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How Inventory of Airline Merchandise Can Slow Down Growth Potential of Onboard Retailing

Profitability of airlines is expected to slow down due to the many challenges that the industry is facing. The International Air Transport Association recently said that labor, fuel and maintenance costs are expected to pull down the profits of many airlines in 2017.

However, there’s one area which has proven to be a sustainable revenue source for airline companies—onboard retailing (OBR).

According to the Airline Onboard Retail Market Assessment 2015 report by Kantar Retail and GuestLogix, the OBR marketplace has been steadily growing since the start of the decade.

In 2014, the OBR marketplace generated more than $5 billion in revenue for the airlines industry. Since 2012, OBR has posted average yearly growth of 12.9%.

Full-services carriers have been gaining around 60% of the sales growth for OBR with low-cost carriers getting the remaining 40%. However, OBR sales in low-cost carriers are on the rise and nearly double the rate of full-service carriers.

Buy on Board Segment Performing Well

The Buy on Board (BoB) segment, surprisingly, is performing well in the past few years. This BoB segment’s growth has been very impressive with average annual sales growth estimated at 11%. The number of BoB sales per passengers is up, just like the number of flights that offer BoB and the number of passengers buying things while in transit such as food, beverages and other items.

What this means to Airline Companies

With the sustained growth of the onboard retail industry, it has become one of the major revenue streams of airline companies around the world especially those which are affected by the competition posed by low cost carriers.

Onboard retailing may be profitable these days, but airlines will have their profits eaten quickly by poorly managed inventory of onboard merchandise. An airline that posts gross profit of $100 million or so from the sale of onboard merchandise will be unable to maximize profits if inventory shrink rates are between 20%-40%, which is the case for some airlines.

Airlines spend more than $5 billion for onboard merchandise yearly, but industry estimates peg losses around $1 billion to inefficient process, shrinkage and theft.

Airline companies should maintain effective controls to ensure that inventory levels are adequate enough to meet the demands of passengers without increasing costs.

The solution to this problem is technology; an easy to use, secure and automated inventory counting solution. This automated inventory counting system can assist airline companies in their inventory and eliminate losses through its easy to use mobile interface.

Have any readers experienced these inventory management issues within the airline industry?

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