passengers with their own terminal at Frankfurt airport, with connecting private jet service to airports in Europe, Israel, and Russia.
Virgin Atlantic’s “Upper Class”, sold at business class prices, includes limo transfers, in-flight massages, and flat beds.
Those of you familiar with the earlier days of aviation will be reminded that flat beds in airplanes are nothing new.
American Airlines had flat-bed sleepers on its New York to Los Angeles service in 1935.
So did the giant flying boats, as they flew just a few hundred feet above the stormy sea. I really wonder if anyone got any sleep.
Many carriers have opted for a business class product that offers slightly shorter flat beds than in first class. They are reluctant to go flat out in business class because they would lose a row of seats. Also, this keeps an important element of product differentiation between Business and First.
They compensate with electronic controls, and instead of live in-flight massages, cushions that can be inflated and deflated to suit body shape or to rhythmically exert pressure on the head, neck, and body.
Virgin Atlantic compensates for the extra weight caused by beds, stand-up bars, bulky furniture, TVs, and stereos fitted out in premium cabins by chosing to reduce its cargo capacity.
Virgin boss Sir Richard Branson is unwilling to cut out any luxury item for fear of making the option less attractive, and putting off high-paying passengers.
SIA is confident that its “truly flat bed”, all the seats facing forward, and direct access to the aisle, as well as its 30-inch wide business class seat – thus far unmatched in the industry – will command a substantial 15-20% fare increase.
Air France as well, so I understand, will be seeking an extra premium for its high-end products.
You may be interested to know that Air Canada originated business class service across the Atlantic in 1983.
Called “Connaisseur” service it was my pet project – which unfortunately turned into a bit of a dog in its first year.
The cabin crew could not cope with a three-level service, and it became known as “Dinosaur” service among some passengers.
But we remained undeterred, learned a lot, and re-launched it a year later as “Executive Class” with its proper cabin and dedicated flight attendants, and it quickly gained market share on the U.K. and France.
It later won Air Canada the Air Transport World award for the best customer service on the North Atlantic in 1985.
Another innovation I personally championed was the introduction of non-smoking flights – a product differentiation much opposed by my marketing people. Not surprisingly, most of them smoked! We began with alternate flights on the Montréal-Toronto Rapidair service thus offering about 14 non-smoking flights per day each way.
My marketing group finally saw the light when Air Canada gained a 5% market share on Montréal-Toronto against Canadian Pacific who, in contrast, had refused to go non-smoking.
Looking to gain from the positive public reaction to our results, the government then mandated non-smoking on all domestic flights under 90 minutes. Later, the ban was progressively expanded to cover all flights including, eventually, the international sector.
Today, ironically enough, this particular product differentiation has gone the other way.
A German entrepreneur has leased three Boeing 747s that will offer 138 business class passengers a nicotine-friendly, all-smoking service – with free Cuban cigars – on flights between his hometown of Düsseldorf and Tokyo.
He calls the airline Smintair, or Smoker’s International Airways.
A journalist called it “Air Ashtray”.
The ultimate business-class product differentiation is the all-business-class flight, such as offered for several years now by PrivatAir-Lufthansa between Düsseldorf and Newark.
Two years ago, a new, so-called “boutique” carrier, Eos, began offering all-business class, “super-luxury” flights between Stanstead and JFK on Boeing 757-200s.
The aircraft, which could seat as many as 220 passengers, are outfitted with only 48 “pod suites” that allow each passenger 21 square feet of real estate and leather seats that unfold to six-feet, six-inch flat beds.
Amenities include cashmere blankets.
With the growth in demand, the service is now twice daily.
Another all-business boutique carrier to surface recently is MAXjet Airways which flies 767-200 ERs almost daily between Stanstead, New York and Washington, and twice a week to Las Vegas.
Prompted by EOS, MAXjet and recent new entry Silverjet, British Airways is considering all-business-class flights on routes between the U.S. and continental Europe, probably using 757s and 767s it already owns.
What all this seems to indicate is that there’s a sizeable market out there of airline customers who want more comfort and quality, and who are willing to pay for it.
They’re the same people who pay 40 to 70 thousand dollars for a quality car.
At the other end of the market spectrum, low-cost carriers are opting for ever more Spartan cabin interiors in their search for new ways to cut costs and keep fares low.
Ryanair, for example, chooses seats and carpets for their quick-cleaning capabilities.
So much so, in fact, that the carrier now stores passenger lifejackets in the overhead bins to make it easier to clean under the seats, and has also dispensed with seat-back pockets.
Besides an austere cost structure that makes Southwest look extravagant, Ryanair also puts a price on virtually everything – amenities and essentials alike – from peanuts and beverages, to baggage check-in and, eventually, cell-phone use.
The airline has entered into partnership with an online gaming company to enable passengers to play bingo and “instant-win” games on their mobile phones, taking a cut off each wager.
They’ll probably install slot machines in the back of their pocket-less seats!
Revenues from the sale of in-flight services are rising so rapidly that Ryanair promises that by the end of the decade, “more than half its passengers will fly free.”
I call this low-end strategy “the Las Vegas model”: Fly free, get free accommodation – just bring lots of money for gambling.
One cannot help wondering if lower fares are not somewhat of an illusion when you have to pay extra for meals, blankets and pillows, headphones, roomier aisle and exit row seats, reservations made by phone, and so on.
For $5 per round trip Air Troduction, launched last year, will allow you to upgrade your seatmate.
It works like this: You buy your ticket, then go to Air Troduction, log in and create a profile. You can post a photo just as you would on a computer dating service. Then you’re asked to describe the kind of person you would like to sit next to.
If two people on the same flight like each other, they can meet at the airport and book seats next to each other.
To differentiate themselves from those “pay-for-everything” low cost carriers, some airlines have decided to re-introduce a few modest amenities in economy, as well by creating a premium economy class.
The new class offers wider seats, extra leg room, improved meals and beverage service, personal entertainment, computer outlets, separate washrooms, and even a separate cabin, for a price about 25% more than economy.
Other carriers, both traditional and low-cost, have added value to their economy product by retaining amenities or introducing new ones without extra charge.
Economy passengers on Cathay Pacific, named best airline of 2006 by Air Transport World magazine, get a hot meal and beverage service even on one-hour flights.
Gulf Air has trained nannies to look after children in economy class on long-haul flights – at no extra charge to passengers seated nearby!
Jet Blue and WestJet now have live satellite TV sets in the back of every seat.
Qantas Airways offers personal, on-demand video screens in all classes. And last year at this Conference, you may recall that Qantas and Jet Airways, the largest Indian private airline, won the Annual Aviation Award for Best Overall IFE.
Jet Airways has no intention of resting on its laurels, and with the objective of capturing a commanding share of the Indian international traffic, Jet Airways is now introducing on all its wide-body fleet a new cabin environment which will be hard to match and unlikely to be surpassed in all three classes.
The aircraft manufacturers have not been insensitive to travellers’ expectations of increased quality.
The Boeing 787 Dreamliner with its larger windows, roomier storage bins, and better in-flight air quality, will offer passengers significant improvements in airplane comfort, according to the manufacturer.
Not to be left behind, Airbus totally revamped its A350 strategy by opting for a completely new $10 billion design, with a wider fuselage and improved cabin comfort.
New seats, more amenities, improved meals, and bigger bins are not the only way to product differentiation.
Any truly customer-oriented airline would recognize the fact that for air travel in the digital age, the cabin is the only place left where the airline has a truly human face – where customers can actually “interact” with live human beings.
Before they became “flight attendants”, stewardesses were chosen for – among other criteria – their beauty, charm, and helpfulness.
They actually helped stow your carry-on bag, fetched a magazine, and tucked a blanket around you before reciting that famous in-flight mantra “Chicken or fish? Chicken or fish?”
In my years with the airline, I had to deal with a persistent rumour that Air Canada actually owned a chicken farm!
In-flight entertainment in those days was live, rather than virtual.
A steward on Air Canada’s first class service to Los Angeles liked to amuse his passengers by flambéing the baked Alaska – until someone pointed out the fire hazard.
The airline’s first 747s had an upper deck lounge with a dance floor and flight attendant hostesses in long skirts.
It didn’t last long: wives started to complain that this was one amenity too many.
Air Jamaica, on whose board I served for a while, went one better – with in-flight fashion shows.
At some point during the flight, their stunning stewardesses would disappear into the washrooms and emerge wearing beachwear in which they paraded up and down the aisle, and then offered for sale through the in-flight boutique.
Today, WestJet produces a book of jokes for the flight attendants to use over the intercom titled Just Plane Fun. Oh well, to each his own!
There’s a new form of live entertainment coming which I do hope will not be part of IFE in the future – listening to your seatmate’s cell phone conversation.
Europe has been leading the charge on the use of airborne cell phones, and last June Airbus won approval from European regulatory agencies for its on-board system.
Air France will be the first carrier to introduce the service on its Airbus A318s.
According to a recent survey, many carriers plan to offer mobile phone “connectivity” on a gradual, regional basis within three years.
For instance Ryanair, Emirates, and others are going for fleet-wide installation as quickly as possible.
The AirCell system being developed in the U.S. will offer voice calls only in its second stage.
Initially the service will include a WiFi hot spot, allowing passengers to surf the Internet and use e-mail via their own laptops and personal digital assistants.
British Airways believes a texting service is likely to be the way forward, even though the eleven carriers offering “Connexion” Internet access a system similar to Air Cell had to write off a considerable investment when Boeing (CBB) withdrew the service for lack of demand in August 2006.
Texting rather than voice calls also gets around the annoyance factor, although airlines believe phone use etiquette will be of a higher standard than is common in restaurants supermarkets and other public places.
That won’t be very hard.
Efforts are continuing to reduce ambient noise in the cabin. For instance, I understand that Lufthansa Technik is looking at submarine stealth technology to slash cabin noise in future commercial aircraft.
At any rate, passengers wearing headsets will probably be engrossed in watching an on-demand unedited version of movies like Oceans 13 – a somewhat riskier offering than the family-friendly flicks which were a must for the large screens of the past.
Or they could be brushing up on their Mandarin with some interactive language lessons, checking destination information, or just watching live TV for regional news and current events.
Once available only on a few North American low-costs, live television has started to extend its reach around the globe.
Qatar Airways, India’s Kingfisher Airline, and Australia’s Virgin Blue are three carriers phasing it in this year.
While many airlines now offer seat-back, on-demand, digital entertainment systems, some are working with passengers’ private hardware to offer individualized information and entertainment.
In fact, this combination of personal electronic devices like PDAs laptops and iPods, working in concert with an airline-provided broadband delivery system, is a likely model of IFE in the future.
Discussions have been held on the possibility of licensing content for use on the airlines’ own systems, and allowing passengers to purchase and download it on their personal electronic devices in-flight.
Nobody is exactly sure what the longer term effect will be of passengers bringing iPods and portable DVDs aboard.
But it is highly unlikely that any recently-installed, sophisticated airline entertainment systems would be made redundant anytime soon.
The demographics of today’s passengers are against it.
However the holy grail of every passenger carrying his or her own device for in-flight entertainment is on the horizon.
Technology is certainly becoming available to meet whatever passengers and airlines expect from their IFE systems today and in the near future.
For instance, the Thales Top Series entertainment system selected so far by Air France, Malaysian Airlines, Etihad Airways, and 35 others will allow passengers not only to select what content they want when they want it. It will also allow them to send and receive short messages (SMS) and e-mail browse the Internet, access corporate intranets, play games, and shop on-line – all from their seat-back units.
Sorry, this sounds like I sneaked in another commercial!
Should passengers wish to use their own laptops or other personal electronic devices, in-seat power and connectivity will enable them to do so.
Live television, mobile phones, and other off-aircraft communications will be progressively available through high-bandwidth territorial and satellite communication systems.
Airlines can choose from a range of user interfaces including touch screens, built-in handsets, portable handsets connected via a USB port and, in due course, a laser-projected keyboard.
The possibility of going wireless when required to reduce weight complexity and maintenance has also been tested and considered feasible.
Some new systems are being engineered with an eye to the future.
Modular architecture allows new technologies and equipment to be introduced on a plug-and-play basis, while processing power and data storage capacity can be upgraded as evolving technology permits.
One of the features proposed, for instance, allows passengers to some extent to tailor their programming to their personal preferences at the beginning of a flight.
This opens the door to a whole new world of in-flight merchandising and revenue-earning possibilities.
But airlines so far have not earned significant direct revenue from in-flight entertainment.
And legacy airlines have invested in it mostly for competitive advantage, particularly on long flights.
Typical of those is Virgin Atlantic, who believes that “It is the mindset of passengers not to pay for audio/video on a long-haul flight. IFE is regarded as a necessity.”
Its low cost cousin, however, has a different approach. Virgin Blue charges from $5 to $9 for viewing live television gate-to-gate, depending on the length of the flight.
I guess it’s a question of “horses for courses”.
Some investment is recouped from advertising but, there again, this has not traditionally been seen as a big revenue generator by the airlines.
Most advertising revenue still comes from in-flight magazines.
However, the more sophisticated interactive IFE systems will allow for whole new forms of service and advertising.
Passengers on board can for example view a car rental site and fill out their requirements and credit card information which is sent via satellite to the car rental company, so that a vehicle is waiting for them when they land.
No doubt more efforts will be made to personalize the offer on the basis that airline passengers are more likely to respond to sales pitches that are relevant to them personally.
Certainly “monetizing the cabin” through IFE, to mention one of the increasingly used expressions, has become a hot topic.
When IFE systems begin to represent such a significant percentage of an airplane’s cost, they’d better do a helluva job of differentiating the high-end product – and on generating revenues in the low end.
Many legacy carriers are staking their future on the premium market.
IFE will be very much part of the harmonious integration of product elements – cabin design, comfort, meals, amenities and personal contact – that make the difference at the high end.
Passengers at the low end have come to accept that to benefit from very low fares, they are having to pay for what we used to consider as basic amenities like comfortable seats, some food and drink, and perhaps – on long flights -blankets and pillows.
Now they will also have the opportunity to pay for a whole new range of comforting electronic pastimes and shopping opportunities they can no longer leave home without.
In this new electronic age ladies and gentlemen, when air travel has become a paperless and largely peopleless experience, practically the only place left where an airline can distinguish itself from its competitors is in-flight.
The range of cabin products offered has never been wider, from super first class and business-only flights to, at the low end, pay-for-everything except the flight.
Such product differentiation needs offer IFE suppliers an equally wide array of opportunities to work with airlines in designing the unique product each carrier wants to be known for.
Not only is it feasible to adapt the technology to meet the needs and expectations of their customers today but also, as other marketers have always done, in developing new applications that airline customers never knew they needed.
My friend Bob Crandall, long-serving former CEO of American Airlines, once said that cutting the grass at the airport was more profitable than the airline business.
Perhaps Ryanair, with its dream of total “monitization of the cabin”, has found the ultimate solution to airline economics.
As a fifty-year veteran of this business, it would sadden me just a little – given the historical importance of air transportation to the economic and social development of the community of nations – to think that one day the ancillary products of air travel would become more valuable than the journey itself.
Ladies and gentlemen, IFE has come a long way from the days of dog-eared magazines and hard-to-see movie screens, thanks to the talent and vision of people like you.
There are great opportunities ahead – opportunities for you to devise new ways of meeting the evolving needs of the flying public – and new opportunities to contribute to the bottom line of the airlines and, in the process, to the bottom line of your own companies.