Airlines might miss out on a massive in-flight ecommerce ancillary revenue boom unless they begin treating their passengers as ecommerce shoppers. Currently, that revenue stream could be worth as much as $30 billion annually. Tapping into this lucrative opportunity will require a re-adjustment of business models to suit the needs of modern travelers who want ubiquitous internet connectivity and might be open to making a few purchases online during flight.
In-flight broadband has seen a significant growth in the recent years, allowing passengers to access new services such as high speed film and TV streaming onboard, online shopping in-flight and numerous other services. That ancillary stream has the potential to create a massive $130 billion market over the next 20 years based on a report by the London School of Economics and the satellite provider Inmarsat.
In this huge $130 billion in-flight ecommerce market, airlines could capture a massive $30 billion share by 2035 from a market of $900 million in 2018 by charging fees and offering advertising and partnerships onboard. By 2035, this significant growth in in-flight broadband ancillary revenue stream will add an extra $4 to the airlines ancillary revenue per passenger which currently stands at $17 per passenger from in-flight expenditures such as food, drink and duty-free shopping.
The use of ancillary services as a supplementary revenue stream has grown in leaps and bounds over the recent years thanks to the rise of low cost carriers with their competitive pricing models which have driven the cost of airfares while maximizing on these supplementary revenues. The rise of low-cost carriers has also applied more pressure on the legacy carriers and undermined their long-held stranglehold on the air travel market. These ancillary services currently generate an extra $60 billion for global airlines annually.
In 2016, the top ten global airlines ranked by their ancillary revenues earned $28 billion from these add-on services. This is a vast improvement over 10 years back in 2007, when the ten best performing airlines ranked by ancillary revenues grossed only $2.1 billion from their add-on services.
With the introduction of new satellite constellations, airlines are now able to offer high speed in-flight broadband services and this has opened a new frontier in ancillary revenues through in-flight online shopping. However, not all airlines have moved with speed to take advantage of this new revenue opportunity. Of the more than 5000 airlines operating globally, only 53 have installed in-flight broadband connectivity. That is roughly 1% of global airlines.
Most airlines would rather stick with what has worked for them in the past so they remain focused on the basic service of simply offering broadband service but not going further to leverage this and boost in-flight ecommerce.
There are various ways in which forward-looking airlines could leverage in-flight shopping in order to generate more revenues. For example, they could partner with leading ecommerce brands and offer passengers continuous shopping for the duration of flight whereby the items purchased are delivered either to the holiday destination of the passenger or to their home.
The airlines shouldn’t just have a broadband mindset; they must learn how they can leverage these for in-flight ecommerce.
That might require some serious marketing effort. Airlines could start by differentiating on the type passengers onboard, whether they are leisure or business passengers and then target them accordingly with the relevant ecommerce product deals. The airlines must embrace micro-segmentisation when they are developing the strategies for in-flight broadband services. The mindset must change from that of simply offering good onboard connectivity to that of targeting a potential in-flight ecommerce shopper.
To fully take adapt to this opportunity, these airlines must also install onboard broadband services that will assure consistent connectivity for the duration of flight. It is hard to deliver an smooth onboard shopping experience if you can’t even guarantee a seamless connectivity for your passengers.
The world’s fastest growing commercial aviation market is poised for an even greater growth thanks to a new ancillary revenue stream as more Chinese carriers offer ecommerce services to their passengers through their in-flight broadband connectivity.
The Chinese mainland currently has the largest smartphone as well as online retail market. This puts it in a pole position to benefit from the massive global in-flight broadband ancillary revenue opportunity stream forecast to reach $130 billion by 2035.
Chinese airlines expect to see significant revenue growth in this area because a lot of passengers now prefer carrying electronic devices on board so that they can access choice content beyond what is provided by the in-flight entertainment in the plane.
The availability of in-flight broadband enhances the customer experience but it is also a significant opportunity for many airlines to ramp up their ancillary revenues. Many brands and internet companies are also going to benefit hugely from this opportunity.
Airlines operating in the Asia Pacific region are going to see the most opportunity from in-flight broadband-driven ancillary services in the coming years. Total revenue is expected to hit $10.3 billion thanks to a wide availability of services as well as strong passenger growth.
According to study the study London School of Economics, the Asia-Pacific region will lead in broadband based in-flight ancillary services with projected revenue of $10.3 billion by 2035 followed by Europe and Russia at $8.2 billion, the US at $7.6 billion, Latin America at $1.9 billion and the Middle East at $1.3 billion. Africa will still be lagging behind with an in-flight broadband-based ancillary revenue of only $0.59 billion.
The revenues will come from multiple streams including advertising, broadband access fees, premium content and ecommerce sales as well as arrangements with some of the leading online content providers such as Amazon, Alibaba and New York Times.
The study estimates that global airlines currently receive on average $17 per passenger from the traditional ancillary services like in-flight retail, duty-free purchases, food and drink sales. The in-flight broadband ancillaries will add an extra $4 by 2035 according to the study.
On a global scale, if airlines will be able to successfully roll out in-flight broadband, they will be able to unlock other creative content, ecommerce and advertising packages that will boost their ancillary revenues.
Passengers are also demanding more. In China, an estimated 68% now rank in-flight broadband connectivity as more important than the traditional in-flight entertainment so airlines have to rise to the challenge.
Most of the major Chinese airlines have built strategic partnerships with some of the largest online retailers in China such as JD.com and the Alibaba Group so as to meet the needs of their passengers.
These partnerships often involve making these stores available to passengers in various flight routes and also offering online payment support to passengers through portals such as AliPay.
The demand for these services has been driven by the consumer behavior of the mainland passengers who are accustomed to using the internet virtually anywhere. China currently has the largest number of internet users globally at 731 million. Out of these, some 695 million access the internet through their smartphones so connectivity on-the-go is a very important aspect of Chinese internet experience which creates a huge opportunity for these airlines.
Online shopping has also grown in leaps and bounds in mainland China. This is in spite of a slowdown in the Chinese economy. By 2020, Chinese online retail is projected to hit $1.7 trillion. In 2016, the country’s online commerce was worth a whopping $750 billion according a Goldman Sachs report.
There is huge potential for in-flight broadband to personalize in-flight entertainment and generate extra revenues through this but airlines shouldn’t just treat onboard connectivity as an in-flight shopping magazine. They must also explore other innovative ways through which could entice passengers to spend more money onboard.
But it is still early days and there is huge potential for growth. Currently, only 53 airlines offer onboard broadband out of the 5000 airlines operating globally.
Intra African and transcontinental travel has long been dominated by the state and foreign legacy carriers. This is also true for the Middle East, Asia and Europe. However, in markets such as the US, the air travel industry has long been dominated by private carriers for as long as we can remember, in the process fostering a spirit of stiff competition and innovation in the aviation sector.
Africa is still a minute player globally. Its carriers are often smaller and with small fleet of aircraft; state interference has often impacted business decision-making. That is why some African aviation experts are now calling for the establishment of a global African airline from nay of the leading African airline hubs that could boost the connectivity on the continent and between the continent and the rest of the world.
African travelers used to face a myriad of travel challenges ranging from poor inter-city connectivity to long layovers in hubs such as Dubai.
But the airline industry has improved considerably over the years. It is no longer what it used to be a decade or two decades ago. The continent has experienced fast economic growth and relative stability, factors that have underpinned the boost in the international air traffic in Africa.
Africa is currently the third fastest growing aviation market after the Middle East and the Asia Pacific. There has been an onrush in foreign investments in the continent along with burgeoning economies that have led to the expansion of the African middle class.
The air traffic within the continent has also been growing rapidly. More Africans are now visiting other African countries for business and leisure. Yet the continent is massive with poor road and rail infrastructure. Air travel is therefore highly vital in providing important transport links between cities on the continent for both business and leisure travelers.
All of these factors bode well for aviation companies in Africa. But still, the many African carriers on the continent, most of them state-owned, still account for only 5% of the global air traffic. Most of the traffic is handled by US, Asian, European and Middle Eastern Airlines.
Many of these non-African carriers are also on an aggressive expansion into the African market. Turkish Airlines alone is expected to operate flights from Istanbul to 52 destinations on the African continent. 6 years ago, the airline was flying to some 14 destinations so it has increased its coverage of the continent almost four-fold in the less than a decade.
Emirates operates flights to some 30 African destinations from its Dubai hub. This massive expansion by non-African carriers is happening at a time when some of the leading African carriers such as Kenya Airways and South African Airways are experiencing serious challenges. Kenya Airways alone lost $260 million for its 2016 financial year. The only major African carrier that is currently doing well is Ethiopian Airlines.
While the competition may seem to be stiffening, this actually bodes well for the African aviation sector as an investment opportunity.
Ethiopia’s love affair with aviation is a long and deep rooted one. The country aviation industry traces its roots to somewhere in the late 20s and over the years, various aviation institutions in the country in the country have made a strong contribution towards its development as an aviation hub including the Ethiopian Airlines and the Ethiopian Aviation Academy.
These institutions have contributed not just to the development of Ethiopian Aviation but also to the African aviation industry in general. A lot of pilots, cabin crew, aircraft maintenance and airline management staff in Africa now get their training in Ethiopia.
The Ethiopian Aviation Academy has been critical to this success. A lot of African aviation service providers send trainees to this facility which has built a strong reputation for producing trainees that are dedicated, responsible, dependable and ethical in their professions.
Thanks to the contribution of the Ethiopian Aviation Academy, many African airlines as well as air travel service providers have been able to build the talent pool that enables them to carry out a sustainable and professional aviation business in the toughest of African markets. The facility has expert staff that offer training as well as a cutting-edge aviation equipment that helps the trainees keep abreast with the latest knowledge and skills that help them stay relevant in the current aviation market.
The Ethiopian Aviation Academy has also undergone a recent $100 million renovation that has seen it getting equipped with modern state-of-the-art facilities. The facility can now offer all kinds of aviation training programs ranging from the emergency and evacuation procedures to cabin service provision.
The facility has been at the forefront of feeding the Ethiopian aviation industry with professional and highly competent human capital and is now capable of hosting up to 400 trainees thanks to the recent renovations. This also offers a great opportunity to many African aviation services providers that would like to expand their services and human capital.
Every year, hundreds of Africans make their way through the Ethiopian Aviation Academy and the number keeps on growing as more Africans seek training opportunity in Ethiopia. They come from diverse countries including Rwanda, Congo, Togo, Cameroon and Equatorial Guinea among others. The graduates gain world-class theoretical grounding as well as practical training that makes their skills marketable throughout the world.
The African aviation industry is on a strong forward match as the travel industries continues to grow and expand exponentially. The progress has been due to the hard work of many professionals in the African aviation industry as well as the general positive economic outlook on the continent. As African aviation matches forward, the Ethiopian aviation industry has been an important cog in the wheel, helping steer African aviation to greater heights.
Ghana recently hosted the first edition of the African Air Show with the predominant theme being the call for innovation and collaboration in the African aviation industry in order to move the industry forward.
Stakeholders at the Air Show emphasized that there was still room for improvement in the African aviation value chain that most African countries could leverage in order to generate value through innovative and collaborative approaches. Such an approach will give the continent the room to develop an air travel industry that is safe, reliable and economically productive.
Throughout the world, the aviation industry has often been known as a powerful economic driver and instrument for economic development. Aviation opens cities and creates jobs and Africa still remains one of the main frontiers for growth in aviation business. The industry growth rate is currently at 5.7% and there is still need for increased investment in the aviation sector in order to unlock its latent potential.
Aviation investments in Africa must focus in areas such as infrastructure development, the development of the human capital for the aviation industry, equipment and aircraft funding, safety and investment in aviation safety and procedures among others. There is also the need for extra investments for improved connectivity in order to tackle the challenges of internet city commute within and between African countries.
While some states have made significant progress, there are still plenty of commonalities in all the African aviation markets. As a result, overcoming the challenges plaguing the industry will require not just a concerted effort and commitment but also a cross-border cooperation and synergy of efforts among the various states, stakeholders and organizations.
The African Air Show was the first of its kind in West Africa and the most recent air show to be organized in Africa. The show will engage various players and stakeholders in the African and global aviation space so as to position the African aviation industry at the top of local, regional and global interest.
The African Air Show will also serve as a forum where the stakeholders in the African and global aviation industry can interact with prospective investors that may be interested in the aviation business and infrastructure development projects in the industry so as to help bring the African aviation industry up to speed with the global standards and best practices.
In spite of its tiny share of the global aviation market, the African aviation industry is still the fastest growing in the world. It is currently growing at 5.7% and is expected to average an annual growth rate of 7% over the next two decades. That will present tremendous growth in the industry.
While the industry currently flies 130 million passengers annually, some 257 million will be added to the passenger traffic over the next two decades. In 2016, the African aviation industry employed 6.8 million people and contributed $72.5 billion to African GDP.
The African aviation industry has been lagging behind that of the rest of the world for decades. In a way, this reflects the economic state of Africa and the limits of air travel on the continent. While air travel has expanded rapidly across the continent over the past few years, it still represents only a tiny fraction of the global air traffic at only 2%.
Economic realities aside, African aviation is also faced with numerous other challenges. Some of these are managerial and some are related to the air travel regulations in Africa. Yet over the years, no book has conclusively and recently delved into the potential of air travel in Africa.
Fly Africa is unique in this respect. The book, written by Hassan El-Houry who is a pioneer in the African aviation industry and Eric Kacou, an African aviation strategist has just been launched and highlights the potential of aviation in Africa and how this can help underpin the growth of the continent while connecting it to the rest of the world.
Years ago, I used to run one of the most popular aviation websites in Africa and one of the areas of the concern was the rapid rise of foreign carriers into the African skies and the high rate with which the African carriers were quickly falling off the skies, metaphorically speaking, as a result mismanagement and poor business environment.
Now that prophecy has come to pass and African carriers are commanding an ever shrinking market on the continent. Yet there still exists a window of opportunity that can be exploited by dynamic carriers.
El-Houry believes that the future of African aviation lies within the continent with its massive population of 1 billion and a fast rising middle class. The continent continues to see a string economic growth which is unlocking more opportunities for newer business models on the continent.
African carriers still have much to learn in order to catch up with their counterparts in the rest of the world. With strategic vision, commitment and cooperation, the writers believe the airline that can realize its potential and begin punching above its weight.
In Fly Africa, the authors, experienced aviation professionals, are mapping a route through which African aviation can rise from the ashes and transform the continents aviation industry. They highlight some of the aviation champions and illustrate the effects that a robust aviation industry can have on other economic sectors.
The book is based on the authors’ extensive experience in the aviation industry, solid research and the personal knowledge of the writers about the aviation industry on the continent. As a former CEO of the National Aviation Service (NAS), El-Houry brings forth a unique insight into the industry that can be hugely relevant for players in the emerging aviation markets.
According to the co-author Kacou, the impact of a healthy aviation market is one that can be felt everywhere. It interconnects Africa and Europe and the Middle East and this can lead to closer economic and intercultural benefits. That portends well for the strong bonds between Africa and the rest of the world. The book offers players in the aviation industry a realistic appraisal of the current situation as well as an optimistic vision on what could be realized when the potential of African aviation is unleashed onto the world.
Kenya’s third largest airport has continued to see strong growth in passenger numbers over the past year.
The airport underwent $40 million renovations in 2010 that saw its runway extended from 2km to 3.3km to handle larger aircraft such as the Boeing 767s, Airbus A310 and the A300. The 2010 extension also saw the upgrade of the airport apron area and the building of a new and larger passenger terminal.
The launch of the newly renovated runway saw the passenger numbers double within a span of 2 years from 200,000 per year in 2013 to 400,000 in 2015. The strong growth in passenger numbers in Kenya’s third largest city have been attributed to the strong expansion in Kenya’s middle class that has powered the rapid growth in the city.
Although the airport is yet to handle international flights, it is already well equipped with immigration counters to handle future international flights.
For the year 2016 and 2017, the passenger numbers are expected to have grown to more than 500,000 although the airport is yet to release the official figures. Many of the domestic carriers serving the airport such as Jambojet have already increased their flight frequencies to the city. Jambojet currently offers 20 flights per week to the city.