INTERNATIONAL. In one of the stand-out presentations of The Trinity Forum in Mumbai last week, Fraport Executive Vice President Multi-Channel Kai Schmidhuber wowed the audience with the proactive way in which one of Europe’s leading airport companies has embraced the digital world.
As reported in February, Fraport has been trialling a pioneering ‘Inflight Shopping’ service in partnership with national carrier Lufthansa and airport duty free and Travel Value retailer Gebr Heinemann.
Commenting on the aspirations behind the initiative Schmidhuber explained: “On all inbound flights to Frankfurt, the passenger can shop from a range of our products, ordering and buying online, to be delivered on arrival. That will develop. It may change the partnership model with retailers but we want to strengthen, not weaken, the stationary retail channel.”
Schmidhuber told The Moodie Davitt Report later that early results of the pilot scheme are being reviewed. On stage he told the audience: “It was for us about being the first mover in that concept before others come. We have some serious issues with, for example Alibaba and Alipay. Most of our Chinese passengers pay for their airline tickets with Alipay. So Alipay knows much further in advance than us when their customers are arriving at Frankfurt Airport. And Alibaba and Alipay send them offers, working together with some other retail partners outside the airport.
“So we started having a really good conversation with Lufthansa, saying ‘What do you want to achieve? What do we want to achieve? How can we combine the strength of Fraport’s very strong ground logistics with the connection to the passenger, with whom the airline is obviously closer than the airport?’ So we came up with this idea.”
Schmidhuber was asked whether there were issues of who gets what, in terms of the contractual cut. “We said, ‘let’s try it first – and then part the cake. Let’s find out if there is an uplift; let’s find out if there is a success before we argue for the next five years about who gets which piece of the cake. It was really a face-to-face approach with no hidden agenda.”
Schmidhuber said while it was impossible to offer Gebr Heinemann’s entire 40,000-strong product range within the airline’s inflight entertainment system, the subsequent paring down actually benefited the scheme. “We had to make some adjustments,” he said. “But that’s actually quite intelligent because we adjust the variety of products depending on the passenger structure we think is on that plane. Chinese passengers demand different things to US passengers, for example.”
Later in the question and answer session, he said: “Right now we’re in a phase of experimenting. Everything about our digitalisation strategy is about trying to strengthen the stationary retail.
“It’s more a matter of cooperation than separation.”
[Background: In February Lufthansa and Fraport announced an extensive partnership to create new digital shopping possibilities for passengers at Frankfurt Airport. A scheme called ‘Lounge Shopping’ represented the first joint service platform in selected Lufthansa lounges at Frankfurt Airport. It enables travellers to use available iPads for purchasing exclusive products from airport stores and have them delivered within half an hour.
The ‘Inflight Shopping’ service, introduced during the first quarter, allows passengers on long-haul flights to Frankfurt, to preview and purchase a range of exclusive products from airport stores during their flight and collect them at the arrival gate after landing.
Another first was the ‘Taste & Travel’ Gourmet Service. By using iPads available at the check-in area and near the security checkpoints, Lufthansa passengers can choose menus for delivery to the departure gate. These are then delivered in high quality and heat-insulating packaging, enabling the passenger to enjoy the chosen meal while on the plane.]
Exclusive products a “huge ace”
Schmidhuber noted: “We have a huge ace up our sleeves, in exclusive products, and these are a USP for our industry. That asset can be part of the digital strategy. Until now going truly digital has been under-estimated, perhaps by complacency fuelled by rising passenger numbers, but you have to keep up with the pace.
“If you achieve the same level of excellence as in the physical duty free stores of today, you can look towards a bright future. If not, others will come and do the job instead. So, ask yourself, what is your flight status? Have you already landed in the digital heart of your customers, have you taken your place on the plane, or have you even booked a flight?”
The power of omni-channel retailing
“Multi-channel and omni-channel has great power for the airports business,” said Schmidhuber. “The digitalisation programme at Frankfurt is very diverse. It’s about e-commerce, it’s about a huge loyalty programme with around one million registered customers, it’s about a digital app and it’s about marketing.
“But at its heart this revolution is about consumer behaviour, business opportunity and about technology. You have to shape your organisation to be ready for this revolution but really it’s about how you implement digitalisation.
“How consumers use digital is of course critical. Look at Google’s move to introduce self-driving cars; at Fraport we are trying to cooperate with them. Or look at Walmart; they are partnering with Apple to redefine store navigation while upselling and cross-selling using location-based services.
“At the same time Alibaba, Amazon, Alipay are redefining what we do every day. Whatever you do at an airport, these pure players are your competitors.”
The big challenge, Schmidhuber noted, is to reinvent the industry as fast as the digital competition. “A few years ago it was all about having the right website, then it was about developing the right app. Now we are looking at virtual and augmented reality, but the rest of the world is using fully programmed, customised and tailored advertising.
“As an industry we have also come from pure bricks and mortar shops to pure online selling. I know we have all spent millions on new physical spaces but I believe that this won’t count in the future any more. Yes, it’s important to have a marketplace but from the perspective of a digital native, this will just be a fragment of what they expect. They will want a digital eco-system.
“It’s not easy to sell a bottle of wine or fragrance to these customers when they are looking down at their phone. It’s about combining your offline world with the online world. We need more than just one sales avenue; we need dozens.
“If you only start now, you are already too late. We see it across the airport world; other competitors will come and intrude on our market. Look at airlines; they are partnering with e-marketplaces and will offer the opportunity for onboard shopping so that you have your purchases delivered to you. There is no need to shop in the travel retail marketplace any more. That’s a dark vision of the future but it will be reality.
“Amazon or Alibaba will gain more power as they gain more data-driven insights about customers. The problem is that their customers are your customers.
“So in e-commerce we need to understand one thing that L’Oréal CEO Jean-Paul Agon said recently: ‘E-commerce is not the cherry on the cake; it is the new cake’. I think he is right.
“Take Alibaba: they turned singles day in China into a huge sales success. They sold US$5 billion in the first 90 minutes and raked in US$14 billion on day one. That is almost a quarter of travel retail sales in a year. For the future, of course travelling will be physical but the shopping component will be digital. It will also be mobile. We have 4.8 billion users of mobile devices worldwide and that will be 5.2 billion by 2020.”
E-commerce’s impact on travel retail
The rise of e-commerce is having an impact on travel retail already; passenger numbers are up but sales are down in 2015 and 2016, and Schmidhuber said digital was one factor.
“It will become harder for our industry. We have barriers to trading in our airports but we cannot stop digital competition. Targeting shoppers when they’re in the most receptive frame of mind will be key; the opportunity will be data-driven. Yes, price is important but those that offer more personalised, intimate services will win in the future. For airports it has to be a strategic move and will have an impact on success in the future.”
Schmidhuber then showed a striking video (see above) that outlined how Fraport was creating a new digital environment.
He said: “We have integrated all shops into one platform at Frankfurt Airport, but even pre-order is not that convenient. That is just the beginning, multi-channel will be not just how I shop, it will also be about how I receive my goods. So we have invented new delivery options to gates, to baggage claims and to home addresses. We are even partnering with airlines.”
