COMMENT Outsourcing now a necessity?
Now and Then... T
he fate of intra- EU duty free hung delicately
in the balance at the time the May 1999 issue of the Duty Free Business went to press.
The front page led with a rallying cry from
the International Duty Free Confederation aimed at mustering support from every industry quarter to convince participants at the forthcoming European Council of Finance Ministers (ECONFIN) and EU Heads of Council summit to extend intra- EU duty free beyond 1999. Tucked away on page 47, however, was an
interview with then Cathay Pacific Manager Inflight Sales and Amenities Andrew Chow on the challenges facing the Hong-based carrier’s inflight programme. Its onboard duty free sales had slipped by around 5% in the previous 12 months for the first time in several years, with liquor running at half the volume compared to the four years’ prior. Notwithstanding this, the airline
witnessed a 10% to 15% rebound in sales in the first quarter of 1999, and it was making moves to revitalise its crew engagement to stimulate finances. The issue of outsourcing the business was also on the radar and while the airline was open to ideas on how to improve its profit margins, it was also cautious to rush any decisions. This was despite reported offers to operate the concession from World Duty Free Inflight, Sky Connection, One World partner British Airways and DFS Group (Hong Kong). Chow asserted that the airline was looking
at outsourcing mainly the purchasing side of the business, as opposed to the full concession programme. All this context is pertinent, as Cathay Pacific is now more than half way through its latest three-year transformation. TRBusiness learned late last year in
conversation with a Cathay source that the carrier was deep into a new tender process for an inflight and technology solution partner. Its onboard retail programme has been operated by Inflight Sales Group (ISG) for a number of years. The source told TRBusiness at the time
that the traditional ‘bricks and mortar’ style of selling was not sustainable in the long
142 TRBUSINESS
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Cathay Pacific considers outsourcing its inflight business after sales pick up.
term, with the carrier seeking a partner to provide a 360-degree service; from technology, to inventory management to duty free, providing a targeted retail offer to passengers pre-trip and during the journey for pre-order and home delivery. The provider would also streamline
efficiencies in payment processing, particularly as momentum for digital wallet services such as WeChat Pay and Alipay continues. Cathay Pacific does indeed provide its own e-commerce service, but the source says there is scope to develop the functions. At the time of writing, the award for the inflight and technology solutions partner was yet to be confirmed and while TRBusiness has a strong indication of the potential winner, it is choosing not to publish that information here (stay close to
TRBusiness.com for the latest developments). Cathay’s existing partner ISG is understood to be supporting the airline as it conducts a study of its business and technology model. The airline reported an attributable
profit of HK$2,608m in H2 2018, compared to a loss of HK$263m in H1 and digitisation is expected to continue apace as it seeks out new revenue streams. Twenty years ago, diversifying through outsourcing was viewed as an option to growth. Now, it seems like a necessity.
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MAY 2019
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