* British Airways latest to scrap free food on short-haul
* Caterers buy retail specialists, crunch data, look for
By Victoria Bryan
BERLIN, Sept 30 In the 1980s American Airlines
calculated that it could save up to $100,000 just by removing
olives from its salads. Since then, the industry's economy drive
has continued apace forcing airline catering firms to reinvent
British Airways said on Thursday customers on its
short-haul economy flights would be sold Marks & Spencer
sandwiches because its customers said they would prefer
to pay for food from a brand they recognise.
"The cost of the existing catering service hasn't been
reflected in customer satisfaction," a spokeswoman said,
declining to provide figures.
The shift to buy-on-board food is driving catering companies
into each others' arms as companies seek scale in a fragmented
market and look to build up retail and data expertise to
"Traditionally airlines have handed meals out and not had to
worry about who's got the meal. Now it's having a deeper
awareness about the customer, what they've bought, how they
bought it, when they bought it," Robin Padgett, head of air
services group dnata's catering division, told Reuters.
Airline caterers operating in Europe include Lufthansa
unit LSG SkyChefs, Gategroup, Austria's Do&Co
and dnata, part of the Emirates Group.
LSG bought Irish in-flight sales specialist Retail inMotion
last year to serve its onboard retail business and is also
restructuring, cutting up to 2,400 jobs.
Air France-KLM is selling a stake in its catering
business Servair to China's HNA, which is also buying Gategroup
as it builds out its aviation interests through a series of
Gategroup itself bought travel retailer Inflight Services
earlier this year to build up its buy-on-board business and
boost sales. Shares in Gategroup rose 34 percent in the 12
months up to the announcement of the takeover offer from HNA.
Catering is seen as a far more attractive investment than
the airline industry itself, where margins are typically tight,
especially in Europe.
Do&Co, which also has restaurant and event catering units,
has a price earnings (p/e) multiple of 24 times, while
Gategroup's p/e ratio is 33. That compares with a multiple of
less than 4 for Lufthansa Group and 5.7 for British Airways
Michael Gierse, Union Investment fund manager and Lufthansa
shareholder, highlighted Do&Co as the benchmark in the sector
thanks to its focus on providing upmarket food for business and
first class cabins, plus its restaurant and events division.
Do&Co has an operating profit margin of about 10 percent in
its airline catering division, against about 6 percent for
Gategroup and 3 percent for Lufthansa.
"Traditional volume catering is shrinking due to the
low-cost carriers and buy on board is not as good as expected,
because passengers often bring their own sandwiches on board,"
Gierse told Reuters.
Still, Dnata, which gets 60 percent of its revenues from
traditional catering and 40 percent from buy-on board, sees
plenty of opportunity for growth.
"We're working with a couple of our airline customers now,
in the way that Tesco might, to analyse that large data and show
them what customers truly are buying, whether meal deals or
particular ranges so we can develop that down to niches on
routes," Padgett said.
In one example, dnata's analysis showed that passengers on
routes to Asia typically serving construction workers travelling
home from the Middle East were willing to spend on food, but
only if they thought they were getting value for money, leading
dnata to change packaging and menus for that airline, thereby
By using data analytics to understand what customers were
buying on specific routes, airlines could boost sales of
buy-on-board food by between 30-50 percent, Padgett said.
(Reporting by Victoria Bryan; Editing by Elaine Hardcastle)