Last September British Airways announced it would start charging for food and drinks on its European flights. It started doing so this week. Saving money by cutting costs and trying to charge customers for elements of the journey they used to get for free has long been a sport for airline managers. Legendary American Airlines CEO Robert Crandall saved $100,000 by removing an olive from salads back in the 1980s, although he was smart enough to keep them for martinis of passengers in first class.
Razor thin margins and the cyclical nature of airline industry profits are held out as the reason that managers have to be so vigilant with expenses. Industry lore is that since the Wright Brothers if you added the financial results of all airlines together, the industry has lost money. Spikes in the price of jet fuel and revenue lost from recessions, regional crises, terrorism, weather and natural disasters can wipe out tens of million of dollars of profits in a few days.
One result has been consolidation. British Airways (BA) is no longer an independent airline, but a wholly owned subsidiary of International Airlines Group alongside former Spanish state airline Iberia, Ireland’s Aer Lingus and budget airline Vueling which combined ring up over $20 billion in annual sales. According to the group’s annual reports, in the latest full year, British Airways alone made a profit of GBP 2.5 billion, over $3 billion at today’s exchange rate. Profit margin for BA exceeded a robust 20%.
BA is far from the first airline to start charging passengers in the back of the plane for food and drink. European low-cost rivals such as easyJet and Ryanair have done so for decades. In the U.S., buy onboard is standard, however, the major airlines typically offer coffee, tea and soft drinks complimentary. In fact, US Airways briefly tried to charge for non-alcoholic drinks, including water but quick changed back in 2009 after irate passengers rebelled. In some cases, the U.S. airlines offer top-level frequent fliers free sandwiches and alcoholic beverages in economy class, a two-tiered approach that enables them to generate revenue but keep key customers happy.
The BA approach is to charge everybody for everything, including bottled water which was previously free, although they will serve tap water on request at no charge. The airline doesn’t offer first or business class (which it calls Club World or Club Europe) on domestic flights, so a passenger flying from Los Angeles to Glasgow paying $12,749 one-way to fly in first class will be asked to pay for water, tea or a snack on their flight from London to Glasgow.
While BA does offer low fares to compete with low-cost carriers in Europe, short-notice trips can still be expensive. For example, BA flights to Paris this coming Monday are all selling for over $200 (below) one-way. BA has decided regardless of the fare you are paying, if you are sitting behind the curtain, you will need to pay for food and drinks. Other airlines offer economy class packages that give free food and drinks for passengers paying higher fares.
The airline, as expected, has tried to put its best PR foot forward in launching the pay for food and drinks service. The airline has said it is responding to customer demand for a wider variety of better food, although that may be because the airline has been cutting back on the food it was serving in economy class anyway. On shorter flights, in addition to free drinks, the typical complimentary food offering was down to a packet of lemon melts. It also claimed in its inflight magazine last month (below) “BA is the first airline to offer a fresher, healthier selection of snacks and sweet treats on short-haul routes,” although other airlines might debate there is much difference between what they sell and BA is now offering.
BA, via social media, also has been claiming that its offerings won’t be “charging inflated prices like some low-cost carriers,” yet a comparison of BA menus and those offered by easyJet and Ryanair finding most pricing quite similar.
So how’s it going?
BA right now has a battle on two fronts. Its “Mixed Fleet” cabin crew have been scheduling industrial actions frustrated in their negotiations for higher pay (below), meaning that some flights during those periods have either been canceled or outsourced to other airlines.
In terms of the actual execution of the BOB program, it seems to have started with quite a few bumps. The website Flyertalk (below) has an entire thread detailing first-hand experiences with its members’ experiences detailing not enough food loaded, some flights where no food at all was loaded, and cabin crew struggling to make the payment card system work. BA does not accept cash, although they allow frequent fliers to pay with miles. Several crew members claimed what little training they were given had taken place nearly four months ago. BA’s twitter feed also saw a number of upset passengers questioning if BA remained a “full-service” airline.
While the move may make sense for BA and may work out well once the kinks are worked out, asking its most frequent fliers to pay for coffee or a drink even when paying expensive last minute fares leaves it open to offending its lucrative following of business travelers. And while the move will save BA money, it may not be much of a profit-maker. Both Ryanair and easyJet financial reports show BOB only produces a small amount of revenue, in both cases well under $2 per passenger so it is not known how much profit can be squeezed out of the service. At the same time, BA puts its brand image at risk as well as encouraging some of its highest paying customers to take a look at other options.
Will BA follow suit on its long-haul flights?
Over the past year it has been taking away service items in economy class, which it calls World Traveller, cutting second meals on westbound flights from London to the U.S. Norwegian Air Shuttle, Europe’s third-largest low-cost carrier will be putting more pressure on BA and others soon. It is planning to expand its flights from the U.S. to Europe with fares as low as $69 each way.
Forbes