ISG ‘to trial’ with Cathay ahead of possible contract

By Luke Barras-hill |

Source: Cathay Pacific.

Inflight Sales Group (ISG) will begin a ‘trial period’ with Cathay Pacific Airways on a wholesale contract basis as the airline concessionaire reignites its partnership with the Hong Kong flag carrier, TRBusiness can reveal.

The trial, understood to begin in mid-December, is set to run across a limited number of Cathay routes and feature a reduced assortment of skus – mainly P&C and accessories  – available through a digital platform.

Dependent on the outcome of the trial period, an official agreement between Cathay Pacific and ISG Hong Kong could materialise around March with a plan to offer a fuller assortment across the airline’s routes.

Retail inMotion (RiM), the wholly owned inflight retail subsidiary of LSG Group, won a competitive tender in 2019 to become the inflight and technology solutions partner for Cathay.

It was due to take over the management of the highly prized boutique and duty free programmes onboard Cathay Pacific Airways and the group’s then Cathay Dragon subsidiary [Cathay Dragon ceased operations in October 2020 as part of a corporate restructure – Ed] from long-term incumbent ISG.

It is unclear as to why the RiM concession did not materialise and the company declined to comment when approached by TRBusiness.

Inflight service onboard French Bee.

Renewals for French Bee & Air Caraïbes

“ISG is now reaching out to brands/suppliers to discuss the commercial terms and product proposals to prepare for the official launches,” an ISG source told TRBusiness.

We are also working on some crew incentive mechanisms in a hope of motivating crew members to sell onboard.”

ISG had previously operated the Cathay business for a number of years and retained it in 2013 before RiM was announced as the new concessionaire in 2019.

Cathay, like many carriers globally, felt the full brunt of Covid-19’s impact on passenger demand by moving to reduce capacity as travel restrictions took hold.

As mentioned, the group unveiled a corporate restructuring process in October 2020 in response to the severe hit to the aviation market caused by Covid-19, with a number of changes implemented to reduce what at the time amounted to a cash burn of HK$1.5-2 billion per month.

Earlier in the year, the group announced a recapitalisation plan to maintain its competitiveness and operations that included receiving capital support from government.

Its most recent traffic figures for September 2022 reflect the positive impact of the action taken by the Hong Kong Special Administrative Region’s government with regards to travel restrictions and quarantine requirements.

Cathay handled a total of 265,845 passengers for the month in question, an increase of +101.7% compared with September 2021. However, this represented an 89% decrease compared with the pre-pandemic level in September 2019.

Mandatory hotel quarantine arrangements for locally based aircrew were removed from 10 September and for travellers arriving into Hong Kong from 26 September.

Meanwhile, several important developments have taken place regarding ISG’s European business over the past 12 months.

Effective November 2021, ISG Europe SAS extended its partnership with low-cost carrier French Bee and regional airline Air Caraïbes for three years (until 2024) .

ISG Europe, which runs full concession programmes onboard the Groupe Dubreuil carriers, had inked a renewal with both in December 2019 prior to the pandemic.

A full-service agreement with Corsair was also renewed in November 2021 for two years.

In late 2020, ISG Europe secured wholesale contracts for ASL Airlines France and Transavia France.

The former covers duty free and buy-on-board sales and the latter business – acquired from Dutyfly Solutions – concerns duty free only.

The contracts for ASL Airlines France and Transavia France run until the end of October 2023 and the end of March 2024, respectively.

Among its other wholesale contracts, ISG agreed a one-year extension in June this year for Royal Air Maroc until the end of June 2023 and its ongoing contract with Air Tahiti Nui is scheduled to resume its inflight duty free operations this month, with a focus on purchasing via IFE with payment via IFE or currency.

“For my duty free customers, the paper brochure in the backseat is important – French and American customers like to have the brochure in hand,” commented Karen Durban-Villeval, President, ISG Europe. “For buy-on-board, we rely on IFE.”

Aeroflot business halted

On 28 February, shortly after the start of the Russia-Ukraine war, ISG HK halted its full concession contract with Aeroflot under a force majeure clause.

“Goods were transiting from Europe to Russia; it was just impossible to continue service,” Durban-Villeval told TRBusiness. “Moreover, we had EU regulations that forced us to stop. To be clear, we don’t know if one day we will be able to restart.”

Prior to Covid, the Aeroflot account accounted for around 40-50% of ISG’s business.

“But thanks to Transavia France, it’s had really good development and has compensated for the loss of Aeroflot,” commented Durban-Villeval. “We’ve renewed and renegotiated all contracts to be able to be profitable. We are quite happy with the results. We’ve recovered from the Covid period, the summer has been so successful and traffic is back.

ISG ceased its trading with Aeroflot in February.

“Now it is all about restructuring the company. We had 17 people between Asia and Europe [ISG businesses] and now we are five. Covid had a real impact on resources. We are ready to recruit to manage current contracts properly and to develop activity and there is a lot of potential in airlines. It’s a new start.”

Prior to the pandemic, ISG Europe’s portfolio spanned more than 150 skus that took prominent space within inflight brochures but the deep-seated hit to the aviation sector has meant profound changes.

“Just after Covid when we resumed activities, we started with 30 products, flyers with best-sellers and classic items and it was a winning story – the turnover was there,” continued Durban-Villeval.

“What we are doing now is really focusing on bestsellers. We will not be back to 150-200 items and have rationalised the ranges of products. Of course, the habits of passengers are different. There is a strong focus on prices. Impulse purchase is still there but [it’s about] price advantage and promotions on specific products.”

Asked whether there is an argument to make available more skus on an e-commerce only basis for pre-order, Durban-Villeval says while pre-order is available its share of turnover is in the region of 2-5% depending on the customer profile.

Crew training remains a critical component of successful onboard sales.

“It makes a difference if you have something else; if you copy-paste your brochure into pre-order, it doesn’t work,” she stated. “You have to propose something in pre-order that is really different such as an exclusive item or wider range. What is quite successful is having your rationalised range onboard and then if you want, additional items for pre-order.”

Tobacco, and perfume sales continue to be mainstays of the inflight business in Europe and while more can be done to lift revenues, the challenges facing travel retail today  – notably  stock-outs and supply chain bottlenecks  – pose a complicated picture

“Before it was quite clear; you were ordering any brand and there was no problem,” explained Durban-Villeval. “Today, each time you receive a delivery it’s a surprise what you get. It’s our job to see how to optimise, forecast, block quantities and get stock. The sales are there and passengers are there to buy, but we need stock to sell.”

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