The IFR Value Pyramid and drivers of profitable growth.

Mapping the factors underlying outstanding performance. By Jan Sander Jakobsen, Principal Partner. Head of In-Flight Retail, Thomas Cook Airlines UK (2015 -2019) Between 2015 and 2019 the Thomas Cook Airlines IFR Team delivered 22% growth to an already industry-leading Spend-per-Head. Total revenue increased by £22m to £66m as a result of a combination of an increase in SPH from £6.9 to £8.4 and simultaneous significant passenger growth. Industry insiders will recognize that this result outperformed and perhaps even bucked the prevailing market trend.

The slide documents even more growth than mentioned above, as the period saw the introduction of passenger classes with Free-of-Charge drinks etc. The basis for Cabin Crew Commission included the value of non-revenue Free-Of-Charge items and measured on this basis the total "Value per Passenger" increased by more than 30% to from £6.9 to £9.2.

In this post focus is on what proved to be the key factors critical to delivering outstanding growth in a challenging business environment with a complex (wider) organisational structure and a new IT infrastructure. Future posts will examine the challenges encountered and how the team overcame them.

For Thomas Cook Airlines increasing profits and profitability from IFR at a time when intense competition on the core travel product was a strategic imperative. The airline was profitable but the £21m contribution from the combined revenue of on-board and pre-ordered sales added significantly to the bottom line. The IFR team responded the challenge to increase contribution from on-board sales by looking for ways to add additional growth despite having to reduce the loaded volumes of products and facing increased alternative demands on crew resources. The various efforts can be categorised in the below IFR Value Pyramid that illustrates them in a rising order of complexity but perhaps also the increasing marginal contribution value as the costs of them are diminishing.

Basic Components are the the foundation of any IFR offering. The basic components of the TCX IFR business were taken to a high standard over a period of years in collaboration with ALPHA LSG, the long-standing partner of TCX in on-board retail. Whether this part of a business is fully outsourced, in a partnership agreement or fully maintained in-house is not material - what is critical is the appropriate governance of the model as each one has unique inherent growth inhibitors.The range on offer must be carefully tailored to the customer demographic and pricing must take factors such as unit profitability, participation in multi-buy offers, marketing contribution etc. into account. Finally cabin crew must naturally be well trained in conducting on-board sales.

Demand Accelerators drive sales by further stimulating buying. Attractive and effective marketing, both before and during the flight experience, is naturally critical as customer awareness of the value of the offering will strengthen the position in the market. Well executed sales activities on-board supported by special offers and various tailored volume promotions will equally accelerate demand. The skills, motivation and efforts of the individual cabin crew teams in presenting these activities make the difference between meeting (average) sales expectations and regularly exceeding them.

Efficiency Enhancers. Many unexpected things can and will happen in aviation and will impact efficiency in some way. Making sure that everything is done throughout the logistics chain to ensure that each cabin crew team have everything they need to conduct a service & sales delivery that meets the expectations of customers and the business is vital. Intense focus on supplier service quality is necessary in order to ensure that business critical Point-of-Sale equipment is in full working order and that all products are always at hand.

A well designed and fully functioning POS solution is absolutely critical to efficiency enhancement as it can both save crew time, improve post-flight reconciliation and collect invaluable sales and operational data. Implementing a complex new system at the heart of the business can be a technical and organisational challenge but the value that can derived, both in day-to day and strategic efficiency improvements, from a successful implementation and stable operations is significant. The quicker and smoother a transition is fully completed the quicker the real efficiency benefits can be realised.

Execution enablers. Operational execution that matches the assumptions behind budgets is vital if the commercial results are to meet/exceed them. Visibility of supplier service quality and cabin crew service & sales delivery execution will enable early dialogue about deviations and support implementation of corrective measures if necessary. Monitoring the business at this level of detail can be seen as a daunting task, but a suite of customized dashboards and specialist views based on the POS transaction data, combined with any other relevant data in a suitable BI solution will allow low-maintenance almost real time tracking and rapid intervention if needed. The experience at Thomas Cook Airlines was that focussed initial work quickly paid off in improved execution and a significant decrease in underperforming flights.

Continuous Improvement & Innovation

Regular, intuitively meaningful, feedback to suppliers and cabin crew raised the day-to-day standard of execution in TCX significantly. The focused dialogue that followed also often resulted in adjustments in processes or the development of new ideas that resulted in benefits for suppliers/crew as well as efficiency & quality improvements at virtually no cost.

While the Basic Components and Demand Accelerators are relatively simple to maintain and improve, it can be somewhat more challenging for a complex and perhaps stretched organisation to reap the benefits from the higher levels in the IFR Value Pyramid. It is more than likely that there are some barriers to reaping the "higher hanging fruit", but a ROI/NPV analysis will most likely confirm that, as demonstrated by the TCX IFR team, it would be well worth addressing them without delay.

As the benefits of overcoming complex (internal) barriers to further IFR growth most likely mainly will benefit the airline P&L and improve customer & crew satisfaction, IFR executives and airline senior management should devote some attention to making sure that there is an internally driven process to ensure that all elements of the business are performing to potential.

#GrowthinIFR #IFR #OnBoardSales #AirlineDutyFree #TravelRetail

IFR Partners Ltd. is an independent partner to airlines that are looking to maximise the utility of their IFR business and specializes in identifying barriers to growth and assisting airlines to overcome them in an effective way with high NPV. The approach is to adjust the existing set-up for quick wins and if needed applying a strategic view to a future model.