* British Airways latest to scrap free food on short-haul economy
* Caterers buy retail specialists, crunch data, look for scale
By Victoria Bryan
BERLIN, Sept 30 (Reuters) - 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 themselves.
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 maximise profits.
"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 deals.
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 owner IAG.
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 boosting sales.
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)