jamie goode's wine blog: Low cost airlines, wine clubs and business models

Saturday, July 14, 2007

Low cost airlines, wine clubs and business models

Did you know that budget airlines make a loss on ‘the metal’ [the wonderful term they use to describe flying fare-paying passengers by aeroplane], but make their margin from what are known as ancillaries, such as on-board catering, sales and charging for luggage? I didn’t, until yesterday lunchtime, when I attended the press launch of the Flybe wine club. During the presentation, Flybe's director of marketing Simon Lilley explained that despite not breaking even with their core business—flying people—the budget airline model is one that works if you maximize your ancillary income. This was one of the motivations behind launching a wine club.

In fact, Flybe are pretty good with this – they make £7 per passenger. Doesn’t sound a lot, but when you realize that they fly 8 million people a year, and do the maths, that’s a tidy sum. And unlike some of the other budget carriers, they are looking to give people a good flying experience and develop some relationship with their customers.

The wine club is being run by Wines4Business, which is one of Peter Jones’ legion of entrepreneurial ventures, and which I have some involvement in as resident wine expert. Peter was there to give a short speech: if you are used to seeing him on television (Tycoon, Dragon’s Den, etc.), the first thing you notice is how incredibly tall he is. Indeed, seeing as Lilley is on the short side, it was amusing to see the photographer struggling to get a shot of them together which included both their heads. Peter is also a tremendously good people person. Engaging, sincere and clearly pretty smart.

Back to budget airlines. It’s interesting to see a business where the core activity is not the profit driver. I guess TV has been like this for ages. You make good television programs and get lots of viewers because you have an interesting schedule. But you give this all away free and rely on advertising revenue: you’ve attracted an audience for advertisers to target (the BBC is an exception here, relying on a licence fee). But now with cable/satellite services we’re seeing the revision of this model: there’s a split between advertising revenue and subscription, with some content being paid for.

But I can see a situation where advertising revenue comes under threat: as people download programmes for later viewing, they can skip the adverts. Of course, we’ve been doing this for years with VCRs, but not to the extent that we stop watching broadcast material. Advertisers will need to move away from the 30 second commercial towards sponsoring programmes and other ways of getting their message across that can’t be fast-forwarded. There becomes a merging of editoral/advertising boundaries.

So how do I develop wineanorak? I give content away free, and gain advertising revenue, much like traditional commercial broadcasting. More than that, though, I see giving content away as having less tangible benefits. By being widely read my reputation spreads, and from this there are ancillary benefits that pay. I wouldn’t have found a way into writing for magazines and newspapers without the website; it’s my presence on the net that has got me some of my contacts and paying gigs. These are my ‘ancillaries’ that the budget airline business relies on for profitability.

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At 9:28 PM, Anonymous Alex Lake said...

So what does being their "resident wine expert" entail?

At 11:08 PM, Anonymous Anonymous said...

I love the way you casually mention that you "attended" their press launch, then in the third paragraph, decide that perhaps you should admit you have a commercial interest in the project!
Then, go to their website, and lo and behold, there's your mug on the front page!
Why not be honest and say in the first line that you are deeply involved with their wine club?

At 7:19 AM, Blogger Jamie said...

at the moment, it's a matter of tasting all their wines, making notes, and giving advice - I'd be keen to have a bit more involvement in improving the range, which is a work in progress. I'm honest with them, as you'd expect - What's interesting about wines4business is that they are incredibly entrepeneurial in terms of trying to reach new customers and forging new alliances. It's a crowded market out there for new wine companies.

Anon - I appreciate all comments on my blog, even negative ones. I can learn a great deal from criticism, so your comment is welcomed. But I really wish that people like you wouldn't suddenly assume the veil of anonymity as soon as they say anything that could be perceived as negative. Next time, please stick your name on your comment.

At 8:08 PM, Anonymous Anonymous said...

As I see it,anonymous, Jamie was making some valid points about the inticacies of running a budget airline in the first two paras, something he picked up at the launch. Then in para three he writes: 'The wine club is being run by Wines4Business, which is one of Peter Jones’ legion of entrepreneurial ventures, and which I have some involvement in as resident wine expert.' You can't get much clearer than that. I suspect that you've over-dosed on all the Blair/Campbell guff of the last few weeks and you're seeing spin everywhere.
Best wishes
Martin Jones

At 11:02 PM, Anonymous Anonymous said...

Yes, that's one take on it.

Another is the need to stress one's commercial involvement in such things.

At 6:59 PM, Blogger Tim said...

I agree with Anonymous 1 that it's a good idea to be upfront about commercial interests; I also agree with anonymous 2 that Jamie was upfront about it in this case; most of all I agree with Jamie that critics should not hide behind anonymity on blogs.

So I agree with everyone, apart from the guy who says that budget airlines only make their profit (and break even) from extras. How can this be? I fly frequently on easyjet, the planes are always full ... is it really true that they only make their money on pringles and CK cosmetics? I'm no businessman but I find this really hard to believe. Not really a topic for this blog, I guess...

At 8:28 PM, Blogger Jamie said...

Thanks Tim, for a sensible analysis. Readers should rest assured that I will always disclose commercial interests, and I'll always call it like it is. Goes without saying really.

At 3:45 PM, Anonymous Anonymous said...

Its back to semantics really and blogs by their nature arent really meant to have textual analysis to the nth degree - they are a quick note to be shared; a diary, not a novel. I must admit, when I first read it 'attended' implied to me that it was a passive pop along to a do. Obviously reading down the page it was clear that JG's involvement was greater and then 'attended' is put into perspective. Cynicism is a drain on all our collective energies (so i agree with Tim, really)


At 8:05 AM, Anonymous Anonymous said...

If you have such a problem with anonymity, then why is it an option on your website?
Why don't you insist that people write their proper names?


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