The names that airlines are recruiting from top restaurants to revamp their in-flight menus reads like a connoisseur's guide to celebrity chefs from around the world. Neil Perry at Qantas, Michel Roux at British Airways, and Swissair's Roland Pierroz are just a few.
The fact that celebrity chefs are gripping the imagination of airline caterers is not just a public relations exercise either, says Tony King, general manager of catering at BA. Their brief is to help shape and develop in-flight menus, provide "signature dishes" - such as Shaun Hill's char-grilled asparagus with goats cheese and pesto dressing for BA - in addition to having their name attached to the airline's food provision.
Celebrity chefs are a high profile example of a growing and sophisticated industry which marketing chiefs increasingly recognise as a key product differentiator. According to the International Flight Catering Association (IFCA), airlines spend $10 billion a year on in-flight catering. This breaks down into $3 billion in the Americas, $2.9 billion in Europe, $3.2 billion in Asia-Pacific, and $0.9 billion in the rest of the world.
The business of in-flight catering has totally changed since airlines began selling off their flight kitchens and outsourcing food production in the mid-1980s, says Derek Byrne, IFCA director general. Today the industry is dominated by Lufthansa's LSG Skychefs and SAirGroup's GateGourmet. Between them they control about 55% of the global market.
In eight years GateGourmet has grown from a SFr200 million ($117 million) company to one with revenues of SFr3.5 billion through acquisitions and outsourcing," says president Henning Boysen. LSG Holding chairman Helmut Woelki explains that in the late 1980s he saw then-SAS chief executive Jan Carlzon's vision of world airline networks and was inspired to begin building a catering network that could serve the global players. The job is almost done. "When I took over, LSG was a sleeping beauty, we were far behind the others," explains Woelki. He has since steered the company through 12 years of continuous profitability, seen revenues grow from DM600 million ($273 million) to DM6 billion and helped bring the company's market share from 3% to 33%.
The consolidation of the in-flight catering industry is almost complete in North America and Europe, with the two majors sharing about 80% of the former market and 75% of the latter, says Boysen. It is only in Asia where airlines have clung on to catering subsidiaries, and the combined LSG/Gate Gourmet market is no more than 15%. "Asia hasn't happened yet. Airlines there still believe that they are better off running their own catering operations," he says.
To a degree, the Asian market is carved up by bilateral catering deals between carriers. These keep prices artificially high and margins at 20%. Several carriers have also spent millions recently building new kitchens, and the timing is not presently right to sell them off, explains Adrian Ort, IFCA president and catering services manager of Cathay Pacific. For instance, the asset value of Cathay's new kitchen at Hong Kong's Chek Lap Kok airport is too high to attract buyers today, the main potential buyers, LSG and GateGourmet, having built their own kitchens there anyway.
Cathay is seriously looking at selling its kitchens, and has done so in Australia, because it does not have the critical mass to be a major player there, Ort says. But, he adds, Cathay will not divest where operations are successful. For example, the company will stay in joint venture catering operations in Taiwan and Vietnam.
Although Asian airlines are becoming more receptive to the idea of out-sourcing, Boysen does not see anybody moving quickly to embrace it. The region's recent economic revival takes the pressure off airline cost-cutting measures for the time being, and the need to cut catering costs recedes.
The rapid push by LSG and GateGourmet to grab market share has intensified competition for catering contracts, and over a five-year period prices have been forced down some 15-20%. Having benefited from this, airlines are now becoming concerned about a market dominated by two big players, says SAS director of in-flight logistics, Peter Viinapuu. BA's King agrees: "If further consolidation of the big boys goeson, the vitality of the market will be under pressure."
GateGourmet's Boysen is sensitive to these worries. "The market will always tend to get suspicious when there are only two players. But competition is as fierce today as it has ever been," he asserts. However, he welcomes the possible emergence of another global catering group. This would take away the suggestion of the market turning into a duopoly of LSG and GateGourmet.
Powerful players
Another airline caterer, Air France's Servair, has entered into a series of partnerships that could see it become the third global power, or at least a powerful player in regional catering deals. With Air France clearly stating its desire to stay in catering, and recognising that a merely national presence was not good enough anymore, Servair's strategy is to expand its global partnerships, explains Philippe Eydaleine, Servair's vice-president for strategy and development.
Although it believes minority equity stakes in its partners are a good way to strengthen these relationships, the intention is not to go for outright acquisitions. "We want to have a very local approach to products the airlines offer on-board. This means local managers taking a local view," he says. This strategy was given form by several moves made in 1999 and 2000.
Last year, Servair took a 27% stake in major UK independent caterer Alpha, and in 1999 it purchased a 35% stake in Eurest-Madrid and Eurest-Barcelona. Other holdings include the firm's 49% share in joint ventures with Chicago-based Flying Foods in Chicago and Seattle, and a 35% share in a venture with Singapore Airport Terminal Services (SATS) in Macau.
Other deals are in the pipeline. For example, it is making a bid with Alpha and SATS to take over Royal Jordanian's flight kitchen. But Servair is treading warily as it ponders how the partners can produce a common product across their networks. It wants to ensure it does not offer something it cannot deliver.
There is also no rush to expand, says Eydaleine. "Consolidation is not over in this business, because although 50-60% of the market is in the hands of the big players, the rest is very fragmented."
These mainly national caterers are responding to airline wishes for access to larger networks. "Our main customers have said we have to become a European player - not just a UK one - with a credible European network in 5-10 years time," says Kevin Abbott, chief executive of Alpha Flight Services. By teaming up with Servair and others in a more active collaboration than exists today, such a network could be established. The joint bid in Jordan shows how the partners might work more closely in the future.
Global deals
Now that they have built large global networks, LSG and GateGourmet are looking for airlines to start utilising them with global catering contracts, and to outsource even more of their in-flight service. "I have overseen a company that has done the first revolution, now it is time for the second revolution to start," says LSG's Woelki.
But there is still much work to be done for airlines to be comfortable with global or network deals. "They are not there yet in terms of global quality," says King of BA. "We are receptive to global deals that deliver commercial advantage, but not at the expense of quality." The creation of common global quality standards has not necessarily been matched by the rapid expansion of the global caterers. "It is a consequence of the pace of their growth, the absorption of different cultures and processes, and all the challenges that brings," says King.
For airlines to go for global deals, they will have to be assured that wherever they are served in a network they will obtain consistently high quality. "No global caterer has given us that confidence yet," says King. Despite these reservations, BA is working with GateGourmet to weave approximately £40 million ($58 million) of the current business it has with the Swiss caterer into a global framework, he adds.
GateGourmet's Boysen acknowledges that the main acquisition phase for the big caterers is largely over. "Now we are entering a consolidation phase," he says. "At the same time we are asking ourselves what we see as the next interesting development in our industry. We believe that while the 1990s were characterised by airlines out-sourcing their catering, the next five years will see them out-sourcing their in-flight services, going into one-stop shopping."
LSG's Woelki is also keen to deliver turnkey in-flight solutions. "Caterers can take over some things the airlines do, do them better, and give airlines the possibility to concentrate on their core business." Four years ago Lufthansa did just this with LSG, he says. The caterer is responsible for a whole raft of in-flight products, as well as making the food itself. This includes menu changes, an area that many airlines still feel is taboo for caterers to have control over.
Both LSG and GateGourmet feel that the ability to offer a suite of in-flight services will open entirely new unexplored business opportunities for them, while offering airlines cost-savings and the chance to offload the management of a logistics headache.
"One-stop shopping will be enabled with information technology," but, Boysen warns, "it will not be for everyone and will very much depend on an airline's philosophy". However, he believes his company's e-gatematrix venture, which manages the catering operation using e-commerce, will catch on. And that many will follow launch customer Delta Air Lines into using the service.
Poor relation
In the past, an airline's attention to catering, and their spending on it, has often reflected financial performance rather than how the image and brand was perceived. After all, catering is one of the largest discretionary spending areas at an airline, and if an airline is in trouble it is easy to "turn off the taps" very quickly, explains Cathay's Ort.
For instance, LSG saw Asian carriers cutting back dramatically on in-flight spending during the Asian crisis. Similarly, many North American carriers have slashed their in-flight catering over the past few years as financial concerns demanded.
But many more carriers are now taking a strategic view of what catering offers. "Cathay sees catering as part of the overall in-flight experience. Our flight attendants can only give a superior service if they have the tools to hand that please the passenger," says Ort.
In addition to giving catering equal or higher billing than, say, in-flight entertainment in terms of the value to the overall in-flight product, many airlines are thinking much more innovatively about what they offer. This is true not only of the first and business class cabins, where gastronomic delights abound, but in economy as well.
"We understand that passengers want to have some degree of control over what is happening, so we have pushed meal free availability right down the cabin," says Ort. Throughout the flight, passengers can help themselves to substantial snacks whenever they like. BA has a similar concept on intercontinental business flights with its "Raid the Larder" service.
Innovation in catering is not focussed on main-line carriers either. European caterers have been rising to the challenge of working with low-cost airlines where catering is non-existent. With nearly 80% of its business in short-haul European catering, Alpha, for example, saw this as a big strategic threat, says Abbott. It came up with the idea of providing an on-board food service to offset this risk. Alpha designs and makes the product, gives the flight crew a commission on all the food they sell, and gives the airline a profit share as well. It has a viable business with carriers like Go at London Stansted airport and with easyJet at London Luton, he says.
The rise of caterers to this challenge shows how far the industry has come in trying to be adaptable and responsive to the demands of its airline and travelling customers, and, at the same time, shake off the tired old clichés about airline food.
Airline catering departments too are hoping the current positive view of their product is sustained at boardroom level, and that food remains high on the menu in the marketing mixture.
| Major in-flight catering suppliers | ||||||
| Supplier | Revenues 1999 $m | Ownership | Headquarters | Countries served | Production kitchens | Global marketshare |
| LSG Sky Chefs | 3,500 | Lufthansa Group | Germany/USA | 40+ | 200 | 34% |
| GateGourmet | 1,729 | SairGroup | Switzerland | 34 | 165 | 24% |
| Servair | 401 | Air France | France | 5 | 23 | 9% |
| Alpha Flight Services | 354 | Alpha plc | UK | 5 | 31 | 9% |
| SATS | 219 | Singapore Airlines | Singapore | 8 | 10 | 2% |
| Notes: Alpha figures refer to year ended 31 January 2000. SATS financial year ending March 2000. Global marketshare figures courtesy of GateGourmet. The combined marketshare of servair and Alpha of 9% includes Eurest and Flying Foods of the USA. | ||||||
Source: Airline Business
