* British Airways latest to scrap free food on short-hauleconomy
* Caterers buy retail specialists, crunch data, look forscale
By Victoria Bryan
BERLIN, Sept 30 (Reuters) - In the 1980s American Airlinescalculated that it could save up to $100,000 just by removingolives from its salads. Since then, the industry's economy drivehas continued apace forcing airline catering firms to reinventthemselves.
British Airways said on Thursday customers on itsshort-haul economy flights would be sold Marks & Spencersandwiches because its customers said they would preferto pay for food from a brand they recognise.
"The cost of the existing catering service hasn't beenreflected in customer satisfaction," a spokeswoman said,declining to provide figures.
The shift to buy-on-board food is driving catering companiesinto each others' arms as companies seek scale in a fragmentedmarket and look to build up retail and data expertise tomaximise profits.
"Traditionally airlines have handed meals out and not had toworry about who's got the meal. Now it's having a deeperawareness about the customer, what they've bought, how theybought it, when they bought it," Robin Padgett, head of airservices group dnata's catering division, told Reuters.
Airline caterers operating in Europe include Lufthansa unit LSG SkyChefs, Gategroup, Austria's Do&Co and dnata, part of the Emirates Group.
LSG bought Irish in-flight sales specialist Retail inMotionlast year to serve its onboard retail business and is alsorestructuring, cutting up to 2,400 jobs.
Air France-KLM is selling a stake in its cateringbusiness Servair to China's HNA, which is also buying Gategroupas it builds out its aviation interests through a series ofdeals.
Gategroup itself bought travel retailer Inflight Servicesearlier this year to build up its buy-on-board business andboost sales. Shares in Gategroup rose 34 percent in the 12months up to the announcement of the takeover offer from HNA.
Catering is seen as a far more attractive investment thanthe airline industry itself, where margins are typically tight,especially in Europe.
Do&Co, which also has restaurant and event catering units,has a price earnings (p/e) multiple of 24 times, whileGategroup's p/e ratio is 33. That compares with a multiple ofless than 4 for Lufthansa Group and 5.7 for British Airwaysowner IAG.
MEAL DEALS
Michael Gierse, Union Investment fund manager and Lufthansashareholder, highlighted Do&Co as the benchmark in the sectorthanks to its focus on providing upmarket food for business andfirst class cabins, plus its restaurant and events division.
Do&Co has an operating profit margin of about 10 percent inits airline catering division, against about 6 percent forGategroup and 3 percent for Lufthansa.
"Traditional volume catering is shrinking due to thelow-cost carriers and buy on board is not as good as expected,because passengers often bring their own sandwiches on board,"Gierse told Reuters.
Still, Dnata, which gets 60 percent of its revenues fromtraditional catering and 40 percent from buy-on board, seesplenty of opportunity for growth.
"We're working with a couple of our airline customers now,in the way that Tesco might, to analyse that large data and showthem what customers truly are buying, whether meal deals orparticular ranges so we can develop that down to niches onroutes," Padgett said.
In one example, dnata's analysis showed that passengers onroutes to Asia typically serving construction workers travellinghome from the Middle East were willing to spend on food, butonly if they thought they were getting value for money, leadingdnata to change packaging and menus for that airline, therebyboosting sales.
By using data analytics to understand what customers werebuying on specific routes, airlines could boost sales ofbuy-on-board food by between 30-50 percent, Padgett said. (Reporting by Victoria Bryan; Editing by Elaine Hardcastle)
Marks & Spencer (MKS)