When US Airways tried to charge $1.99 for soft drinks it faced customer backlash and ended up rolling back to free drinks. As my team’s consumer behavior experiment showed, the plan would have succeeded if they had improved customer reference price before charging for drinks. In our experiment we found that the presence of high priced options, like $4 Evian water, increased customer acceptance of $1.99 for ordinary bottled water. Today I saw an article in The Wall Street Journal that airline food is going gourmet.
One of the best-selling items, Delta says, is a $6 fruit-and-cheese plate with smoked Gouda, Havarti and Derby cheeses paired with grapes, pecan halves and dried apricots.
For $10, American serves you a chicken Carver sandwich, bag of potato chips and a soft drink (still offered free by the airline). Another offering: the popular nut mix American serves to first-class passengers has been packaged for coach customers, at $3 per serving.
On Hawaiian, passengers can get free manicotti with chocolate cake, or pay $10 for Caesar salad with grilled chicken or satay chicken in vermicelli noodles. The best-seller is a sushi bento box with California rolls, edamame and teriyaki chicken.
Airline sales data show about 4-6% of passengers buy these premium products. The may not look much but the opportunity is in charging for the basics for the rest of the passengers. The high priced premium offerings may not be a profit source but their presence help to improve customer reference price and hence their willingness to pay for the freebies. On a plane with 130 passengers, premium items priced at $10 bring in a revenue of $80 but even if only 50% of the passengers buy the $1.99 soft drinks, that is an additional $130 in revenue.
The true impact of the premium priced airline gourmet food is in improving customer reference price enabling further unbundled pricing.