Booze on Board

At a time when airlines are charging customers extra money for everything from baggage fees to seat assignments, it may seem illogical that an airline would offer free cocktails on board. Yet a few niche operators, like Lakeshore Express, have found that offering amenities such as free cocktails is the perfect way to differentiate service. The opposing strategies reflect differing views on both customer service as well as per flight economics.

For major carriers, supplying free cocktails to hundreds of passengers on long distance flights could pose a huge cost and turn flights into flying breweries. From a profit perspective, the ability to offer alcoholic drinks offers a high margin source of ancillary revenue. For an industry where average profitability per flight is roughly 1%, the ability to bring in a few hundred dollars via these ancillary sources of revenue is an attractive option.

In comparison, niche operators like Lakeshore Express focus on short haul routes (usually an hour in duration) and limited capacity (30 seats or less). For these airlines, the cost to supply free cocktails to passengers is roughly one or two dollars per passenger for a total cost of less than $60 per flight. This is a drop in the bucket compared to the thousands of dollars in maintenance, fuel, crew, and other flight related costs. In fact, it represents less than 1% of all flight related costs. In the end, the cost to serve free alcoholic beverages is barely a rounding error in regards to the total flight costs. On the other hand, the profit potential niche airlines are giving up by offering free cocktails justifies the behavior.

Due to the aircraft size and flight duration, niche operators like Lakeshore are also limited in the profit potential they could accrue if they did decide to charge for cocktails. Charging for beverages would likely curtail the amount of cocktails consumed in flight. Even if an airline were able to charge $6 or $8 for a beverage, it would still only be likely to sell around 8 drinks per flight. Thus, the total profit potential would be less than $50. This profit potential must be weighed against the goodwill generated from offering customers free cocktails.

More than anything, the ability to offer free in-flight cocktails serves as a differentiating factor in the eyes of the customer. At Lakeshore Express, we’ve found that free cocktails, above all else, serve as an amenity that resonates with customers. Its something tangible they can see and enjoy in flight. In fact, Lakeshore has found that offering free cocktails had a positive impact on customers, even for those who don’t consume alcoholic beverages. Crew members passed along feedback to management that teetotalers routinely praised Lakeshore for not skimping on amenities and that they admired an airline that would offer free cocktails on flights. By offering included benefits like free cocktails and not succumbing to the fee oriented culture of commercial air travel Lakeshore turned a simple one-hour flight into what nearly 70% of customers rated as “the best flight experience they’ve ever had”.

The airline cocktail dynamic offers a key insight in regards to comparative economics. What may pose an undue cost burden to some industry players may also serve as a minor cost to another participant. When reviewing its cost structure, a company must understand the true impact of these costs and their effect on customer behavior. A cost decision that makes up 1% of the overall operating cost may have an impact on customer service of 10 or 20%. In the end, this positive impact on customer service will likely more than offset the cost incurred.

 

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