Delta Drops In-Flight Duty-Free Business

Earlier this month Delta bowed out of the duty-free retail business, telling its passengers: “Delta apologises for any inconvenience to our customers and as a reminder, a variety of duty free items are available at most international airports.”

It’s a rare move by an airline to cut something that can generate additional in-flight revenue, especially one that can add up to millions per airline.

A report by onboard retail technology provider GuestLogix (which processes onboard duty-free sales for airlines), reveals that skincare and makeup products are the top sellers in a $3 billion dollar industry.

Korean Air loves duty-free sales so much that it built a special Duty Free Showcase shop on its A380, enticing passengers to shop at their leisure; and has passengers so keen to for their duty-free that it established a dedicated Cyberskyshop website for duty-free pre-orders.

JAL built duty-free shopping into its in-flight entertainment on its 777 Sky Suite, allowing passengers to place their orders with a quick tap of the screen or LCD controller.

Lufthansa Systems has made duty-free purchases a feature of its BoardConnect Wi-Fi Entertainment system, which allows passengers to use their personal electronic devices to browse and process payment for their purchases on connected aircraft.

Both British Airways and Virgin Atlantic allow customers to buy products online to deliver onboard on their outbound or return flight, even delivered to their homes.

This, says Ilia Kostov, EVP Global Sales and Product Strategy at GuestLogix, is the future of in-flight shopping. “Onboard duty-free sales is $3 billion dollar industry,” Kostov tells Skift. “Some successful airline programs earn $100-$200 million, even more, in annual revenues from duty-free alone.”

Kostov says airlines are expanding their use of technology to make duty-free shopping easier through “an omnichannel approach to retailing.” This includes Korean Air’s onboard shop approach, selling via IFE and Wi-Fi, and through airlines’ websites, along with the traditional duty-free magazine.

Kostov acknowledges that duty-free purchases can be more popular in certain regions of the world than others. He tells us that Scandinavians, for example, are far more likely to buy more duty-free items onboard than their European counterparts, and that Asian and Middle Eastern carriers see heavy duty-free purchasing activity.

“With the insights from analytics,” Kostov says, “airlines can stock products that they know will sell well on a specific route,” keeping the costs associated with carriage of those items to a minimum.

According to GuestLogix’s analytics, airlines would do well to stock lots of: 1) cosmetics, 2) jewellery and watches, 3) alcohol and cigarettes. These are the top three items we buy when flying, which account for approximately 67% of that $3 billion dollar market.

Kostov tells us that the success of duty-free sales is dependent on how effectively the program is managed and the tools an airline has at its disposal to maximize sales.

This agrees with Delta’s statement on the duty-free cancellation, attributing it to a failed agreement with its duty-free supplier, Miami-based DFASS Group. As the airline explains: “Delta has ended its on-board duty free program (effective Aug. 13) after the airline and its vendor were unable to agree on terms to continue to administer the program.” Skift reached-out to DFASS for comment, but received no reply in time for this report.

American Airlines, which allows passengers to pre-order duty-free products on-line, for flights from DFW to Seoul (ICN) and from DFW Tokyo (NRT), also uses DFASS to manage its duty-free program.

Delta doesn’t seem inclined to change its mind, regardless of what its competition may do. When asked, Delta told Skift that it was not exploring a replacement duty-free vendor at this time.