New digital frontiers
Lufthansa Group is a front-runner in aviation’s connectivity revolution, increasing ancillary revenue streams to create a win-win for airlines and passengers
Trying to forecast the future is a tricky task at the best of times. However, even without the benefit of a crystal ball, some things can be said with certainty. The digital transformation of airlines will change commercial aviation as we know it.
The Lufthansa Group has strategically placed itself at the vanguard of this digital revolution. Speaking at the airline’s Digital Aviation Forum in Frankfurt earlier this year, Lufthansa CEO Carsten Spohr declared that its ambition for 2017 was to become, “the most digital aviation group”.
This is not hyperbole. Thanks to its digital programmes including the inflight connectivity partnership with Inmarsat, Lufthansa is not only developing connected aircraft but also a connected airline. The airline’s ongoing development of opportunities in the ancillary revenue sphere is testament to this.
As yields come under pressure, particularly in short-haul, exploiting ancillary revenues is something of a promised land. According to IdeaWorksCompany, a leading consultant in airline ancillary revenues, and technology platform CarTrawler, between 2010 and 2016 the ancillary revenue market grew by 200%. The market is now worth an estimated $70bn.
This figure is likely to increase further, and the Lufthansa Group has identified several potential avenues to explore.
According to Floris Reimbold, Lufthansa’s Head of Inflight Entertainment & Connectivity, unlimited high-speed broadband will not only allow passengers to stay connected while on board, but also provide the framework for a comprehensive ancillary package.
“What is the key infrastructure for personalisation, digitalisation and other innovations on board?” he asks. “It is connectivity of course.”
It’s a view echoed by Lufthansa Group’s Manager of Ancillary Services Category Management, Edward Rowley.
“Connectivity unlocks new digital frontiers for ancillaries,” he explains. “Particularly for flight-related ancillaries we can offer our passengers on board. In time, these could include lounge access or upgrades for onward flights.”
Passengers can access the internet on the device of their choice via Lufthansa’s FlyNet portal. Three packages are available – at three varying price points – allowing passengers to choose the appropriate tier depending on whether they want to stream videos, surf the web or merely send emails or use a messaging service. These are:
Additionally, flyers can take advantage of a 10 minutes or 10MB ‘Try FlyNet’ service allowing them to see the service’s capabilities before they commit to buying a package. Payment can be made in multiple ways: from credit card to PayPal, and via Lufthansa’s Miles & More frequent flyer points, as well as roaming offers supplied by Deutsche Telekom, Boingo or iPass.
With regards to ancillary revenue Lufthansa is looking at retail offers, such as selling products that are delivered to the passenger’s home or destination airport. Onboard, Lufthansa offers a digital newsroom containing more than 250 digital magazines and newspapers across 18 languages.
Additionally, the free online FlyNet portal offers:
• Information related to passengers’ destination, e.g. weather, airport and arrival services, country and city information, crew tips, top 10 sights, restaurants, shopping and nightlife
• Lufthansa services, e.g. bookings, flight rebooking, online check-in, flight status
• Lufthansa information, e.g. travelling to and from the airport and lounges
• Miles & More
Rowley says that ambitious partnerships are also being explored that will allow passengers to configure products, such as watches or cars to generate sales leads.
“Things that go in that direction are very interesting,” he confirms. “And to push internet access sales we’re also looking at partnerships that go towards sponsored access. These are all big ideas that we have and we see connectivity as a key to unlocking that potential.”
W-IFE will also be introduced on Austrian and Eurowings short-haul routes.
The significance of these new forms of ancillary revenue is such that Mario Franci, Inmarsat’s Vice-President of Inflight Services, believes that they could soon supersede the standard revenue that comes from passenger connectivity access.
Lufthansa’s FlyNet portal offers three connectivity packages – at three price points – to suit those who want to email, surf the net or stream content.
He says: “Whenever we talk about transactions, that is commission-based revenue, or any form of sponsorship or shared revenue, being connected means an ability to have that transaction.”
Furthermore, the rich data Lufthansa obtains via IFC will allow it to offer better and more relevant personalised offers to passengers. And this is data that, rather unusually, passengers are comfortable with sharing.
Lufthansa CEO Carsten Spohr, speaking at Lufthansa’s Digital Aviation Day, explains: “Aviation is all about trust. They [passengers] trust us with their lives when they travel, and that trust transfers to data sharing. And while we’re aware of the value of the data, this is not about making some quick money. We want to use that data to enhance their individual experiences.”
Speaking at the same event, Jeff Jarvis, a US journalism professor, said: “Information empowers us and helps us to serve [the customer] better. It helps us see people as individuals and creates a relationship.”
E-commerce, advertising and sponsorship are all lucrative arenas that are being redrawn in the wake of the increase in personalised data. Enhancing individual experiences is the name of the game. Offering food, films, music or goods based on the information an airline holds about a passenger will make for more passenger satisfaction and increased revenue for the airline.
And this is just the beginning. Lufthansa is evaluating various partnerships with digital media channels to offer a comprehensive entertainment package. Rowley also points out that they are constantly monitoring new technological developments that might help benefit their ancillary revenue offering.
“There’s always more to come,” he says.
As the next few years play out, it will be fascinating to see whether this forward-thinking group becomes, as they hope, the world’s most digital-first commercial aviation operator.