CHINA/INTERNATIONAL. The creation of a joint venture between Inflight Sales Group (ISG) Founder & Chairman and China Sales Group (CSG) is the beginning of a potentially deeper relationship, Rouff told The Moodie Davitt Report today in an extensive interview.
As reported, the Rouff/CSG joint venture called China Inflight Services will focus on combined supplier negotiations and new business ventures.
ISG and CSG have enjoyed a close relationship for many years. As reported, until the end of 2013 ISG acted as CSG’s major supplier of duty free products for the latter’s various Chinese airline accounts – including Air China International, China Eastern Airlines, China Southern Airlines and Hainan Airlines. After that CSG began buying directly.
Rouff told The Moodie Davitt Report: “What we have achieved is a joint venture that is maybe the first step to something else. [It will initially cover] negotiating with suppliers for the two companies, the marketing, training, and the logistics.”
The new partnership, he emphasised, is an alliance between him personally [not ISG] and CSG. “ISG and CSG will stay independent from each other but of course we will see how we can combine a few other services to save money and concentrate our efforts.
“ISG buys directly, CSG buys directly but under the terms negotiated by my team… so it’s still two different companies but the listings will be decided and put together by the sales company [China Inflight Services], which is half myself and half CSG.
“It’s very simple; we’re going to get the best partnership with suppliers, the best terms – that make sense for suppliers and us – and then have the best marketing set-up for the two group companies and then the same logistics. So we’ll save money on logistics and on inventories and we’ll do some training together – because we have a team and we know what to do. But in fact we’re working in the same direction.
“We know the duty free market quite well and we know it is very mature, especially in Asia. But we feel there is still a huge potential in a few markets – I would say China and Hong Kong, of course, and Russia.”
Between them, ISG and CSG dominate those countries’ inflight retail markets and Rouff said the new enterprise will focus on those strengths.
“We feel that with the expertise of the two companies we can really achieve something nice and grow the business very fast,” he said. “The airlines are ready to listen and they know the situation and the potential.
“We know the market went down (in China and Hong Kong) dramatically for the past few years. We [ISG] were slightly affected with Cathay Pacific, not much with Dragonair. But much of Asia is affected if you look at the airport business, except maybe Korea.
“We’re not going to lie to ourselves – we know exactly the crisis in the world and also the competition from airports, which is mostly based on promotions and discounts which are really getting out of control. Maybe there’s too much concession fee and too much cost. The passenger has to have value in order to buy – he can compare prices in one second on his smartphone now.
“Of course the main issue is that we want to be able to address the real needs of the passengers and also of the suppliers.”
Rouff continued: “We know the way the market has shifted for the past few years… and the mistakes we’ve made. Maybe we have to reduce the number of listings and concentrate more on a few suppliers. We are also looking at the regional brands which are picking up a lot.”
Russia also offers great potential, Rouff said. ISG and its powerful Russian partner Aeromar CJSC took over the Aeroflot concession from April 2014. In February 2015 ISG struck an agreement with Aeromar to offer duty free retail programmes onboard Aeroflot subsidiaries Rossiya and DonAvia. And in June this year ISG announced that together with Aeromar it had won two contracts to develop onboard retail programmes for Rossiya Airlines and UTair.
“With our partner Aeromar we are in full control of the [Russian] airlines,” said Rouff. “It’s still growing and it’s also got really big potential. Now, of course, the economy there is really affected by obvious factors but those will disappear one day – Russia is still a very big player in this world. That’s why we believed it was worth the effort there and we’re quite happy with the results.”
Rouff said the future lay in targeting a few markets that still offer strong growth potential. Noting the Chinese government’s desire to encourage more duty free spending at home rather than lose the revenue to offshore retailers, he commented: “The Chinese are very smart… we can’t go against the wave, we have to be part of it – that’s the deal. And we’re happy about it, because they are ready to listen and work with us.”
He added: “Of course there are big players at the [Chinese] airports and they are very well-organised and sharp. But we carry many people [onboard] and we have them there for many hours. China as a market is huge – I think we can help them and they can help us too.”
